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CFO: What the financial experts at startups have to do now

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CFO: What the financial experts at startups have to do now

They manage the money, raise fresh capital or sometimes keep everything together: the role of startup CFOs changes with the economic situation.

As the market climate changes, the work of startup CFOs also changes. DigitalVision/Getty

Money. Business is always about money. About making money, collecting it, investing it well and correctly or just sticking together ironically. It’s only logical that the person responsible for this always has immense importance in the startup. But how does the role of the Chief Financial Officer change when companies change their strategy – as is often the case at the moment? When switching from growth to profitability? What if investors are no longer waiting in line, but rather the next round of financing is not yet ready, but the cash runway is getting shorter every day?

You want more about them Challenges and opportunities for startup CFOs experience? Would you like to discuss this with colleagues? How do they do it all now? Then apply for the exclusive CFO Dinner powered by PAS Financial Advisory am March 7th in BerlinHere you can find all the details!

The soaring is followed by “transformation”.

That is the starting point: 2023 was “a real year of transformation”. This is what Julian Riedlbauer, partner at the tech investment bank Drake Star, says. “We have bottomed out. We have now left behind the exaggerations of the years 2020 and 2021, in which every company was actually financed, there was no selection process and the valuations grew to astronomical heights far above the average values ​​of previous years.“

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This is good news for investors. But what does it mean for the other, larger part of the startup ecosystem – namely the young companies based on venture capital? The wheat is now separated from the chaff, says Riedlbauer. Less capital-efficient companies would be punished: “Increasing insolvencies, devaluations (downrounds) and mass layoffs show this.” On the other hand: “Capital-efficient companies in particular are doing well. These can sell to private equity investors or strategic buyers or close large rounds of financing.“

However, these rounds must be well prepared. Convincing investors is more difficult than it was two years ago. Or better: different. Because now this is what matters: “Capital efficiency is the order of the day,” says Riedlbauer. “This reduces the risk of a subsequent financing round at an inopportune time, which could then result in a downround. The later the company phase, the more important capital efficiency is.”

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What CFOs need to pay attention to now

The metrics for CFOs are changing. The focus is no longer on scaling their companies. This also means developing a new strategy. When the British startup and VC magazine Sifted deals with the question of how CFOs successfully navigate through impending downturns and times of crisis, it mentions, among other things, these two key points:

Keep a close eye on cash flow: Those responsible for finance at a startup have to monitor income and expenses more closely than in any other phase. Daily cash flow forecasts and short-term adjustments to reduce costs may also be necessary.

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Transparent communication: A CFO should not simply rely on being “more of a numbers person,” but rather, especially in tougher times, he or she must regularly inform the rest of the management and actually all other employees about the company’s financial situation.

In an interview with Gründerszene, Julian Riedlbauer adds about the work of CFOs in VC-financed startups:

At least 18 Montan Runrate: “When financing rounds, care should be taken to include enough buffer for the subsequent round in order not to get into difficulties, as it can take longer to find the right product-market fit and to acquire new customers.“

Don’t insist on high predecessor ratings: “In 2020 and 2021, we saw valuations of some very good and well-known enterprise SaaS companies of 50 times the ARR (Annual Recurring Revenue), and some even 100 times. Such values ​​are unrealistic in the current market environment.“

Consider new investors: “It simply makes sense to address a larger pool of investors in the current, cautious investor landscape. Strategic investors have a particular advantage because they are active in the market themselves and know what customers want. In addition, there are often cross-selling opportunities as strategic investors already have an existing customer base.â€

But one thing is and remains clear: CFOs have a key role in scaling as well as when it comes to not pushing startups quickly and steeply upwards, but rather keeping them on a straight course.

You want more about them Challenges and opportunities for startup CFOs experience? Would you like to discuss this with colleagues? How do they do it all now? Then apply for the exclusive CFO Dinner powered by PAS Financial Advisory am March 7th in BerlinHere you can find all the details!

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