Startups scouting for CFOs amid IPO, profitability push

Amid an impetus from boards and increasing regulatory scrutiny on governance, IPO-bound Indian startups are on a hunt for chief financial officers (CFO), to bring about sophistication in their finance functions with a focus on profitability and compliance, said investors, startup founders and executive search firms.

More than 40% of all CFO searches done by Korn Ferry in recent times were around new age companies that are planning to get listed, said Rahul Kakkar, partner and India head, CFO Practice, at the leadership advisory and senior executive search firm.

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Nearly 9 out of 10 conversations about CFO hiring in new age companies are with a focus on IPO preparedness, said executive search industry officials.

“IPO is a significant shareholder transition moment and CFOs are chief architects of this journey. The IPO preparedness journey starts much earlier with the CFOs playing a critical role in setting the value creation narrative for the organisation, driving sophistication of the finance function processes, systems, controls & compliances and orchestrating the entire IPO process with experts that culminate with the listing,” said Kakkar.

“CFO is one of the most discussed top executive profiles on startup boards these days. The role has become increasingly more strategic with a direct accountability on meeting the projections and guidance, oversight of financial and investor reporting, and total coverage of governance,” said Pranav Pai, managing partner at 3one4 Capital, a venture capital firm.

The focus is to make the finance function future-ready in terms of controls, financial planning and analysis, budgeting, planning, ERP systems and data culture, as well as augment the efforts towards profitability. A lot of SaaS, B2C and consumer tech companies are looking to onboard a seasoned CFO, said Kakkar.Amit Nawka, partner, deals and startups at PwC, said: “It’s not just about reporting financial numbers but also weaving in the business story, regulatory requirements, all in a time-bound manner.”According to Kakkar, apart from increasing demands imposed by regulatory requirements, the nudge is also coming from the private equity investors and boards of startups to bring in the right expertise in finance so that the business operates efficiently.

Estimates by Redseer Strategy Consultants suggest that India is likely to have about 40 listed/IPO-ready new-age companies by FY25. This may grow to 90 by FY28. SaaS, B2C product companies and fintech are among the most promising categories for IPOs, according to Redseer.

There are two buckets of companies looking to hire CFOs.

First are the pre-IPO companies that have reached profitability and are looking for someone who can bring the capital allocation focus and governance expertise, said Pai of 3one4 Capital. Secondly, there are mid-stage companies that turned profitable earlier than expected and even though there is no pressure to go for an IPO immediately, they want to start preparing early on by hiring a CFO, he explained.

Some of the prominent CFO hires/moves recently include Gaurav Shah at The Sleep Company, Anil Arya at Wakefit and Harish Abhichandani at Ola Electric (he was previously group CFO at Ola).

“More and more companies are looking to prepare themselves to go public. Several series B and C companies are preparing to put in place practices or governance methodologies ahead of that,” said Atul Vohra, managing partner at leadership search firm Transearch India.

Amid a dearth of talent, companies are ready to offer generous packages for seasoned professionals – ranging from Rs 2.5 crore to Rs 4.5 crore, plus stocks. It could even go up to Rs 5 crore or more depending on the maturity of the startup and in case of CFO has the experience of taking companies public, according to search experts.

“CFO salaries at startups are going through the roof,” said Vohra, adding: “In addition to fixed pay and variable, they have the scope of making enormous money in stock benefits.”

> Who’s looking to Hire CFOs?

– Pre-IPO startups that have reached profitability

– Mid-stage startups that turned profitable earlier than expected

> Average compensation for seasoned professionals: Rs 2.5-4.5 crore, plus stocks

Who’s hiring?

 Several startups in SaaS, B2C, consumer tech companies

Why the demand?

– To set the value creation narrative for the company

– Drive sophistication of finance function; meet projections, guidance

– Closely look at governance, compliance

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