Profiling the Finance Leader in Startups

After an unusual 2020, the startup ecosystem is witnessing a resurgence in confidence with Q1 2021 seeing a record global venture investment. However, despite the growth in funding and consumer and infrastructure readiness, the biggest unsolved challenge is talent.

Based on ConnectOne’s Jobs-in-Tech report, one of the emerging roles in Singapore that saw a 513% increase since May 2020 was Finance. Finance plays a central role in protecting and setting up the business for success, but many startups fail to prioritise this job function. 

As Peng T. Ong, Co-founder and Managing Partner of Monk’s Hill Venture stresses, “not taking the finance function seriously is one of the biggest mistakes startup founders make”. 

In this article, we attempt to unpack the fundamentals of building a startup finance team by hearing from the first-hand experience of founders, investors and practitioners.

“not taking the finance function seriously is one of the biggest mistakes startup founders make”.
- Peng T. Ong, Co-founder and Managing Partner of Monk’s Hill Venture

Finance and its role in a scaling startup

Paul Graham, Co-founder of Y-Combinator defines, “A startup is a company designed to grow fast. Growth is above all, regardless of whether the startup involves technology, amount of funding or whether it has planned an exit”. With their growth intent, startups focus on driving top-line revenue at a fast pace otherwise known as scaling!  Reid Hoffmann famously coined the term blitzscaling, where he warns that as the startup scales:

“You also need to have much higher reliability; sometimes the inefficiency that you accepted as you blitzscaled through the village stage is no longer tenable at a larger scale. For example, Facebook famously shifted from a mantra of “Move fast and break things'' to “Move fast with stable infrastructure.”

Finance is an integral part of any company but how and when does it come in as a startup blitzscales? Given the limited resources of a startup, hiring a finance lead/team with the right experience at the right time is the fine balance that often catches the founder off balance. 

When to hire and build your finance team?

“Startups should hire before they have a lot of transactions. It is actually a function of transactions and not a function of the size of revenue. If you’re doing 1000 transactions for example, totalling a million dollars, then you better have some reasonable systems in place, and it is not just automation, you need a human being running it”, says Peng. 

Most startups start looking for a financial leader just before they raise Series A funding, which is typically when a venture capitalist comes in as an investor. “But not necessarily so”, says Peng.

“Startups should hire before they have a lot of transactions. It is actually a function of transactions and not a function of the size of revenue. If you’re doing 1000 transactions for example, totaling a million dollars, then you better have some reasonable systems in place, and it is not just automation, you need a human being running it”, says Peng. 

Alternatively, if your business does not involve high volumes of transactions i.e. B2B businesses, Peng suggests that startups could consider  “outsourcing the CFO function initially so that you have an executive who understands businesses overseeing your projects, even though it’s not full time”. Junior finance members can be in-house to cover basic functions like bookkeeping. 

W (not his real name), was running a highly complex logistics platform in Jakarta.  His business grew so quickly that its finance needs outgrew his young finance team.  The startup eventually closed at the height of the pandemic.

“I was more focused on developing the business; and should have hired the right financial controller about a year earlier. I did not specifically seek out the knowledge that could have been accessible from more successful startups about financial controls,” reflects W. 

Learning from him, founders should look to and learn from other similar startups on their hiring strategy for finance leaders. 

What makes a good startup finance leader?

W shares from his experience, “A good finance lead is a master risk manager of the entrepreneur. So someone who understands the different risk factors of different industries, different risk models, because the same financial risk for a tech company versus a large corporate can be very different”.

Typically, a finance head puts in a structure and process to cover accounting, budget planning, tax and treasury, report financial performance, plan resource allocation and manage cash flow. They also work closely with the CEO and investors in finance matters pertaining to raising funds and making business decisions.

So how different is it for startups?

To begin, W advises, “It is important for a founder to understand what you are good at and what you are not so good at, especially what you’re not good at. Having this understanding helps a founder hire the right finance talent to fills the gaps”

W shares from his experience, “A good finance lead is a master risk manager of the entrepreneur. So someone who understands the different risk factors of different industries, different risk models, because the same financial risk for a tech company versus a large corporate can be very different”.

Finance leaders must understand not just from knowledge but also from experience and intelligence, what is the precise assessment of risks, making sure that management of risks is balanced with a startup's hyper-growth objectives.  

Fiona Hee, Director of ConnectOne shares that finance leads take up additional roles compared to those in traditional companies. “Finance teams in startups tend to grow quickly which means that any finance lead would start off with limited resources thus will need to multitask at first”, she says. 

“At Glints, apart from undertaking the conventional finance job scope, finance serves as a partner to business units to help them deliver better business results via data analytics. Without data, it is like driving blind nowadays. We need data to support business leaders to set the right direction and target. So naturally, different from traditional finance roles, I am also accountable for the business intelligence and analytics”, shares William Chong, who is the Finance Lead at Glints. 

When profiling for candidates, W explains, “I put a lot more premium on candidates that are able to strike a balance with a good understanding of the strategy, the long term mission and good understanding of the need for us to grow”.

What must finance professionals do if they want to transition from traditional companies to startups?

William advises, “Check out articles (eg. Medium) or listen to podcasts from finance leaders in fast-growing companies. From there you can learn the pain points they have gone through and how they fixed it from 0 to 100.

Finance leads coming from traditional companies and are looking for a career in startups, should upskill to meet the demands of startups. From his experience, William advises, “Check out articles (eg. Medium) or listen to podcasts from finance leaders in fast-growing companies. From there you can learn the pain points they have gone through and how they fixed it from 0 to 100. Articles from prominent VCs also provide lots of food for thought.”. 

He also adds that data analytics are becoming more important these days, so taking some highly rated data analytic courses online could be very helpful for a finance leader down the road. 

For Fiona, she thinks that finance leads should possess good communication skills, a healthy dose of EQ, deep domain expertise and they need to be flexible as things move quickly and fluidly in startups. “A professional that is ready to roll up their sleeves and support the operations of a fast growing but fledgling business”, she elaborates.