As tech investment continues to drop in Europe, cash flow management and finding a path to profitability have become more important than ever for startups — making the role of the chief financial officer, or CFO, increasingly critical.
But demands are also rising, with companies looking for more strategic advice and cross-functional work from CFOs, on top of the traditional bookkeeping and number-crunching responsibilities.
How exactly is the role of the CFO evolving — and what are the tools helping them to keep up with the growing demands?
An evolving role
The downturn has resulted in a shift from hyper growth to sustainable growth, leading to investors — and startups — increasingly focusing on unit economics and profitability.
Eléonore Crespo, cofounder of Pigment, a business planning startup which raised an $88m Series C in June and topped Sifted’s recent Rising 100 list, says that this shift is reflected in two major changes in the CFO role.
First, their scope is evolving from traditional financial reporting towards actively driving a company’s strategic decisions. “As part of this, CFOs and finance teams are increasingly sitting at the heart of an organisation, and working cross-functionally with other teams such as HR, sales, operations, legal and marketing,” Crespo says.
The finance function all of a sudden has become cross-functional and strategic
Second, as finance teams turn more strategic, they’re becoming increasingly reliant on technology to help them understand their business at a granular level. “Without the right tools in place, it’s almost impossible to get a full view of your business, understand what levers you can pull to make decisions and to work collaboratively with other teams,” she adds.
Andreas Weiskam, cofounder and partner at Sapphire Ventures, says that the CFO role has, over time, become far more influential — but he says that this trend began even before the downturn hit the tech industry.
“Even before the downturn, there was the trend to quantify and measure everything, partly because you could now collect and analyse data in real time — and this is something that companies started doing to get a competitive edge,” he says. “The finance function all of a sudden has become cross-functional and strategic, and CFOs increasingly need to communicate and collaborate across the organisation.”
Tim Pietsch, CFO at equity management platform Ledgy (which was #54 on the Rising 100 list) agrees that cross-functional collaboration is a key part of the CFO role today.
But, in his role as CFO, he says that the major shift he’s noticed is more of an emphasis on the fundamentals and numbers of the business, and a little less focus on the story. “Everything that relates to financial forecasting and planning becomes more important to have better strategic insights into how the business is developing.”
He adds that, like many startups, a key function of the CFO is in fundraising, but its significance has grown in the downturn. He says that it helps to gain the trust of investors and “bringing in someone with finance experience, earlier on, is something that we see in the market now, whereas before, the finance function was more seen as a hygiene factor."
However, Weiskam says that the CFO role becomes critical in fundraising only at later stages when there’s more of an emphasis on metrics. “Investors like us find comfort in numbers, and these numbers need to be correct. When we access data rooms and we get numbers from different functions of an organisation, we actually take those and build our own models to make sure that the numbers are correct.”
Tech stack for the super-CFO
A new wave of startups are lending a hand to CFOs. From automating financial analyses to equity management and software that enables finance teams to collaborate more easily with other departments, these startups offer tools to free up CFOs’ time for strategic inputs — and are gaining interest from investors.
CFO tools help early-stage companies keep the team small because it makes it easier to “manage cumbersome processes such as expense management”, says Pietsch.
On the Rising 100 list, 34 companies are in the fintech sector. The list’s topper, Pigment, focuses on the future aspects of a CFO's work like charts, simulations and continuous modelling on a dashboard, instead of having to go through endless formulae on Excel.
Another French startup, and #43 on the list, Pennylane offers automated processes for accounting. London-based CausaLens, #88 on the list, promises AI-level predictive analytics for businesses and Paris-based Mooncard, #98 on the list, is a tool to help CFOs keep track of expenses.
Something we see repeatedly when speaking with finance teams is that they don’t want to spend all their time manually crunching numbers. They want to do more high-value, strategic analysis
Weiskam adds that there’s also a generational shift in what’s expected of and delivered by the CFO, and younger CFOs are often using new technologies that are easier to use. A lot of CFOs from older generations "are experts in Excel, which is a great tool. But when it comes to collaboration and communication, it's perhaps not that great anymore.”
When considering the tech stack required for a CFO, Crespo says that it’s helpful to first understand some of the obstacles holding them back, such as incomplete or inaccurate data, siloed teams that aren’t working together and technology that isn’t fit for purpose such as spreadsheets or other complex systems.
Because of this, Crespo says that business planning software has become an integral part of the CFO’s software stack. “This gives them a single source of truth for their business that allows them to break down silos so everyone has a shared understanding of the numbers that matter, create financial models quickly and easily and run ‘what if’ scenarios within minutes.”
She adds that a great tech stack can also help in the retention of talent, which is hard in finance. “Something we see repeatedly when speaking with finance teams is that they don’t want to spend all their time manually crunching numbers. They want to do more high-value, strategic analysis.”