Nine years ago, David Lee, FCMA, CGMA, left the finance function of EMI Records, a British multinational conglomerate and one of the biggest labels in the recording industry, to join a rapidly growing online peer-to-peer sports-betting start-up. He never regretted the career move.
Betfair, now the world's largest internet betting exchange, was valued at more than £1 billion ($1.3 billion) when Lee helped take it public in 2010. Three years later, his second start-up, an academic research sharing service called Mendeley, was bought by academic publishing heavyweight Elsevier for about £100 million ($130 million). Lee was the first finance hire at Mendeley. As CFO, he helped grow the start-up into the Napster of scholarly publishing with offices in London and New York City.
In 2015, Lee became CFO of a third entrepreneurial company. Stratajet, a London technology start-up founded in 2011 by a former military fighter pilot, has developed a platform to search and book a private jet online.
"Being part of the entrepreneurial vision and journey is quite addictive," Lee said. "You get a lot of responsibility and there's lots to do, so you grow personally and professionally. A start-up is the extreme sport of business. I think that's the best way to describe it."
Senior financial executives play key roles in young, fast-growing companies, a study by the Financial Executives Research Foundation (FERF) suggests. They manage the company's finances, but they're also involved in setting broader strategic goals and in establishing and achieving financial and non-financial milestones towards those goals. As the company grows, the need for this financial and strategic acumen becomes more acute.
The study, which FERF conducted with global consulting firm Protiviti, involved in-depth interviews with 17 subject-matter experts from a variety of industries.
Rapid-growth start-ups tend to be funded by a series of investments. Most begin with seed money from friends and family and wealthy investors, known as angels, to get operations up and going, assemble a management team, and validate a technology or concept. Subsequent rounds of funding, most often from venture capitalists, are needed for product development and marketing. Companies backed by venture capital or private equity usually have a long-term exit plan – for either an initial public offering or a sale – which allows the investors to sell their stakes and reap the profits.
The involvement of outside investors is often the trigger to bring in a financial leader. This finance leader has to understand the founders' long-term goals for the company and establish an effective compliance framework to accommodate future growth while also monitoring short-term performance and resources.
"Ideally you want somebody with a little operational experience and flexibility," said Dave Pelland, managing director of research at FERF. "Somebody who doesn't expect a meticulous organisation with sophisticated back offices."
Pelland and Steve Hobbs, managing director at Protiviti, said the top priorities of a CFO at a young, rapid-growth company are to:
- Build relationships with investors to raise capital.
- Manage cash.
- Help the board of directors determine when to invest and scale up the finance team.
- Make operational adjustments and manage enterprise risk.
- Establish good financial systems and structures and develop forecasting and reporting ability.
- Assist in developing business strategy.
—Sabine Vollmer (Sabine.Vollmer@aicpa-cima.com) is a CGMA Magazine senior editor.