Flush with money, startups move to hire CFOs earlier
As startups raise record amounts of venture capital, one role is particularly in demand: that of CFO.
Historically, startups, many of which had only a few dozen employees, sought to remain nimble and keep their payrolls light in the early years. Many have postponed hiring senior finance executives until they mature into more complex operations or prepare for a public listing or acquisition.
But over the past year, as balance sheets swell and a new path has emerged to reach public markets through specialist acquisition companies, startups are beefing up finance departments and hiring CFOs earlier.
The number of CFO appointments in U.S. startups that have raised between $ 10 million and $ 100 million in venture capital – a typical range of funding for early-stage and mid-stage startups – has jumped 95% to 162 over the course of the year. the 12 months ended May 14 compared to the previous 12 months, according to data from analyst firm S&P Global Market Intelligence.
Startups are expanding their financial services to have more sophisticated financial management as they lift larger funding rounds to higher valuations, according to venture capitalists, executive recruiters and startups.
San Francisco-based startup Bungalow Living Inc., which offers an online home rental marketplace, has raised around $ 90 million in venture capital since its inception in 2017. Initially, founder and CEO Andrew Collins wanted hire a vice president of finance. to help manage a growing balance sheet.
But this year, more than half a dozen PSPCs have expressed interest in a deal to make the Bungalow public. Mr. Collins then decided to hire a CFO instead. In May, Collins hired Karen Walker, former senior vice president of finance at PagerDuty Inc., a business management software company that went public in 2019.
“An objective [of Ms. Walkerâs] will be helping me assess the way on the potential involvement of PSPC or whether to stay private a little longer, âCollins said.
âStartups all start thinking about CFOs earlier,â said Bilal Zuberi, partner at Lux Capital, a venture capital firm with around $ 2.4 billion in assets under management and an investor in companies such that Zoox Inc., which was acquired by Amazon.com Inc.
Last year. âThey learn that you can’t be looseâ on finances, Mr. Zuberi said.
Previously, many startups were looking to hire a CFO in their growth phase – Series C or later – once a strong business model generated consistent revenue. Now, some startups have moved that hiring stage to the A or B series stages, Zuberi said.
Businesses mature faster and the need for a CFO can be four to five years after the company is established, up from six to eight years, which was the norm 10 years ago, said Zach DeWitt, partner. from venture capital firm Wing VC.
Not only venture capitalists, but also large corporations, hedge funds and private equity firms are targeting increasingly young companies looking for the next success. According to analytics provider PitchBook Data Inc. and the National Venture Capital Association, US startups raised a record $ 14.5 billion in the last quarter, an increase of about 41% over the amount. of the previous year.
The recruiting push is driven by both founders and investors who want stronger financial planning and analysis, audits and spending oversight, Zuberi said. Some startups have hired CFOs from state-owned companies, a move that has been less common in recent years, Zuberi added.
At the same time, the hot venture capital market is giving executives more leverage when negotiating their job titles, said Rhoda Longhenry, co-head of financial officer practice at recruitment firm True. Search. Vice-presidents of finance now often need a CFO designation to move on to another company, Ms. Longhenry said.
But not all investors think adding a CFO is necessary from the start. Daniel Hoffer, chief executive of Autotech Ventures, said several companies in the portfolio recently inquired about hiring for the role. âI generally don’t support it,â said Hoffer. âI think that’s generally overkill for most start-ups.â
Larger funding and reviews aren’t the only reasons to hire a CFO, Hoffer said. Unless a company goes public, hiring a part-time CFO shared with other companies is sufficient, he added.
While other finance leadership positions typically focus on internal bookkeeping, CFOs often take more public-oriented actions, such as preparing the company’s finances for a transaction or developing the business. relations with investment bankers and investors.
Before hiring its first CFO in May, Excision BioTherapeutics Inc., a gene-editing therapy startup, relied on a part-time controller and financial consultants. Then came a $ 60 million Series A funding in February, which was the San Francisco startup’s biggest fundraiser since its inception in 2015.
Excision hired Christine Silverstein, who spent five years as CFO of Abeona Therapeutics Inc., a public biopharmaceutical company. Ms Silverstein said she would strengthen internal financial controls, prepare for internal audits, hire up to five full-time finance staff and put the 10-person company on track for possible public listing.
âHaving this early on is prudent,â Ms. Silverstein said. “It is prudent given the current market situation.”
Truebill Inc., a startup operating a financial management app, has raised around $ 40 million and plans to announce additional funding soon, said Reyn Holden, head of finance and accounting.
Mr Holden said he was the first full-time finance and accounting staff member when he was hired as the company’s 22nd employee in 2019. Now there are five employees in the finances and he expects that number to double this year.
âWhile we’re getting this extra money, we didn’t want to do it with this blind, gut-feeling approach,â Holden said. âWe want to make sure we’re tracking the right metrics as we scale.â
âNina Trentmann and Kristin Broughton contributed to this article.
Write to Marc Vartabedian at [email protected]
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