Startup companies are now seeing the wisdom of hiring chief financial officers earlier, rather that relying on their venture-capital backers or their banks to provide financial guidance, The Wall Street Journal reported.
The recent collapse of Silicon Valley Bank has prompted this rethinking by such early-stage companies, which commonly do not hire CFOs until after series B funding, the second round of funding after the seed state.
“We’ve been amazed at how many of these early-stage startups … don’t even have a CFO or VP of finance,” said Jeff Laborde, CFO of business-automation technology provider Jaggaer, and an adviser to venture-capital firm PeakSpan Capital. He told the Journal that many early-stage companies have been investing less in administrative functions in recent years “because of all of the easy money until about nine months ago.” He also said that roughly 80 percent of early-stage companies don’t have a CFO.
Since the the collapse of Silicon Valley and other banks, 28 percent of 250 finance chiefs and senior finance leaders surveyed by research firm Gartner Inc say they will look to diversify their banking counterparts.
Kyle Doherty, managing director at Cambridge, Mass.-based venture-capital firm General Catalyst, told the Journal that, “[a] VC would love to have [a CFO] as early as possible … but there’s always trade-offs that you’re making around prioritization.”
He added that the consensus he found from speaking with a dozen experienced CFOs was to have an experienced person in the role, not necessarily with a CFO title. “It’s been an area with the most scarcity in talent, leading people to wait for longer to fill,” he said.
CFOs are also expensive. Jack McCullough, founder of CFO Leadership Council, with more than 1,900 members across the United States, told the Journal that “CFO salaries have been increasing rapidly in the last few years, as companies recognize the value they bring, and the critical role they play.”
Some companies may use partial, or fractional, CFO services, financial professionals who work part time at one or more companies until those companies are ready to hire a full timer. Mairtini Ni Dhomhnaill, the founder of Countsy, which provides outsourced CFO services to new companies, told the Journal that she had been receiving calls from startup founders seeking help and from venture capitalists who refer Countsy to their portfolio companies.
Michael Bayer, finance chief of cloud-based storage provider Wasabi Technologies Inc., calls himself a serial CFO. He has served in the role at more than 10 early-stage companies.
The position is "a financially sophisticated executive who is there to figure out how you can best leverage capital and resources to facilitate growth,” he told the Journal. “It’s hard to be part of the culture and to be a strategic driver of the business … when you’re a contractor versus you’re part of the team.”