From WSJ: Startups are beefing up finance departments as balance sheets swell and SPACs offer a new route to public markets.
As startups raise record amounts of venture capital, one role is in particularly high demand: the chief financial officer.
Historically, startups, many with just a couple dozen employees, have sought to stay nimble and keep payrolls light in early years. Many put off hiring senior finance executives until they matured into more complex operations or were preparing for a public listing or acquisition.
But over the past year, as balance sheets swell and a new route has emerged to reach public markets via special-purpose acquisition companies, startups are beefing up finance departments and hiring CFOs sooner.
The number of CFO appointments at U.S. startups that have raised between $10 million and $100 million of venture capital—a typical range of funding for early- and mid-stage startups—surged 95% to 162 over the 12 months ended May 14 compared with the prior 12 months, according to data from analytics firm S&P Global Market Intelligence.
Startups are expanding their finance departments to get a more sophisticated handle on financials as they raise larger funding rounds at higher valuations, venture capitalists, executive recruiters and startups say.
San Francisco-based startup Bungalow Living Inc., which offers an online house-rental marketplace, has raised roughly $90 million in venture capital since it was founded in 2017. Initially, founder and Chief Executive Andrew Collins wanted to hire a vice president of finance to help manage a growing balance sheet.
But this year, more than a half dozen SPACs expressed interest in a deal to take Bungalow public. Mr. Collins then decided to hire a CFO instead. In May, Mr. Collins hired Karen Walker, former senior vice president of finance at PagerDuty Inc., a business management software company that held an initial public offering in 2019.
“One focus [of Ms. Walker’s] will be in helping me evaluate the path on potential SPAC participation or whether to stay private for a bit longer,” Mr. Collins said.
“Startups are all starting to think about CFOs earlier,” said Bilal Zuberi, a partner at Lux Capital, a venture firm with roughly $2.4 billion in assets under management and an investor in companies including Zoox Inc., which was acquired by Amazon.com Inc. last year. “They’re learning you can’t be loosey goosey” about financials, Mr. Zuberi said.
Previously, many startups looked to hire a CFO in their growth stages—Series C or later—once a solid business model was generating consistent revenue. Now, some startups have moved that hiring milestone up to the Series A or B stages, Mr. Zuberi said.
Companies are maturing faster and the need for a CFO may be four to five years after the company was founded as opposed to six to eight years out, which was the norm 10 years ago, said Zach DeWitt, a partner at venture firm Wing VC.
Not just venture-capital firms, but large corporations, hedge funds and private-equity firms are targeting ever-younger companies in search of the next hit. Early-stage U.S. startups raised a record $14.5 billion last quarter, a roughly 41% increase over the year-earlier amount, according to analytics provider PitchBook Data Inc. and the National Venture Capital Association.
The hiring push is driven by both founders and investors who want more robust financial planning and analysis, audits, and spending oversight, Mr. Zuberi said. Some startups have hired CFOs from public companies, a move that was less common in past years, Mr. Zuberi added.
At the same time, the hot venture market is giving executives more leverage when negotiating their job titles, said Rhoda Longhenry, co-head of the financial officers practice at recruiting firm True Search. Vice presidents of finance now often require a CFO title to make a move to another company, Ms. Longhenry said.
Larger financings and valuations aren’t reasons alone to hire a CFO, Mr. Hoffer said. Unless a company is going public, using a part-time CFO shared with other companies is sufficient, he added.