A Gurugram-based start-up recently found out just how much things have changed with the onset of the funding winter. The firm is looking to raise funds, but it was stumped by a request from potential investors: Hire a chief financial officer (CFO).
“We are looking for a CFO who has previous experience in fundraising,” the founder tells Business Today on the condition of anonymity.
Another start-up, this one based in Chandigarh, has been on the hunt for a CFO for three months, but for a different reason. “With the funding winter setting in, we want to keep track of our finances. Earlier, we were able to manage with a part-time CFO. But now, keeping track of every penny is important,” says the founder of the company.
Search Party
Over the past few months, start-ups have launched a frantic search for CFOs, and not just the small ones. In January, fintech major BharatPe hired former SBI Card CFO Nalin Negi. Surprisingly, the fintech unicorn had functioned without an officially-appointed CFO since its inception in 2018. It had appointed professional services firm Alvarez & Marsal as the interim CFO after Co-founder Ashneer Grover’s ouster.
BYJU’S, the world’s most valuable edtech company, appointed a CFO in February after running into a series of controversies. Ajay Goel, a finance veteran with previous experience in companies like Vedanta, was entrusted the job. Apart from these, other names like Dealshare, Zepto, and Coinswitch have also appointed CFOs over the past few months.
The Shift
What is driving this sudden change? Experts believe the past few months have taught start-ups many lessons. Let’s also not forget that it is either their first or second attempt at running businesses, the experts note.
The “boom and bust months” have compelled these tech-enabled businesses to hit reset, and forced a paradigm shift in their functioning. From growth at all costs, the focus now is on managing finances well and achieving profitability.
Right Person At the Right Time
But, at what stage should a company hire a CFO?
“At the pre-seed or seed stage, you may not need a CFO. But if you are raising a big round of funding, say a Series B or C round, then a CFO is advisable,” says Lakshmikant P.B., Director of Finance at Antler, an early-stage investor.
Lakshmikant says a “financial controller” or an auditor at an early-stage start-up will ensure that there are checks and balances. “Hiring a CFO is an expensive endeavour and it is advisable only at a later stage,” he says.
Sample this: As per estimates by career advisory platform Ambitionbox, the average salary of a CFO in India stands at a little over `45 lakh per annum. According to estimates, this exceeds the average salary of CEOs and CTOs in the country, which stand at `30 lakh and `36 lakh respectively.
“When you have excess capital and the pressure is on deployment, then I would say that you must have a CFO on board,” quips Lakshmikant. He also shares an incident where a company paid a heavy price for not managing its finances well. “The company bid for a contract that was beyond its means and it did come back to bite them later. The founders got extremely excited but could not convert that opportunity into tangible business. When that happened, it resulted in massive losses.”
Getting excited and not focussing on judicious deployment of funds is one fatal trap founders are now trying to avoid. This is where a CFO comes in, by painting a truthful and unbiased picture, experts say.
“In a start-up, the CFO is mandated to take on and exploit opportunities to exceed goals and work towards them. Even under adverse circumstances, he describes the possible risks and benefits for the good of the organisation,” says Rahul Tewari, CFO of online gaming unicorn Games24X7.
Amit Mehra, CFO at Lightspeed, says the role goes beyond financial management. “The CFO’s role is to strategise, allocate resources, be responsible for numbers if the start-up is dealing with large volumes or transactions,” he says.
@bhavyakaushal2
