The Role of the CFO
As early growth venture capital investors, we tend to work with companies that are at the very early stages of developing their finance function. I have worked with companies with no finance resources, ones with experienced controllers, and ones with experienced CFOs. And I have seen companies come into the portfolio with very basic financials and financial systems (cash based financials and QuickBooks on one extreme) to ones with basic GAAP financials and more robust systems. From my experience, the companies that invested early in a highly experienced CFO are the ones most effective in navigating the evolution from a basic Finance function to one that is strategically critical to the expansion of the business.
The role of the CFO is:
- Transition the company from basic cash financials to GAAP based (or equivalent outside the US) including the completion of audited financials on an annual basis
- Implement scalable financial processes and systems to support the growth of the company
- Ensure that the company is compliant with various government and legal requirements
- Facilitate the deployment of key operational processes and systems to support the growth of the company (such as, a robust budgeting process or an HR system)
- Develop the board, CEO, senior team level operational dashboards
- Facilitate the operational reviews across all functions of the company to help the senior team in setting strategies and goals
- Support the company exit strategy by representing the company externally to media, government agencies, funding agencies, and the public
Early stage CEOs have a tendency to forgo the hiring of a CFO due to cost constraints. Yes, CFOs are expensive (in the US salaries range from $175-$225k). Yet the way to weigh the hiring of a CFO is by considering the potential opportunity loss of not having such expertise in the company.
The value of a CFO can be measured in many ways:
- What is the value of having an accurate set of financial and operational metrics to guide fact-based decision making by the senior team and the board?
- What is the value of having an objective, economic driven, perspective (outside of the CEO and sales management) about the proper scaling of company growth?
- What is the value of protecting the company from poor contracting and bookings of deals by an undisciplined sales team?
The list goes on and on.
As a venture capital advisor, my guidance to portfolio CEOs entering the expansions stage is: seriously consider making the addition of an experienced CFO your top priority.