Startups are funny entities. In the beginning, there is only one title that matters. It’s “founder” or “co-founder”. They are responsible for everything. Startups don’t have the line and spoke command and control structures of a larger company.

It’s every person for themselves.

The CFO term is generally useless for startups until they transition to a different stage. The titles given to engineering, revenue, and operations are meaningful because they are actively engaged at a very early stage in propelling growth.

I have invested in lots and lots of startups. I have mentored many, many more. When it comes to the “books” part of the startup, there is a clear path they take. The first thing most do is QuickBooks. It’s simple double-entry accounting order entry. It’s fast, easy, and the stuff you can download and give to a CPA is easy. When companies used QuickBooks, it always gave me a chuckle since two of my friends were there at the inception of the company.

The startup will go along, and if things go well, revenue will increase. QuickBooks won’t be enough. They will need some help. That’s where you bring in a fractional CFO. Larry Levy was one we used. The startup world is full of them. The fractional person will get all the bank accounts, cost allocations, and books on a standardized system.

No startup wants to waste precious cash and equity to hire a full-time CFO until they absolutely have to. Engineering, operations, and sales are where they concentrate their resources.

Why?

Because they are under pressure to find product-market fit and grow. Finance is not a growth engine inside a company. The only time it happens is when you are raising capital and corporate finance. When it comes to rounds of capital is a longer-term strategy, you don’t need an internal finance person to sketch out for you.

It’s not until you hit around $10MM annual recurring revenue that you actually need a CFO type in-house. To tell you the truth, I have seen companies survive for long periods of time with good revenue growth simply outsourcing their finance and benefits departments.

However, at $10MM ARR, you have a real business. Your corporate board will want someone in place to take over. Having someone professionalize the organization is a good idea if you want to raise another slug of capital. Colloquially, we call it going from the hoodie and Red Bull stage to the suit and tie stage.

As that company continues to grow, the finance department will build out. If the company is lucky enough to grow very large where it can engage in an IPO, it falls on the CFO has to be able to build out a plan.

At CME, when we went public, we interviewed investment bankers and, after selecting two bookrunners, the CFO and CEO built the roadshow with their help. That got approval and input from the board.

A lot of startups I was invested in never made it to the “we need a CFO stage”. They had created valuable enough businesses to be bought by a bigger business.

There are CFOs out there who leapfrog from company to company. They are great at getting the books and the financial health of the company in great shape prior to a road show. They also have networks of employees, banks, and investment bankers that follow them from company to company. You can make a nice buck doing that if you are good at it.

If you see someone call themselves the “CFO” of an early-stage startup at Series A or earlier, run.

Startups are funny entities. In the beginning, there is only one title that matters. It’s “founder” or “co-founder”. They are responsible for everything. Startups don’t have the line and spoke command and control structures of a larger company.

It’s every person for themselves.

The CFO term is generally useless for startups until they transition to a different stage. The titles given to engineering, revenue, and operations are meaningful because they are actively engaged at a very early stage in propelling growth.

I have invested in lots and lots of startups. I have mentored many, many more. When it comes to the “books” part of the startup, there is a clear path they take. The first thing most do is QuickBooks. It’s simple double-entry accounting order entry. It’s fast, easy, and the stuff you can download and give to a CPA is easy. When companies used QuickBooks, it always gave me a chuckle since two of my friends were there at the inception of the company.

The startup will go along, and if things go well, revenue will increase. QuickBooks won’t be enough. They will need some help. That’s where you bring in a fractional CFO. Larry Levy was one we used. The startup world is full of them. The fractional person will get all the bank accounts, cost allocations, and books on a standardized system.

No startup wants to waste precious cash and equity to hire a full-time CFO until they absolutely have to. Engineering, operations, and sales are where they concentrate their resources.

Why?

Because they are under pressure to find product-market fit and grow. Finance is not a growth engine inside a company. The only time it happens is when you are raising capital and corporate finance. When it comes to rounds of capital is a longer-term strategy, you don’t need an internal finance person to sketch out for you.

It’s not until you hit around $10MM annual recurring revenue that you actually need a CFO type in-house. To tell you the truth, I have seen companies survive for long periods of time with good revenue growth simply outsourcing their finance and benefits departments.

However, at $10MM ARR, you have a real business. Your corporate board will want someone in place to take over. Having someone professionalize the organization is a good idea if you want to raise another slug of capital. Colloquially, we call it going from the hoodie and Red Bull stage to the suit and tie stage.

As that company continues to grow, the finance department will build out. If the company is lucky enough to grow very large where it can engage in an IPO, it falls on the CFO has to be able to build out a plan.

At CME, when we went public, we interviewed investment bankers and, after selecting two bookrunners, the CFO and CEO built the roadshow with their help. That got approval and input from the board.

A lot of startups I was invested in never made it to the “we need a CFO stage”. They had created valuable enough businesses to be bought by a bigger business.

There are CFOs out there who leapfrog from company to company. They are great at getting the books and the financial health of the company in great shape prior to a road show. They also have networks of employees, banks, and investment bankers that follow them from company to company. You can make a nice buck doing that if you are good at it.

If you see someone call themselves the “CFO” of an early-stage startup at Series A or earlier, run.