Eight things we learned from the Highland Chief Finance Officer roundtable
Highland Europe invited Chief Finance Officers from its portfolio companies and some others along for a day of discussion and inspiration in October. The companies represented were Outfittery, WeTransfer, Brandwatch, NextThink, Starleaf, Condeco, NewVoiceMedia, Junique, SocialPoint, EGym, Featurespace, Maropost, AMCS, TripTease, DoveConviene, Wooga and Talentsoft. The CFOs heard presentations from Tony Zappala and Laurence Garrett, two of Highland Europe’s partners and from Fiona Talbot, SVP of finance and HR Administration at NewVoiceMedia and David Reynolds, CFO of Brandwatch.
How to build a great finance team
Fit for now versus fit for the future. People are the most important part of the finance team, Fiona Talbot of NewVoiceMedia told us. When hiring you need to recruit higher than you think you need.Treat any people movements as an opportunity to re-optimise your team’s shape and add to the team’s skill base as the company evolves. Move from a small number of generalists to a greater number of specialists. You can develop your people by rotating them within finance and also outside finance to give them operational experience. That also serves the dual purpose of shifting the organisation’s perspective of the finance function.
The finance team has to own the data. At the end of the day it is finance’s numbers that are going to be used externally. Other people in the business need to understand the numbers and what they mean, but they can’t slice and dice them to serve their own priorities. Giving financial leadership means owning the numbers. However, you can’t immediately jump to financial leadership. If you want to give real insights and leadership to the business, you need to build your insights on firm ground, which means data and systems that can capture information accurately and in real time. These must form a single point of truth.
The Goldilocks budget
Budgeting is an art not a science. Baby Bear nails it every time. You’ve probably heard of a Goldilocks economy - one that is neither too hot, nor too cold, but just right. Highland partner Laurence Garrett explained just how chief finance officers can copy Baby Bear and get it right every time when setting budgets. Good budgets have three goals: to motivate teams to achieve at their highest levels; to invest resources in the highest priority projects and to protect the company if things go wrong.
It’s all in the probabilities. Use the data from your previous forecasting to understand how accurate the executive team have been in the past. Assessing probabilities of success can help you set the targets for the future. For sales targets, it’s probably better to use a 30% probability, to keep stretching people. For revenue projection, aim for 50% probability to ensure resources are invested appropriately. You also need to protect against the downside. The cash flow budget should have 70% probability, to ensure that you hit the golden rule of chief finance officers and never run out of cash and that means putting in a buffer on costs. Underpromise and over deliver.
Countdown to an IPO: tips from an ex-analyst
Planning for an IPO actually begins at least 2 years before it happens. Put a date in the diary 24 months before you want to IPO and allocate a day in London and a day in New York to meet investors, said David Reynolds, the new chief finance officer at Brandwatch. David knows what he’s talking about because until recently he led Jefferies European media and internet team, covering companies like ASOS, JustEat, Rocket Internet, Zalando and MoneySuperMarket as an analyst
There’s a strong case to list domestically. If the bulk of operations and revenue are domestic, then that should be where you IPO. The complexity of cross-border time zones, currency, and reporting requirements can be burdensome if you list outside your home location. It’s not worth it just to get a higher valuation. Crucially, hometown support from investors who know you is worth having - especially if things go wrong.
People and numbers are the most important things that you need to sell to investors. This is the most important bit and determines what investors think of your business. Investors need to feel comfortable with the people at the top. The CEO should be the visionary. The CFO must be credible. When it comes to the numbers, under promise and over deliver. You should be beating budget in 19 out of 20 quarters, if you are within five years of IPO.
The IPO is only a staging post. It gets really serious after that. The focus should be on
delivering financially before and after IPO, rather than on the IPO exit valuation itself. If large institutional investors (the likes of T Rowe Price, Fidelity, Blackrock etc) take a position pre-IPO that can be advantageous, because these investors then have an interest in a successful IPO. A dual-track process - where you talk to possible trade buyers of the company as well - can be valuable. The IPO process will at least help with price discovery, if you end up selling to a trade buyer or an investor. So what is the prize for persisting with an IPO? Well, aside from the opportunity to raise capital at scale to achieve global domination, it can be a great way of allowing your employees to share in the success of the business. If you have aspirations to be the next Mark Zuckerberg, it’s also possibly a route to fame and fortune. And if not that, at least an opportunity to have even more frequent meetings with analysts!