The Startup environment possesses its own challenges. Especially if you want to raise Venture Capital funds.
In this context, a Startup CFO could be a key competitive advantage. To recruit one, you should focus on these 3 specific skills:
1. Communication Skills
Think about the Startup stakeholders: why Sales or UX are considered essential to enhance your relationship with your Customers?
Because Sales and UX are in the contact zone with your Customers.
The CFO is in the contact zone with your Venture Capitalist and your Potential Acquirers:
- You need a CFO to understand the Financial goals of your Venture Capitalist: what kind of multiple investors want to see? What kind of growth is expected? Ideally, your CFO would have some visibility in the Venture Capital industry and pitching knowledge: a VC wants to see a “team”, not just a CEO. Thus, you should have a better conversion on your fundraising campaign and you should be able to spend more time on Execution.
- Potential acquirers will want to hear your CFO communicating growth and potential profitability several times before considering a Due Diligence. A startup CFO should have a strategic view of the business. He should reinforce the startup vision delivered by the CEO, with influence and clarity.
2. Cash Flow Modelling
Let’s be realistic. A Seed investor need at minimum a 10 multiple to cover the 80% startup failure rate. And the multiple depends on your cash flow:
More than a “bean counter”, you need a CFO able to:
- Minimize Cash In: Operating Cash Flow have traditionally 2 cost drivers, new customers acquired and average customers served. A good startup CFO will separate acquisition costs from the administration costs. He will have a realistic approximation of your Customer Acquisition Costs (CAC). Therefore, he will not underestimate them. A good CFO will forecast your revenues but also your Equity requirements. He will benchmark your Working Capital and Fixed assets versus similar players.
- Maximize Cash Out: you need a CFO understanding the main levers of your Exit Valuation (Multiples on similar transactions, CAC, churn, upselling potential, cross-selling synergies). He understands how growth is valued. And he is accustomed with dilution mechanisms linked to follow up rounds.
3. Emotional Intelligence
Communication skills are required to manage external stakeholders.
While good internal relationships demand Emotional Intelligence.
- The Seed stage requires an hands-on CFO. At the early stage, you can’t recruit a specialist for every task you have to perform.
Moreover, VUCA environments demand stress resistant and resilient personalities. Where the CFO should anticipate and mitigate negative outcomes.
- The CEO-CFO tandem is a key element of the team success. So, a good CFO will try to decipher the CEO personality. Opposite characters don’t work efficiently. Because they lack of common understanding. Similar believes are also dangerous, as alternative ways of thinking will have difficulties to bloom. The best tandem has a minimum of common believes and complementary experiences.
- Finally, the culture that the CFO is shaping is as important as the strategy. Growth means a lot of recruitment. As a consequence, the CFO will need to lead by example.