Here’s why CFOs have unexpectedly become the new darlings of the startup scene

Over the past few months, CFOs have been hired by a number of startups. What is the reason behind this sudden change in their tactics?

Recent events revealed just how much has changed since the start of the funding winter to a Gurugram-based start-up. The company was perplexed by a request from possible investors to hire a chief financial officer (CFO) while it was trying to raise money.

The entrepreneur, who requested anonymity for this interview, says that they are looking for a CFO with prior fundraising expertise.

An additional start-up, this one situated in Chandigarh, has been looking for a CFO for three months, but for a different cause. “We need to maintain tabs on our money when the financing winter sets in. When the CFO was only part-time, we could manage. Today, nevertheless, it is critical to keep track of every dollar, according to the company’s creator.

Search Party

Startups have intensified their quest for CFOs in recent months, and not just the tiny ones. Fintech powerhouse BharatPe hired former SBI Card CFO Nalin Negi in January. Surprisingly, from its founding in 2018, the fintech startup has operated without a CFO who had been formally designated. After the firing of co-founder Ashneer Grover, it has selected Alvarez & Marsal as the interim CFO.

BYJU’S, the most valuable edtech business in the world, hired a CFO in February as a result of several issues. The task was given to Ajay Goel, a seasoned finance professional with prior experience in businesses like Vedanta. In addition to these, additional companies with names like Dealshare, Zepto, and Coinswitch have also hired CFOs recently.

The Change

What is the cause of this rapid shift? According to experts, start-ups have learned a lot during the last few months. The experts point out that it is either their first or second try at running a firm.

These tech-enabled organizations were forced to reset due to the “boom and bust months,” which resulted in a paradigm shift in how they operate. The emphasis has shifted from growth at all costs to effectively managing finances and achieving profitability.

Right Individual at the Right Moment. But when should a business engage a CFO?

You might not require a CFO at the pre-seed or seed stage. However, a CFO is recommended if you are raising a sizable round of capital, such as a Series B or C round, according to Lakshmikant P.B., Director of Finance at Antler, an early-stage investor.

A “financial controller” or an auditor, according to Lakshmikant, will make sure that there are checks and balances at an early-stage start-up. He claims that hiring a CFO is an expensive endeavor that should only be done afterward.

a case in point According to estimates from career consulting portal Ambitionbox, the average CFO pay in India is just over ’45 lakh annually.

Estimates place this above the national average salaries for CEOs and CTOs, which are $30 lakh and $36 lakh, respectively.

“I would say that you must have a CFO on board when you have excess capital and the pressure is on deployment,” chuckles Lakshmikant. He also describes an instance in which a business suffered dearly for poor financial management. “The company submitted a proposal for a project that was beyond of its price range, and it did end up costing them money. The founders were quite excited, yet they were unable to turn this opportunity into a real company. That led to enormous losses when it happened.

One fatal trap that founders are currently attempting to avoid is getting too enthused and losing focus on the prudent use of capital. A CFO can help in this situation by presenting a fair and impartial picture, according to experts.

The CFO of a start-up is required to seize opportunities, surpass targets, and strive toward them. Even in difficult situations, he outlines potential risks and rewards for the organization’s benefit, according to Rahul Tewari, CFO of online gaming juggernaut Games24X7.

According to Amit Mehra, CFO at Lightspeed India Partners, the position entails more than just financial management. “If the start-up is dealing with large volumes or transactions, the CFO’s role is to strategize, allocate resources, and be responsible for numbers,” he explains.