When a startup team secures Series A funding, they may feel that they are on a guaranteed road to success. However, the hard work has just begun. This early stage of funding can make or break a startup because they have to exert their utmost effort to prove themselves without burning through their cash.
It’s a delicate balance act that often requires the eyes and hands of a CFO or a CFO consulting company. In this article, we will take a brief look at how a CFO can help a startup maintain their vision without wasting capital.
The Challenges Startups Face During Series A Funding
When a startup receives a Series A round of funding, its founders and staff will likely feel that they’re on the road to fortune and fame. In essence, they’ve made it to the “big leagues.” However, Series A rounds, being much larger than a seed round, are challenging for startups because they have to demonstrate they have a minimum viable product (MVP).
A groundbreaking idea or an inspiring team alone won’t be sufficient to earn additional funding at this point. It comes as no surprise that less than 10% of startups who raise a seed round succeed in raising a Series A investment.
One of the reasons so many startups go under during Series A comes from their runway coming to an end too quickly. They run out of money too soon, which impedes their ability to make progress on their product – a side effect of poor financial planning.
That’s where a CFO comes in handy.
A CFO can help startup founders and members manage their operating budget better from the outset, to extend their available capital. With a longer runway, a startup has more time to prove themselves and the value their product brings to the market.
The Role of CFO Service During Series A Funding
So how does a CFO support a startup during Series A funding anyway? After all, many startups have done fine without a CFO for years, only hiring one after they’ve survived their fledgling years and reached mature enterprise status. But for every startup that flies through Series A funding without CFO services, there are several more who need their consultation.
The truth is this: a maturing startup will inevitably need a CFO. The CFO works alongside the CEO to lend their financial support and expertise, ensuring that the company grows strategically without straining their finances.
The CFO offers vital services such as attracting and evaluating investments, allocating money obtained from funding to fuel the growth of the startup. They also act as a financial advisor, coach, and planner to the CEO – roles that can keep an eager CEO grounded in reality.
CFO Services that Benefit All Startups
Wear multiple hats – A CFO worth their salt often brings other capabilities to the team, including HR and IT skills to the table.
Act as a growth consultant – All startups face a dilemma – managing financial risk without stifling innovation. Fortunately, a good CFO will help the team achieve that balance.
Foster key partnerships & relationships – Talented CFOs bring strong interpersonal skills to the table and use those skills to help the startup team collaborate with the VCs smoothly. No drama is the key to working with a VC.
Help the team meet investor expectations – The CFO acts not only as a coach but as a liaison between the startup and investors. They help the CEO and startup members understand the expectations of the investor and, more importantly, work to see that the staff meets those expectations.
Manage company finances throughout each stage – Ultimately, the CFO is a financial guru, and will, therefore, use those skills to help the startup team manage their budgets, expenses and advise them on making investment decisions.
The most successful startups and mature enterprises do recognize the vital role that a CFO plays in their daily operations. Nevertheless, there’s still a significant number of companies that go without a CFO. According to PitchBook, as of April 17th, 2020, 71% of the 180 U.S. unicorns had CEOs. But only 64% of startups with valuations of between $500 million and $1 billion had a CFO. This is mostly because of higher-value and higher-profile companies who snap up CFOs, leaving companies to fight for the remainder of available talent.
Advice for Startups Consulting CFO Services
CFOs have different personalities, especially if they come from different backgrounds (i.e., private equity or venture capital). Regardless of these differences, there are some essential skills, knowledge, and approaches that all CFOs should possess.
Ultimately, a CFO’s role in the early stages is to manage the company’s cash. As Ken Marshall, CEO of CorrelSense puts it, “the CFO should make sure they’re not driving an extravagant automobile,” one that has a “few extras” but isn’t a gas guzzler.
Characteristics of a Good CFO
Has as established record of success
Able to convey current financial status quickly and accurately
Results-oriented and robust analytical skills
Strong interpersonal and liaison skills (for bridging the gap between startup and VCs)
Leadership and mentoring skills
Ability to foster strong relationships with many stakeholders
A startup looking to hire CFO services or even an interim CFO must consider the above-mentioned skills when interviewing candidates. Paying attention to the CFO’s vision for the company, their background (including track record), and overall demeanor can help them identify their most ideal CFO.
The CFO as a Startup’s Guide
An exuberant and talented group of startup founders can be so inundated with daily operations and implement novel ideas. Unfortunately, the bigger picture can blot out the fine details, especially ones relating to the realities of their financial net.
Under the guidance of a CFO, a startup can make decisions that fall in line with their financial limitations. This will allow them to extend their runway long enough so that their product or service can take off successfully.