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4 Reasons Why Your Investors Want You To Hire a Finance Leader

4 Reasons Why Your Investors Want You To Hire a Finance Leader

Look at any startup journey — the trajectory from a half-baked idea to an industry disruptor is not only a near impossible feat, it demands great sacrifices and unyielding determination from founders and their team.

In the early stages of the startup, its CEO and team leadership are busy experimenting with all manner of ways to create value in the market and generate some level of traction against that value. At this stage, unless one of the co-founders has a strong background in Finance, the startup has little time or patience to deal with maintaining their books, creating financial reports, and reconciling invoices — the sort of financial housekeeping which is necessary but not necessarily exciting. At this stage, startups may either outsource these functions to a bookkeeper or hire an in-house controller so that the founders and their team can focus on their core mission.

At this stage, investors are more or less content with this arrangement. Once a startup, however, looks poised to find product-market fit and continues to generate impressive revenue, investors begin to realize that their investment, which was once a scrappy startup trying to survive, has made it out of the Death Valley Curve.

It’s at this stage (typically post Series A or Series B, depending on the size of the round) that investors insist that founders start looking for an experienced Finance Leader. Here are the four reasons why:

It’s Taking Too Long To Create Financial Reports: Investors want to know exactly how much you are burning in a month, and on what. It seems easy enough — you open up your spreadsheet and try to build a report. As you parse through all the entries, you realize that your team hasn’t really been using the spreadsheet; the spreadsheet not only has incomplete data, it doesn’t seem comprehensible. It takes you over a month to finally collate all the data — from contacting vendors, chasing down invoices, checking credit card statements and having long and frustrating discussions with each and every member of your team as they try to recall what they purchased several months ago.

Your Financial Data Isn’t Up-to-Date or Reliable: Your financial controller just made a report to the board. A few days later, she realizes that over $200,000 of spend has magically appeared on the balance sheet. Further investigation makes her realize that this $200,000 should have been accrued in the quarterly report that she presented to the board, but since the invoices against the $200,000 only appeared after the board report, she has to correct her report and alert the board. Investors not only lose confidence in your team’s ability to stay on top of things, they feel that your company needs a Finance Leader who they can trust.

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Your Startup Is Great At Buying New Accounting Software But Bad At Actually Using It: This happens in young and growing startups all the time. There is an enormous glut of accounting software in the market, and your team is always keen to try new software until they find one that sticks. This bottom-up approach to software purchases is perfect — it certainly saves your team from using software that actually places demands on their time. But the missing ingredient here is a Senior Finance Leader — an experienced professional who’s as comfortable with understanding Ops and People, as she is with Accounting or Finance. Sometimes, you don’t need more software to solve the problem, you just need someone who’s willing to dig around and determine what are the specific needs and problems that your company is facing. This is crucial because no software will solve your problem unless you first identify what the problem is.

You Have No Controls: Your startup is about to raise a tonne of new venture capital. Your team has never managed such a large sum of money before. For a young startup, the concepts of Purchase Requisitions, Approvals, Purchase Orders, Due Diligence and Audit Trails are very new and foreign. There’s a reason these financial controls exist in bigger and more traditional companies — shareholders, accounting regulations and investors want to make sure that there are checks and balances in place to ensure that their money isn’t being mishandled, spent recklessly, or without due diligence. The same notion applies to a startup — if investors are parting with millions of dollars, they want to ensure that your company has a senior finance leader who is making sure that their investment is being watched over.

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