Reflections of a modern CFO; key learnings from the past to make you future-proof

One year ago today Pegafund was launched. What an adventure. The first half of 2021 has been the most thrilling as our customers, team, community continue to grow. 

One year ago today Pegafund was launched. What an adventure. The first half of 2021 has been the most thrilling as our customers, team, community continue to grow. 

I wanted to use today as an opportunity to reflect on key learnings from being a Modern CFO, European SaaS scaleup operator, and first-time entrepreneur. We often live so much in the present (and future) that it is also important to reflect on the recurring patterns from the past.

Market timing and people are the key ingredients to success

Like many of the high growth European SaaS scaleups we work with, COVID-19 has provided CFO services a strong tailwind as the role and value of growth planning has been elevated within an organization - it has become a “need to have” for ambitious, high growth scaleups. 

In times of uncertainty, companies struggle the most with revenue visibility and predictability. To enable scalable growth and thrive in uncertainty, a business needs to be agile - this requires having a very tight integration between go-to market and funding strategy, organizational design and headcount plan, information flow and measurement of performance, and operating systems that scale. The faster the desired growth, the more integrated a growth plan needed.

Since 2020, we have:

  • Supported 4 European SaaS scaleups towards a fundraise or exit

  • Built fully integrated (top-down and bottoms-up) growth plans using our Financial Sprint methodology delivered in-person and remotely using Miro

  • Delivered 592 hours of day-to-day execution of operational CFO services. This includes educating scaleup leaders on public and private financial markets, scaleup funding options and related economic & control considerations, SaaS metrics and implications on product-market and go-to market decisions, as well as the nuances of SaaS accruals-based accounting and reporting. 

During the same time period, our team grew from a solo founder to 8 people fully remote and distributed across Europe, the UK, and the US. All of us are extremely grateful for the incredible advisors and supportive community of over 100 individuals who have generously shared their valuable expertise, network, and time to help grow Pegafund. Relationships, trust, and paying-it-forward is what makes our vibrant ecosystem grow exponentially. And we could not have done it without you, so thank you.

Data, business intelligence and people systems are what separates startups from scaleups

“Measure everything that matters” and “no conflict, no interest” - these are a couple of the most memorable quotes from my early venture days in 2015. Startups struggle to scale from being a “family” to a high performing “sports team” often because they are not tracking the right data, inexperienced in deriving the right insights, and not communicating those insights to the right people at the right time. This is the #1 reason why few European scaleups make it past Series B to be a global category leader. The faster a startup grows, the messier it is operationally - and the only way to “unwind” that mess is to have a single source of truth across the business and to increase the quality & speed of information flow. This is done through SaaS metrics and distributed budgets where functional leaders need to build the internal business case and are then held accountable for their decisions. The right time to do this is post product-market fit and before a large institutional funding round. Finance, Operations, and Human Resources can help design and execute this shift and organisational change.

Accounting systems are outdated and will be fully automated through modern technology

I could write a book about how accounting systems, outside of QuickBooks and Xero (and even this is debatable), are not well-suited for the needs of a modern business, particularly high growth, venture-backed technology startups and scaleups. Most are built for ensuring taxes, payroll, and government reporting is done appropriately. They make the work of bookkeepers, accountants, Head of Finance, VP of Finance, CFOs and other business leaders incredibly frustrating and slow; resulting in a lot of manual work when it comes to reliable and frequent financial reporting. Manual work is prone to human error and not scalable in a high growth environment. When you combine blockchain technology (and how its advancement is impacting decentralized finance) with the operational efficiency and data integrity that comes with utilizing SaaS solutions like Pilot (bookkeeping), Spendesk (expense management), Chargebee (subscription and billing management), and Flightpath Finance (FP&A), I am convinced that the accounting industry will be fully automated within the next 5-10 years. It is also only a matter of time that we will have systems that better integrate the revenue, cost, and cash drivers for a data-centric business in order to enable sustainable high growth at scale.

Operational venture investors will find better relative value investments in a noisy market

Board materials and investor discussions tend to focus on financial reporting centered around 3 financial statements and customer pipeline. Not enough time is spent with the people inside the business, and the required systems to scale and ensure customer-centric, data-led decision-making. In a high growth environment, the annual budget approved by shareholders is often stale by the first quarter thereafter. The labour market and end target market & competitor dynamics are changing at such high frequency that it requires continuous evaluation of organizational design, compensation structure, and hiring plan in order to make monthly and quarterly revenue, cost, and cash forecasts accurate and relevant for making future growth decisions. Underwriting investments on well-researched market timing and size, pattern recognition on co-founders and leadership (majority of whom are young and have not worked in a high growth environment previously), and an account-based marketing fundraise process can result in over-valued, high conviction educated bets on startups (which fail 55-78% of the time). We are in a very noisy business environment where the gap between intrinsic and market value compounds daily. To cut through that noise, investors would be better served to “spearfish” relative value investment plays where a scaleup has operationally sound systems that enable sustainable exponential growth.

Governments need to make it easier for small businesses to grow fast

There is a critical and urgent need for governments to re-invent themselves in a tech-enabled fashion. The time spent to establish, operate, and report to provide compliance, risk management, and cash flow visibility is extremely high; and these reports have minimal impact on determining customer and talent unit economics, particularly when it comes to revenue and growth drivers of Cloud-based businesses. This means that time spent on government and regulatory requirements increases the cost of doing business and reduces the competitiveness of an ecosystem in a remote-first, global market. For instance, in many European countries, talented people prefer to be compensated with cash rather than equity since it is challenging to financially justify paying upfront the taxes associated with warrants and options where future value is unclear, tax credits may not apply, and risk to achieve success is high. This places a glass ceiling on the ambition and work ethic of an otherwise talented workforce. The risk-to-reward incentive for European talent needs to improve, and quickly. I hope the Not Optional initiative continues to make big strides forward to create one unified labour market in an increasingly digital and consumer-like business world.

I continue to be amazed every day by the beauty of living and working in Europe where the fragmentation of multiple local and regional markets rich and deep in culture and history cultivates a unique blend of technical expertise and out-of-the-box creativity. While COVID-19 has created physical and moral distances between family, friends, and colleagues; in our digital world, the speed and precision in which knowledge, experience and networks are shared continues to strengthen. For this reason, I continue to have faith in the benefits of globalization, and look forward to welcoming more North American and Asian friends to Europe.