Finance Insights

Investor Perspective: CFOs are the Unsung Heroes of the Startup World

Lucile Cornet Investor, Eight Roads Ventures

As an investor in the startup world, I’ve watched the role of the CFO evolve and become increasingly vital to a company’s success. And with the recent pandemic, this role is more crucial than ever before.

Yet, we rarely celebrate CFOs for the important role they play.

In this post I would like to touch on two important things I’m seeing from an investor perspective: First, the crucial role that CFOs play in startups & scale-ups. And second, the emergence of new tools for finance teams, which are driving the evolution of the CFO role to that of a business partner and growth driver.

The expanding responsibilities of a CFO

CFOs are the unsung heroes of startups. While CEOs are the ones we see on stage at big conferences, and CTOs take pride in the product roadmap or architecture choices, I feel we rarely sing the praises of CFOs. What we demand from this role has evolved considerably over the last few years.

Traditionally focused on reporting on the past, today CFOs are key players in strategic decision making focused on the long-term. Their role spans forecasting, expense discipline, communication with investors, M&A execution, risk management, and resource allocation.

Traditionally focused on reporting on the past, today CFOs are key players in strategic decision making focused on the long-term

This became even more true during Covid, when reforecasting (sometimes bi-monthly!), managing liquidity and cash collection, and understanding various lending and funding options in each country became a daily balancing act.

The best CFOs were able to adapt quickly, often relying on real-time business data to make big decisions. For many, that quick & nimble decision making ability was made possible by advanced financial software.

Check out the 7 mistakes to avoid when hiring a CFO for the first time.

Building a great financial software stack

Finance teams have not benefited significantly from the wave of enterprise 2.0 innovation in the way their HR, sales or marketing counterparts have. CFOs long for solutions to enhance visibility while automating manual tasks.

Over the last few years, a new group of tools has emerged and accelerated the digitization of finance departments, with a focus on real-time data collection, automated analytics, and integrations - all striving to support rapid and accurate decision making in the finance department.

As A16Z mentions, there has been a surge in start-ups in B2B categories such as payroll management, next gen ERPs, procurement, subscription management — and startup CFOs are expected to adapt and adopt these new technologies.

When our portfolio companies are hiring for the important role of CFO, one of the qualities we advise them to look for is a familiarity with & enthusiasm for the modern finance toolstack.

The emergence of these new tools has been possible thanks to progress in technologies like OCR and machine learning. But more important are the new breed of issuers and banking as a service (BaaS) providers. They offer the regulatory and technological infrastructure for third parties to launch their products on top of the "BaaS backend" via APIs.

Also, offering these tools via SaaS lowers the barrier to adoption, and increases their penetration within the SMB community. In my view, despite all the newcomers, the current SMB back-office automation and payments industry remains strikingly underserved.

When our portfolio companies are hiring for the important role of CFO, one of the qualities we advise them to look for is a familiarity with & enthusiasm for the modern finance toolstack.

Why we’re investing in the digitalization of finance

We believe that one of the most exciting & impactful segments of this modern finance stack is the spend management category. Spend management platforms have the ambition to radically simplify the way employees make payments, and provide real-time visibility for finance teams over all company expenses.

When I say expenses, I’m not talking about just travel, hospitality and perks, but also supplier invoices, digital ads and software subscriptions which account for a huge amount of company spend.

Traditionally, companies have used shared company credit cards or bank wires with no visibility into spend until after it has happened. The manual workarounds for approvals, expense reporting, receipt capture, reconciliations, categorizations, and syncing to the general ledger are inefficient, and time consuming.

In contrast, spend management platforms help companies spend money and track that spend in real-time in one single tool, removing the need for multiple different applications.

Longer term, we believe that spend management platforms will become end-to-end tools capturing most of an SMB’s operational spend, excluding payroll. As a consequence they are very sticky, but also particularly well placed to add additional services over time, such as lending, insurance, suppliers marketplace, etc. Several of our portfolio companies are already using a modern finance toolstack, which we believe is key to accelerating growth & the pace at which CFOs can access data, make key decisions, and provide guidance on the business.

So, yes - CFOs are the new rockstars of the startup world. The pandemic has pushed them into the spotlight, and demanded more from finance leaders than ever before. And I believe that in order to succeed in their ever-expanding role as value-creators and strategic advisors, embracing a modern finance toolstack is absolutely essential.

To continue the conversation or talk about your fundraising plans, please feel free to message Lucile on Linkedin.

Eight Roads Ventures is a $6bn AUM fund investing $10-30m in European and Israeli scale ups. The portfolio includes AppsFlyer, Cazoo, Decibel, Funnel.io, Hibob, Made.com, Neo4j, Otrium, Spendesk, Thinksurance, Red Points and Wallapop. www.eightroads.com