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*This article was contributed by Sam Andersen, Associate Vice President at Elevation Capital. Elevation Capital is an investor in Zeni.
While often overlooked, the Chief Finance Officer’s (CFO) role in investor relations is key to driving a startup’s success. Early on, founders play the CFO role, but as a startup begins to scale, hiring a CFO adds strategic thinking to your team, ensuring that resources go toward optimizing performance.
A strong CFO can act as an integral liaison between a startup and its Venture Capital (VC) investors. Quality investor relations work goes beyond just giving insights into the financial performance of a startup – the primary goal should be building a relationship of trust with your VCs. With greater trust, your VCs will give you greater access to their networks, provide more actionable guidance, and increase your odds of securing additional funding.
What is a VC, and what role do they play in a startup?
VCs are investors who provide capital to early-stage, high-potential, growth-focused startups. In return for funding a startup’s early operations, we take a minority equity stake in the company and hope to see a return on our investment through an eventual IPO or acquisition by a larger company.
VCs are a unique type of investor because of the active role we often play in supporting growth. As well as frequently taking a formal board director role in company governance, we aim to be the first call a founder makes when facing critical issues. We might help recruit employees and future investors, provide strategic guidance, assist in business development, provide a robust network of connections, or help prepare your company for acquisition or IPO.
VCs split our efforts across a portfolio of startups, but investing in a relationship of trust will ensure we’re there when you need us.
When should you hire a CFO?
As your company grows, starts raising significant capital, and generates revenue, you’ll want to begin handing off the CFO role. Tasks that early-stage CFOs or fractional CFOs will take on for you include setting up accounting systems, creating financial projections, and developing budgets, as well as preparing financial presentations and participating in meetings with investors.
Even someone in a part-time or fractional CFO role can absorb these tasks and help set your startup on a clear plan for growth. This is often a great option to consider in the early stages of your business to save on a full-time salary while still repealing the benefits of having an expert advisor on your side.
As your startup progresses from early to late-stage funding, the CFO’s role shifts to include building and maintaining relationships with investors and lenders, ensuring financial compliance, monitoring and managing the company's cash flow, and developing financial strategies to support the company's overall objectives.
Common challenges CFO and investors face when relationship building
Just like any relationship, building and maintaining it can be difficult. There are a few hurdles that we see as VCs that stand in the way of that relationship.
- Misalignment of goals – When company goals are not established and agreed upon by both parties from the onset, this puts significant strain on the CFO and VC relationship. For example, we see a lot of CFOs focused on the here and now and less. Whereas your VC is likely looking ahead and thinking about longer-term strategies.
- Limited access to company data – The CFO is often the gatekeeper for all financial information. If a CFO withholds this information – knowingly or unknowingly – it's difficult for a VC to help the company make informed business decisions. The more transparent you can be with financial reports and statements, the better!
- Time constraints – Startup CFOs are busy. That’s no secret. Building a relationship with your investors may seem like the least important thing on your daily to-do list, but carving out time to foster trust here is one of the most valuable things you can do as a CFO.
How to create or improve your CFO and investor relations strategy
The foundation of a great relationship with investors and the solution to all the challenges presented above is frequent and consistent investor updates. It’s simple, but you’d be surprised how far this goes to build credibility with VCs.
Send investor updates monthly. These don’t need to be long, but they should be consistent. Include progress on your product, team, and sales, and ask for specific support when needed. A CFO’s role is to regularly update the company’s investors on key operational and financial metrics. VCs will take infrequent communication as a red flag.
It’s also important to communicate honestly with your VCs during the good times and the bad. If you feel pressure to only relay good news, you misunderstand your relationship with your VCs. All startups face challenges; chances are your VCs have dealt with similar situations at other portfolio companies. We want to help, so share what’s really happening! A CFO must be transparent and complete when reporting financial performance.
What a successful startup CFO and VC relationship looks like
When you’re ready for a CFO or fractional CFO, look for a person or team who will dedicate the time to supporting your relationship with your VCs. A startup CFO who sends frequent and consistent investor updates and communicates honestly through good times and bad will enjoy optimal support from their VCs and increase your company’s odds of success. Following this process and understanding the value of strong CFO and VC relations will allow the VC to provide strategic guidance and support to help the startup achieve its long-term goals. Together, you’ve optimized the financial health of the business.
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