Welcome to CFO 4.0, the future of finance. The CFO role is changing rapidly, moving from cost controller to strategic visionary. And with every change comes opportunity. We are here to help you take advantage of this transition. to win at work, drive your career forwards, and lead with confidence.
Join Hannah Munro, Managing Director of ITAS, a financial transformation consultancy, as she interviews key experts to give you real-world advice and guidance on how to transform your processes, people, and data. Welcome to CFO 4.0, the future of finance.
So hello everybody and welcome to this episode of CFO 4.0. My name is Hannah Munro, your host, and with me today is Dr Christopher Sear.
So he has a long list of accomplishments, but he is the FinTech envoy for England, visiting professor of financial technology at University of Leeds, professor of practice at Newcastle University, chairman of Fintech North, the innovation community, and also chairman of Clearglass. And it's the chairmanship of Clearglass that we're going to talk about today. So welcome, Chris.
Lovely to have you on the Hi
there, nice to meet you. How are you doing?
Yeah, not bad, thank you. So today, obviously, you've got a, that is an incredible bio, an incredible introduction. So how, from what I hear, you actually started off or worked as a policeman as well. So tell me a little bit about your journey. Oh, it's a long and sordid
history. Oh, no, no, I just... It's the usual thing, you know, go to university, start the university and realize the thing you started studying is not the thing you really want to do and flip.
And of course, once you're at a sort of an institution like a university and you get up the courage to change your course, it becomes a model for everything you do in life, which is actually there is a risk in change, but actually sometimes the change is tolerable if you're willing to take that chance.
And so generally what I've done is I followed my nose when I've not been happy about that's something, then I don't accept it, I change it. And that includes my personal circumstances.
So, you know, university, I ended up doing marine ecology, got a good degree, marine environmental biology, actually, I should describe it, and then did a PhD because someone offered me one and didn't have any plans at the time and, you know, fine. I'm flattered, right?
So it's based in the Maldives in the Indian Ocean, working with the United Nations, looking at climate change, right? So I have a firm believer in climate change, looking at El Nino and El Nino-related climate change impacts, severe weather systems, and its impact on reef ecology in the Indian Ocean.
And having done all that, decided I want to be a policeman because things are great, but people are more interesting. And that's purely, it's purely as simple as that, right? You get a PhD, It's fine. It's a great qualification. You put it in your back pocket. Maybe you use it, maybe you won't. But actually, what have you learnt?
What I hadn't learnt was how people behave. And actually, people are fascinating.
so the police seemed a very hardcore way of learning about people and about life so i did that about seven years of that um learnt a lot of stuff i didn't really enjoy uh much of people can be horrible um and and at the time the seven years into the police i i met my now wife And she was, you know, I'm sorry, but I work for McKinsey in London and you
work for the police in Edinburgh. And if we're going to afford a family, then really it's going to come off the back of what I earn. So, and I don't want to move to Edinburgh. I want to live in London. That's where I'm working. So I had to move.
And the obvious thing was not to shift police forces because it's very hard to shift between Scottish law and English law, but to find a new career. So again, this paradigm of being happy and flexible with changing the working environment came to the fore. So I ended up working for an investment firm Thank you very much.
And here I am, crikey, what, 22 years later now, having tried lots of different things within the financial world. So yeah, that paradigm of being willing to change and try new things is a very important one. I've never wanted to have a handle turning career.
No,
I
think that's what's interesting about what's happening at the moment in the world is that actually people are considering new opportunities, new directions. And I think it's an interesting shift, isn't it?
So it's very scary, right? I'm not going to deny the fact that every time you have to try something new, you've got to take your courage in your hands. It helps if you've got stability in finance somewhere. And I've been enabled, certainly in the past 20 years, by my wife, who is just the most steady earner you could possibly manage.
She likes the corporate environment. I don't like corporate environments. I'm not a big... corporate environment person. Here I am talking on a pod about CFOs, and the CFO is kind of the ultimate kind of corporate role that you can have. It's a C-suite person, but I'm not a big fan of them. But actually, she likes that.
She likes to solve problems in a corporate environment. I don't. I want to solve different sorts of problems. There is a mentality that you have to have, which is you have to accept that you will live always at the bottom of the learning curve. And the bottom of the learning curve is the steepest part of the learning curve.
And in fact, what you learn is that you enjoy that part of the learning curve best. It's the most opportunity. It's the most varied. It's the most fun. Sitting on a plateau doing the same thing every day, to me, is just an asthma.
Actually, some people, they absolutely like that, and they're going to be forced to get back onto that learning curve and learn something new. But what I would say is this, that if you're at the bottom of the learning curve, It can be a lonely place, but it's a lonely place because the thing you're doing is hard.
And if it's hard, there's probably value in it because it means it's something that people haven't done before. So actually, one of the things you learn is to say to yourself, I'm going to look around the market and look at the things that people aren't doing because they're hard. And then I'm going to attack that problem.
And the chances are, if you can solve it, there's huge value in it. You'll become unique. You'll become important. You'll be able to solve a big problem. And there are some very subtle problems out there that people just assume are not a problem, but actually are, that if you solve them, have huge value. And one of them is pension funds, right?
So, you know, that's my... One of my big roles at the moment is the CFO of a company that looks at the pension fund market. I can name, I can list the companies that work as startups in that pension fund space on the fingers of one hand. I mean, it would take me an hour to stop listing the companies that work in payments. Yeah. You know?
or crowdfunding or peer-to-peer finance or any of these other things, how many people are looking at this peculiarly complicated and difficult space of long-term savings? Very, very, very few. And therefore, there's merit in doing it. Because...
Oh,
sorry. Sorry, go
on. No, you go. No,
and so there's merit in doing it because it's hard, because there's value. You just got to figure out the space and there's a lot of learning to get in that space, but it's definitely valuable.
And I think that's an interesting piece because that sort of leads us on to the topic for today, which is about becoming a CFO for a startup company. Because from my perspective, everything you're saying there is a complete shift to where a lot of CFOs are comfortable. So there's not a lot of certainty.
You're having to really get involved with the growth of the company and drive it forward. So tell us a little bit about Clearglass. Let's give our audience a little bit of perspective.
I'm going to ask you a question. Do you have a pension fund?
No. Well, I assume I do because we've got all of this auto-enrollment, but I'm not a
big person. So therein lies the problem. You don't even know if you've got one.
Yeah.
So a corporate pension fund, you definitely do have a pension fund because you have a state pension fund.
Yeah.
100% do. If you're contributing to national insurance, you have a state pension, so you have one pension fund, right? So you have a job. How many corporate jobs have you had since you left university?
See, I've always been an independent and built businesses, so I'm a bit like that.
But you're working for a company now, right?
Yes.
And it's your own company?
Yes.
And you have an accountant, you have a payroll?
Yes, exactly. Yeah,
you'll have a pension fund, right? You'll have a default pension fund. Have you had that environment before? Have you ever created the same sort of structure doing something else previously?
No, we've very much gone with ITAS. I've been working with ITAS for about 10 years.
Fine, okay. So you have two pension funds. I've got six. Every time I've changed job, I've had a new pension fund. Six, seven, right? And I'm by no means unique in finance, at least. The way you get promoted is by flipping from company to company. And you generally don't take those pension funds with you.
And you've got no idea what they're worth and you have no idea what they're performing. So the size of the pension market in the UK is 2.3 trillion pounds.
And that's a portion of a wider asset management market that serves what I would call institutional investors like sovereign wealth funds, charities, pension funds, insurance funds, which is 7 trillion plus in size, 7 trillion. It's a mind boggling number. And that marketplace does not communicate effectively with itself. It doesn't. Data doesn't transfer.
It's all highly intermediated, manual processing, complicated. And the people who make decisions about buying or selling the services of asset management. So in your world, you've outsourced pension funds to a pension fund provider. They buy shit on your behalf. Am I allowed to swear?
Sorry. Hey, it's all right. I'm pretty sure everyone listening to this is over 18. So you're
absolutely right. They buy shit on your behalf and they're not supplied properly with the information on how well it's doing. So my job in Clearglass is to help that process through a series of standards that we've defined and a kind of technology process that helps take data from asset managers who look after this seven trillion pounds and do stuff with it.
They buy and sell companies, they buy and sell shares, they buy and sell fixed income products, they buy, say, a whole range of different asset classes. to match the investment objectives of the people who want that done for them, which in one version of the world is a pension fund. Now, underneath that, you've got consumers. I don't look at consumers.
I'm not there to help the consumer to understand their data because it's really complicated. And also, there are all kinds of unintended behavioral consequences that come with giving information to a consumer. I work with the sophisticated investor who is their representative.
So I work on the basis that if I give them better information, the markets for the individual improve. People will save more. They'll have more money. The performance will go up because the people who are representing them are having better information. So I intermediate that market. And there is a very strong precedent.
There's a high degree of certainty that people are heavily undersaved. They're heavily undersaved. Their money is underperforming. And the objective ultimately is to make sure that people have more money in old age, dignity in old age, frankly. To give you one other example, I hear a lot of talk. There's a lot of action in the health tech space.
People are producing apps. They're producing technology. They're producing drugs that improve longevity. They allow people to live longer. Now, that's nice. It's great. But if you're living in poverty whilst you're doing it, it's not good. So the question is, as you get older, your money starts to deplete, your pension fund goes down.
Maybe even at the point of retirement, you haven't got enough money really to live comfortably and your quality of life dives. Well, how long do you want to survive living in that kind of lack of dignity and poverty? So my ultimate objective is to make sure that people have some form of dignity and wealth in old age.
And I do it by working for the people who make the decisions, who make the decisions about what to buy and what to sell on your behalf. And it's a financial thing, right? So it slots right into the interest zone of a CFO.
So a CFO is there in my mind to help me understand what my company is doing and where it's going and how the money is being spent and to help me plan around the expenditure of that money, to give me that predictive mechanism that says, do this and don't do that.
But actually the difference, and in a big company, that's the kind of CFO's role is to manage the finances of the company. And above all, to make sure the company doesn't go bust. Doesn't go bust by inadvertently not paying taxes or not paying sufficient taxes and doesn't breach the law, but also manages its money better.
And in the complex multi-dimensional corporate environment, that's a really big job. The truth about a CFO for a startup is, Do they have a title of CFO? Probably not. They'll probably be called chief administration officer or something like this, which is a sort of a role, which is multi-dimensional.
Maybe has some HR function in there, maybe has payroll function in there. You know, there'll be an accountant to back them up maybe, but at the end of the day, they're doing a lot of modeling.
They're doing it and with a high degree of uncertainty because the products that I developed, certainly, I mean, I, I, Because it's all brand new and I'm in a new space, I'm not entirely certain I can predict where the market is going to go or if indeed the thing that I want to build is going to be profitable.
I can give forecasts, but I need people to help me forecast that and then I need to wrap that up into a financial model that helps me manage the cash, both on an income and expenditure basis. So it's a highly varied job and would work very closely with me, but it's not... the same shape of a person, I think, as the CFO in a big company.
Yeah, and I think that's a really important point. And I think there's a lot of either experienced CFOs or experienced FDs that are looking for something a bit more entrepreneurial. So we talk a lot about entrepreneurial thinking and that they want to get involved, but they know their skill set is very much around the financial, like you say, the financial modelling.
It's about keeping the business going, but being able to help develop those pricing models and that sort of thing. strategic side. So in terms of your perspective, what are you looking for in, let's call it a finance leader?
Right. Okay. Yeah, it is finance leader. So I think to my mind, the CFO has always been someone with a bit of a gun for hire. They have a transferable skill set and whether they're a CFO for a retail company or a financial services company, at the end of the day, it's the same sort of job, which is just with slightly different numbers.
In a startup, there's a couple of things that you have to have on top of that.
One is I would like to hire somebody who has some industry knowledge because it has to supplement my own because it's a new space and I'm not I'm pretty good at this space, but I'm by no means, you know, there's a whole bunch of things that I'd like to do that I don't know that much about.
So having somebody who can be a bit of a wise head around parts of the industry that I haven't looked at. So new businesses that I want to build or new products that I want to build in new market spaces, that would be very useful.
But it has to be somebody that's got some gravitas, because at the end of the day, I think one of the most fundamental things about being a CFO is the ability to tell me, the
You
can't do it. I'll spin off all kinds of mad ideas because that's the natural leaning of a founder. The founders, they're the ones who come in right at the beginning They've got the vision. They've got this passion in them. They want to solve the problem. And they're constantly thinking about new ways to solve the problem.
But they kind of almost need to be managed or need to be brought back in line with managing the thing they've got as opposed to growing into something that they haven't got yet. They're constantly inventing new things. And it takes them away from the focus of delivering on this one thing.
So the CFO has to have the gravitas, has to have the gravitas to look me in the eye and say, no, Chris, we can't afford it. Now, that's not an easy thing because I'm a pretty strong personality and I think I'm pretty smart and I think I'm pretty good with numbers. The truth is probably neither of those things apply.
So the person has to overcome my arrogance about the whole subject. So it's got to be somebody I respect.
And I think that's really interesting. It's that balance between enabling you to achieve what you need to, but also making sure that you're still going in the direction that you need to.
It's got to be, and I've got to have, they've got to command my respect. They've got to, because I'm ultimately, I'm the boss of the company, myself and my co-founder. We make decisions bilaterally, right? And sometimes unilaterally, just because we don't have time to talk to one another.
But the point is, we have to have, we have to respect the person that's saying no to us. And they've got to have a logical reason for it. But above all, I've got to respect them. Now, that respect doesn't come with age. It's certainly not. It's not about an age thing. It's not even an experience thing. It's a quality.
is almost undefinable and for me it involves it revolves around being really smart being really creative uh being really curious curiosity wins massively in my book of personal attributes i want somebody that that really wants to learn new things because i'll have huge respect if they bring me new ideas and and and then i'll listen to them i'll say yeah absolutely i
agree like we can't do that thank you for bringing this to my attention it's great I'm relatively pragmatic, but I am an entrepreneur. And ever since that first time when I got to university and decided that chemistry was not the thing for me, but marine ecology was, I didn't even have biology when I went to university as an A-level.
Ever since that moment when I took that decision to do something new, it's always been a chain of, yeah, let's figure out what the next decision is. What's the next decision? And somebody who can come back and divert me for what may be a disastrous decision through a mixture of logic and respect and financial modeling. Yeah, that's really important.
Somebody can come to me with all the skills of a CFO in the world. We've decided that we've worked as a CFO for a huge organization, and now we want to try something a little bit more entrepreneurial. If I don't respect them, it doesn't matter what their skill set is.
I need to have that respect, and that respect is grounded in something wider than just skills. It's personal attributes. And I think that probably applies for most startups and most entrepreneurs because you don't become an entrepreneur unless you're determined to solve a problem. And that becomes your sole focus. I'm going to solve the problem, whatever it takes.
And sometimes you have to have somebody say, no, you can't do it that way because we can't afford it.
You need your balance. And that's one thing I've learned, obviously running companies, is that your team, especially your immediate team, are the people that balance you. And if you don't have the right balance, if you hire people that are way too similar to you, actually, that's one of the most dangerous things you can do.
So here's a great comment. There's a friend of mine, Carole Hendricks. So she runs a startup in Estonia called Jabaticle. And it's just one of the most diverse companies I've ever seen. And she hires on one philosophy, which is I don't hire for culture fit, I hire for culture value add.
So if she has two people who have similar attributes to the functional attributes you need, she'll pick the one that's most different to her on principle. or most different to the people within the company. And it hasn't done her any harm whatsoever.
So she picks, if someone's just weirder and more wonderful in every single way, but you have a doubt because they're just so against it. She'd have hired that person while you're still thinking about whether or not they're too weird for you, just because she believes in that.
Yeah, and the other thing about hiring as well is always hire people who are better than you.
Yeah.
every time i want to surround myself with people who are just much much smarter much more agile much more um weighted in embedded in industry than i am because frankly it's the only way i'm going to succeed my vision is what's got me to where i am me spotting an opportunity has got me to where i am but that doesn't mean i'm the right person to solve it at
the end of the day it's a collective activity and the way to solve it is to have people who are going to be much better than you every single time. Hire, if you come across it, sometimes I, and maybe I disagree with my co-founder on this, is if I find someone who's just brilliant, I'll want to hire them on principle and then find a job for them to do.
Do you know, I find, see, for me it's potential. So can I see them, how they're developing and, you know, it's that balance, isn't it? Do you hire, do you find a role for the person or do you find a person for the role?
Exactly. Exactly. And there's, There's an issue here as well, which is sometimes them getting up to speed with the role you've decided that you want them to do, you don't have time to do that. And he's of the opinion like, no, we need this person right now who does this one thing. And I'm like, oh, that person's really brilliant.
You can see them being fantastic in six months' time. He's like, we don't have six months. We need this person now. And so we have this debate. It's like, I'm sure we could get them up to speed. I'm sure we could get up to speed. And the truth is that you end up on a compromise.
And that's, I need that person as a CFO to do exactly the same thing around this kind of functional role of CFO, but to still have the interests to want to grow into other bits and pieces. There's one other thing as well. As a startup, you're usually cash starved.
So you have to have somebody that is willing to believe in you enough that they're willing to take equity in view of a high salary. A CFO is a C-level role. Now, I don't pay myself anything at all, really. You know, I have one of the lowest salaries in the company because I'm the founder and the major shareholder. And the same with my co-founder.
We pay other people high salaries. But, you know, we're not in the market to give people 150K salaries. No, you're a startup. Everything is well below six figures and by default has to be. And so therefore, if you want a high especially a senior person who's got some gravitas perhaps, a senior person who's got some experience.
And this is why I'm saying that actually it's quite good sometimes to hire more junior people, not because you can pay them less, but because they have more room to grow into new things.
But if you do end up facing off against somebody who you really want, who is expecting a six-figure salary, you just have to say, no, I can give you half that, but I can give you some equity as well. And that requires them, to want to be in a stable financial position so that actually the loss of cash is not a problem for them.
It requires them to believe that the company is going to be successful and actually it's more likely to be successful with them in it. And it means they also have to believe the vision of what we're doing. So we have a responsibility to sell them a vision, but if they don't believe it, don't bother coming.
And I think that's a really accept that that remuneration is not going to be what you're used to in a big global corporate.
Just to pick up on one thing that you said there, there is no job now that is not long hours, particularly in the current environment where people are cutting back on resource, people are losing their jobs, furlough, whatever it may be. Everybody's going to find themselves working harder because the same amount of work needs to be done just with less people.
And it goes without saying that anybody that wants to apply for a role with us is going to be working very, very hard, very smart with uncertainty. I have no expectation of FaceTime. If I work 11 o'clock at night and then get up at five the next morning, it's my business, it's not anybody else's business, and I would never expect anybody to do the same thing.
But what happens when you recruit with people with the same vision and the same passion for solving the problem is that if I do drop a mail to somebody, and we use Slack a lot, and I communicate with team members on Slack, and I'll be sitting there at 11 o'clock working through some bits and pieces, and I'll suddenly have a question.
And Slack's great because it allows me to not have to write the email or put a note down that I have to ask this person the question in the morning. I just Slack them. I have no expectation of a response. 50% to 60% of the people will answer immediately because they're up and thinking about the same problems at the same time.
And it's just, I'm like, I didn't expect this answer. Why are you up? Well, you're up. Yeah, I know, but I run the company. I mean, I don't expect you to be up. And it's because you've got the right people in the company. And then you want to incentivize them with equity.
You want to make them, because you recognize that they are wanting the same success as you are, which is to solve the problem and be financially stable to sell the company or to spin off the company. This is their dream as well.
And it kind of makes you feel quite humble, to be honest, that you've got these people who've bought into your vision and have the same desire to solve the same problem. So that common shared vision tends to be, I don't require it, it tends to be the same thing that everybody has. So genuinely, you say working hard, I think everybody works hard.
I can't differentiate the life of a startup from the life of a corporate these days. Everybody works hard. long hours
so i i would i think that's an interesting point because i've i've seen a real shift with the the piece around covid in particular with people having more flexibility around their working hours yeah and i think some people go one way which is they end up working more hours but actually i think one of the things that's been really interesting about covid is that
it's opened people's eyes to the piece around work-life balance yeah wanting more time you know they've enjoyed the time with their children you know some of them have actually enjoyed furlough and and uh you know i you know there's conversations around uh the four-day working week and all of these things um and with the new technology that's coming through i i think
that's for me that's my my technology as a work enabler for
that? I've never had this attitude. You do the work that's in front of you, you do it till it's done. And when it's done, you think about the next thing. Maybe you take a break, maybe you don't. I tend not to take holidays. And when I do, I tend to work when I'm on holiday, just because that's me. But flexible working is a magnificent opportunity.
And I've been flexibly working myself. I would never judge anybody for wanting to have flexible working at all. I think it's fantastic. And there was a time when I was the managing director of a bank and I wanted to still be flexible working. And I realized that I actually had to work office hours because everybody else wanted to work bloody office hours, damn it.
And it was a horrible experience, horrible.
It was my one dabble into the corporate world in the past 15 years or so and it was an awful experience just because of that one really that one thing was the expectation particularly as the managing director of the ceo effectively of the bank that you had to be there at certain times because there was an expectation that you could deal with problems that were
brought within working hours and it's horrible i don't have any expectations and everyone should have the right flexible working everybody It should be part of what you do. And COVID has enabled us. It's made people realize that FaceTime is irrelevant. The job can still be done without sitting in an office.
You know, you don't need to be sitting there in front of your boss. I mean, I've heard of instances, I mean, very rarely, but there was a kind of rumor went around that people, they had technology that allowed you to assess whether someone was sitting in front of their computer. How preposterous is that?
How
preposterous is that? Get the job done. and then take a break. Today, I'm at my father's house, right? So you see the pictures of my parents above me. And I can do that simply because I'm flexibly working. And I would be doing this anyway, even if it wasn't COVID. It's half term for the kids, right? So I'm working through half term.
I'm here so they can go and do their windsurfing and do their training down on the beach while staying with my father. And I'll work in the car. I'll be working on this in the car. I'll have my laptop in the car as I'm sitting on the beach, watching them as they train, keeping an eye on them.
And I'll get as much done doing that as if I was sitting at a desk in an office, probably more so. My creativity is stimulated by different environments. Just, you know, woof. And the one thing I'd say about COVID is, and the one shame about it is, is that genuinely flexible working is not flexible.
It's flexible in the fact that it allows you to work at home, but it isn't allowing you to work in different places. And I love the idea of being able to take my laptop and sit on a park bench because all of a sudden the creativity starts to spark.
And the creativity sometimes isn't just about having new thoughts, it's about having the sudden fresh, working environment which gets you working on something that you haven't started for ages. I do a lot of writing, I do a lot of modelling, so modelling as in preparing financial models and preparing that kind of thing. Not that kind of modelling, Jesus the
God. To see you sunning yourself on a beach taking photos. Old and cranky, right?
So yeah, not that kind of modelling. But it stimulates that creativity and the issue with Covid is it was great for the first couple of months maybe when you were working at home but eventually you got stuck in a rut. I would say mix it up. If you're going to Embrace flexible working. Embrace it.
Sometimes sit on the sofa, sometimes sit at a desk, sometimes go in the garden, sit in the chair, and figure out those varied working environments. Because every time you go to a new place, it kind of resets the clock inside you. And what was dull before perhaps isn't quite so dull in the new place. And that's been fantastic. I've always done that.
But to see other people benefit from the same thing is wonderful.
I must admit, I'm a massive fan, so I'm lucky enough to have horses at home and actually going out and I just... That's a ficus, by the
way, it's
not a
horse. You're pointing at the fig behind
you. Yeah, the horses are outside. Oh, okay, jolly good. I was confused. The ability to sort of sit in... So I just grab a chair and I'll just go out and I'll sit on my laptop and, you know, obviously, and do that. And actually the thoughts and, like you say, the creativity that comes with that is amazing. And there was an interesting article in HBR.
I think it was this last week, was it? Around working from anywhere. So it's not about working from home. It's that concept of working from anywhere. And that's, you know, that is definitely something that's coming up. So let's dial this back because I think we can talk about all sorts of things on this podcast.
We talked very much about the similarities in terms of, you know, it's long hours whether you work in a corporate or whether you work in a startup. But what do you think is the difference between the, you know, the startup to scale up CFO versus the established corporate CFO?
It has to be, you know, the ability to work on lots of diverse problems at once, I think. You know, so I'm, you know, the corporate CFO probably has a team of people to help them underneath everything. to help them, to support them in terms of the decision making. Actually, I'll be looking for the CFO to do all of that in one person.
So to give you an example of things I would expect a CFO to do, right? So we've got a business plan. I'd like them to keep the business plan, put it into shape, right?
So that means modeling, not just all of the, what I think are projected revenues and historic cash flows, but modeling the tax implications and at what point we should apply for research and research tax credits. You know, at what point is the optimum time for doing that? So I want some optimization around the model, right?
I want somebody to come up with something that actually is really robust that makes my VCs, so we're taking on board, and I'll dial back a bit, right? Start up to scale up. We've just gone through a round of funding, or we're just going through a round of raising money.
And there was a whole bunch of modeling and financial modeling that had to be done to make the VCs understand our financial model. I would have loved to have a CFO who could have done that for me because I'm still running the business and winning clients and delivering for clients and then putting together strategy decks and all that kind of thing.
Actually, at the end of the day, when it comes to the data room, they just want the hard numbers. They want to see where our invoices are, what the invoicing cycle is. They want to know when invoices will be paid, what the time to pay is on average, when you're going to get the VAT rebate.
All of this has to be fed into a financial model to map what you think has happened to the reality of what has happened and the reconciliation of all of that because you put your financial model forward and immediately your cash position is going to be different from the actuality of it and you have to explain it. So a CFO should be on top of that easily.
But the amount of pain I've had to go through, and not even me, but my colleague, because he's the one that deals with the operational aspects, that he's had to go through. And then sitting down with me and explaining how he's come up with these numbers is phenomenal. And it's not our core expertise, because we're not tax experts.
We're not the ones who are fighting for reclaiming VAT. We don't know how many invoices, frankly, have not been paid. We don't even know how many invoices haven't been created because we haven't got the invoicing cycle. We're due a couple of hundred thousand pounds worth of income that we have to invoice. It's pending. It's due. When is it due?
Is it due this month, next month? What's the prediction around the invoicing? And all of that stuff, right, is I want that person to do that, right? And I would imagine the CFO, well, I know a CFO, a CFO will be supervising that process, but have a horde of people underneath them. Well, you've got to get your hands dirty.
You've got to come to us and say, right, clients, How many clients? How many have you sold to? At what point is the selling process? Are they invoicable? When are they invoicable? Is this VAT exempt? Are they a client that's a local government client and therefore doesn't need to have VAT and so on and so on and so on, right?
So they've got to get their hands dirty and they've got to be at all levels the CFO. For the most junior CFO type person, they're kind of like the financial analyst all the way up to the senior CFO. That's the first thing. What else do they have to do?
Yeah, in this current environment, they have to work They have to work virtually, obviously, which means they're not going to be able to sit in the office and have everything at their fingertips. They've got to have the sort of personality that's not afraid to just ring up on spec, right?
They've got to be a bit of a salesperson in a way because they can't be a shy and retiring type.
I don't think a shy retiring type would fit in with yourself, Chris. No, but they've got to
be willing to ring around the company. So I think there's an expectation for a CFO that there'll be a data room or there'll be some kind of, they're getting all this stuff through their inboxes. No, a lot of it's sitting in people's heads. And the problem can be solved with a phone call. So you've got to be able to call members of the team up, clients up.
You've got to go and say, look, I'm sorry, I haven't paid this invoice. Or I'm just checking this invoice because I think it's wrong. And then I've got to reconcile to our tax position and all this kind of stuff. So they've got to be willing to get on the phone and be proactive and get out there and talk to people.
Because it's through talking to people, because we don't have as a startup, the systems and processes and structures that they would normally be expected for the CFO would normally have existing in a big company. The third thing is that in the absence of those, they have to start setting them. So they've got to be willing.
They've got to start putting structure around that whole process so that they don't have to repeat all of that ringing around and doing all the stuff in the future. So they've got to have this kind of planning perspective. And how can I get from this chaos where we are now to something which is ordered and structured?
And so they've got to have this kind of idea. They've got to have this kind of migration plan. the plan on how to transition the business, to grow the business strategically, to bring in the points, to bring in new VC funding and which plant segments I'm going for.
And that translates to product build, which is run by my co-founder and all that product build stuff. And then at the same time, this person who comes in, the CFO has to have in their mind, right, we need to put some structure around this company because it's chaos at the moment. 17 people, and it's going to be expanding to 35 in the next six months.
I've got to put structure around this. And so they've got a full structure on us as well. And
I would actually add to that in the structure, because this is one of the interesting things, and I've talked to a few people about this, but the concept of agile finance, because I think there is a tendency to go at the beginning and put all of this structure in and go, right, this is the way we have to operate, but without necessarily, particularly for that
startup to scale up piece, that flexibility around those processes, because your billing site, how your financial modeling may change, how you work with that has to change as well. Yeah, absolutely. New
markets, new markets, new demands by VCs. I mean, we don't have any VCs yet, but when we close the round, we'll have two VCs who are professionals at this with lots of startups and they're going to be scrutinizing us.
So I also need to have that person willing to communicate effectively with what will be two very demanding, very sophisticated organizations that will want to see our finances. Constantly. It's almost they will want to know it more than me. I'll want to know the big numbers. Are we going to make a profit this month or are we going to make a loss?
Do we have enough money to be able to sustain that loss, et cetera, et cetera? They're going to want to get into the detail.
And so at one level, they need to provide me with management summaries, but they're going to have to get into the weeds with someone who looks and feels like them, who's done this with lots of other startups, and talk them through the finances in a convincing way. Because, you know, you've got to keep those people happy. You have to.
Yeah. And I would say that's one of the most important attributes. You talk about how important it is that they have gravitas with yourself and you have that respect. But those VCs also are going to have to respect your CFO. That's a bad place to be in, isn't it? Yeah,
absolutely. You need somebody that can sit down with somebody who's done this a hundred times with portfolio companies. and probably is part of the financial accounting team for the whole fund and talk them through, make them feel comfortable that the finances are real and talk them through that we're not out of control with the money. I mean, there's nothing worse.
than a VC that sees you're out of control with the money. They want to know, they expect a plan from us. It's not a very tight plan at the stage that we're at, but it gets tighter and tighter the more money they give you and the more you grow, that you are spending money according to expectations and attaining revenue according to expectations.
And if you're not, then they need to be told that and they need to come back with us and with the CFO to reset that budget because that's what they're expecting you to deliver to. It's not me just going, yeah, okay, we'll see what we get with
this. We'll make
it work. We'll make it work. But no, they're precise people. They're very thorough. And they have all kinds of step-in rights and all kinds of other rights that you have to ascribe them as part of the process of going through raising a round of money.
And your lead investor will always have rights that allow them to do things to you if you don't meet their expectations. And they certainly won't give you any more money. If you get into a financial problem, then I think the confidence in the finances is what's going to help you get more money from them.
If they don't think you can be trusted with the money, they're definitely not going to give you more money. So as you say, I think that's a really good point about making sure the person has the respect of the people who are looking over your books. They have to feel confident that someone's in control of that. It's not me at
the moment. Well, it never is because you're the ideas man, right? You are the man that is driving this forward, but you need, it's like a, you know, you're running at a million miles an hour and you need somebody to keep you on the
tracks. And that's what I'm saying. That person needs to be strong enough to say to me, no, no, no, no, no,
Chris,
look at the numbers. I mean, I believe numbers. I'm a big fan of numbers. I mean, I really do believe numbers. I just need someone to show them to me. So I am that as demanding about the numbers as the next person, as the VCs will be. But you're going to present to me. If you don't want me to do something, give me a really firm, logical argument.
Give me a financial argument and I will believe you every time because I recognize that numbers are important. It's been part of everything that I do. But I need that person to be really good with them. And I also need to respect them as a person.
As I mentioned earlier, all the other stuff applies too, but they better be pretty good with the numbers or just excellent with the numbers because they have to come on my respect and also the VC's.
And it's very important because once you jump on this funding bandwagon as a startup, taking money from third parties, you're in it for the long haul because people give you money because they're expecting a tenfold return. Now to get them to a tenfold return, you've got to grow really rapidly.
Now the problem is if they give you some money, they're not, they're not asking you to put it in your bank account as a reserve for hard times. No. One of the biggest mistakes people make is when they take money from a VC is hoarding it for a rainy day.
If you don't spend it and prove that the expenditure is for the purposes of growth, then you're in trouble. Because the only way they're going to get their money back in the quantum that they want is by you giving them 10 times the value back. That's what they're after.
So look, if I give you just simple numbers, these aren't my numbers, these are just simple numbers. It means that if you sell 20% of your company for a million pounds post money, that means you've got a 5 million pound company and 20% of the shares worth 1 million pounds are owned by the VC. They want a 10 times return.
So they want 10 million pounds off the back of that, right? But they own 20% of the company and 10 million pounds times five is 50 million pounds. That means your company cannot be sold until you reach 50 million pounds.
Now, to raise money at £5 million, you have to have an annual recurring revenue of, you've probably got to prove something in the order of £750,000. So you've been going for a year and a half, two years, you have no way you got, you're lucky if you've got.
750 000 pounds you probably just only break even but but at some point in the next three to four years you're going to have to if you're going to sell yourself because you want to have a five-year cycle around this they want to give you money for five years and get a 10-time return you've got to generate sufficient revenue to prove that you're worth 50 million
pounds that means you've got to have annual recurring revenue of seven and a half million pounds now that's a lot of annual recurring revenue it's a lot of clients But the truth is along the way, because you've taken that a million pounds and you've had to spend it on growth, aiming at this 50 million pound target that you go back and get series A funding.
Series A funding, you're going to get £10 million. So now they've given you £11 million. They want £110 million
back. It's a vicious cycle,
isn't it? And they own probably 30% to 40% of your company at that stage, maybe 30%. So £110 million of value back to them means you can't sell the company until you've hit £350 million worth of value, which means you've got to have an annual recurring revenue of probably £35 to £50 million. Think about how many companies reached that level.
So all of that cycle, once you jump on that bandwagon, for them to give you that money, they have to have confidence that your vision is strong, you're going in the right direction, and it's being appropriately managed. They're going to look at you and go, is that money being managed properly? And so a CFO becomes absolutely fundamental.
And so your point is probably one of the strongest that I didn't make. It's a much better point than any I've made. The people who need to trust the CFO, it's great if I trust them and like them, it's great. But no, no, they have to convince third parties that we are credibly looking after their money and have at least a shout.
I'm the one that provides the vision that says we have a shout at achieving a company valuation of some 300 million pounds. I'm the one that leads that vision. I'm the one, my colleague Ritesh is the one that leads the vision around the products that we develop around it.
But the CFO is the one who proves it and who proves that the company is being prudently run above all else. So of all the things I've learned today, that is the strongest that we'll be recruiting a CFO type person. They have to look strong and robust in front of the people who are funding us. Otherwise they will not give us the money.
Even if we need it, they're not gonna throw good money after bad.
So this is an interesting point. So in your opinion, for you guys, are you going to be looking for somebody that is, you mentioned industry experience is really important to you?
Well, it can be because I want them to believe. But at the end of the day, everybody has to do multiple jobs. And somebody who can talk to me about a piece, portion of the market, I don't know. I don't know. DC pension funds, name a portion of the market or pension funds in Europe or someplace I don't know much about.
If they can bring that experience, it's a value add. Fundamentally, though, there is this respect thing and being able to do the fundamental parts of the job. But being willing to work in an environment of uncertainty, volatility and deal with mercurial people like me and also be willing to take the trade off of risk.
risk-adjusted return, which is the share part, as opposed to... It's a big ask, right? How many people are willing to do all of those things?
Well, I don't know. I think as people... It's interesting, isn't it? As people get more financially secure, they're more willing to take that risk and invest in something that they will enjoy versus something that is going to necessarily... Yeah, which is the belief thing,
right?
Yeah, absolutely. So, and how important is it that they've had experience in the startup to scale-up transition? Are you more interested in them as an individual with industry or that experience in that growth path?
No, I want them to have the core skills, right? I want them to be able to know the difference between, you know, I want them to be able to sort of model of our finances and have all that. I want them to have a personal skill, which is being able to push back on me and be flexible and all of these things. It's all equally balanced.
I don't mind if they've worked in a corporate. I don't mind if they've worked in a startup. I think both are equally good. If someone's worked in a startup, it probably means they're comfortable with that risk, right? So that doesn't mean I will pick someone who's worked in a startup over somebody who hasn't.
If I see the attributes in the person, those personal attributes that I like so much in somebody who's worked in a different environment, the corporate environment, it's not gonna stop me from hiring them. I'm not gonna say you have to have startup experience You've got to want to have startup experience to work with me.
But you don't have to have had startup experience. But you do have to understand all that it brings with it. Because it is a... It's a funny old world, right? It's risky. You know, one in how many startups fail. And bear in mind, by the way, again, the statistics, if you are a...
If you get on this... this gravy train of VC funding, which is really the way you're going to get to be a billion pound company, right? VCs fund you because they want you to be a billion pound company. That's what they're doing. They're not funding you to be a 30 million pound company. That's called a lifestyle business.
Don't take money from VCs if you want to be a lifestyle business where you get paid well and get dividends. No, you're doing this because you have the massive earn out and you're solving a massive problem. And the VCs are backing you on that basis. But one in 10 of the companies they fund, maybe even less, ever get to that part.
So when they give you money, what they're not telling you is that there's only a 10% chance you're ever going to get there. They like to think they're good at picking winners. and some are better than others, but nevertheless, the statistics don't lie. You have a 10% chance.
So you, me, I have to have a belief here right inside me to take this, that I'm gonna be the one in 10, but then every other nine believe exactly the same thing. They believe that right here, but you're not gonna make it 90% of the time. That's the simple truth.
That's the risk
you take.
Yeah, and that's the environment that you're living in. You're living with that knowledge and that thing that actually, you know, you've got a 10% chance of achieving your dream. But if 10% is good.
If it pays off, it pays off in big, big, big style, right? And you also have what's really interesting, what people don't realise is if you become one of those successful few, yes, you'll get a big paycheck. So CFO comes in and takes even a small amount of equity.
A tiny piece of equity in a company that sells for a billion pounds is a lot of fucking equity, right? Lots of money, right? How much money do you need? But you also become a star, a celebrity of sorts. So me, I'm not interested, never have been interested in that.
I just want to have the money I can have to keep my kids fed and clothed and to have a bit of fun and all those kind of things and above all else to solve the problem. But a CFO hasn't got that vision, doesn't have that.
They're going to come in, they're going to take some equity and 90% of the time it's going to be worthless and they're going to have a salary that's going to be half of what they would expect normally in a big corporate. But they're going to take that equity, right? And they're going to have it. And sometimes it pays off.
At the end of that, they are the star CFO of a successful startup and they will get a job anywhere.
They
will be one of the few recycled CFOs that is able to go on the speaking circuit and work with VCs. They'll get a job with a VC because once they've worked on an insider startup, they become eminently employable in a VC to work as the other side of the fence, checking startups and their finances because they know what they're
looking
for.
That's it. So it can be a real win if they do their job well and they keep you under control, Chris, and they get the company where it needs
to be. All the best with that. All the best with that.
Just talk to me, before we finish, for those that want to get into this startup world and to do this for a role, where do they look? So where are you searching for your
CFO? So we don't use recruiters. I get recruiters. There's another simple rule which I work on, which is a personal recommendation has a 30% chance of success. Someone you pick just randomly from the crowd or brought to you by a recruiter has a 10% chance of success, right?
So by 10% chance, you bring them in and maybe one in 10 turns out to be the person that you really were looking for and you never have to recycle them, right? And find someone else for the role. A personal recommendation, works wonders. It is just the best way of recruiting people I can possibly imagine.
Now, that's why recruiters try and get inside your head and try because they want to be your friend because they recognize the personal recommendation thing. But the truth of the matter is that certainly the startup level, most of it, you don't have those personal connections with a recruiter.
They tend to be people who just fire CVs at you because they've got CVs in their bag, not interested. If you're a recruiter that works like that, don't bother contacting me. But if you are somebody that's looking for a job that likes the idea of this, do contact me. Do reach out to startups that are in my stage and say, are you looking for a CFO?
So one way to think about it, if I was going to do this, if I was that CFO looking for the job, that's probably a good way to think about it is, ask yourself what sector you'd like to work in, what problems would you like to solve? And then look at the list of startups at this stage that are in that space.
Yeah. And just contact them.
LinkedIn. Find their contact details. Watch the presentations. Go and watch Tech Nation's startup pitching. Go and watch Founders Factory's startup pitching. And just go, I really like that. That looks really interesting. I want to work with that company. And then just reach out. Be proactive.
Because I tell you what, anyone that's willing to be proactive has probably got 50% of the skills I look for in an entrepreneur anyway.
Brilliant. Well, that is an amazing way to finish the podcast. Thank you so much, Chris. It's been lovely having you on. And
thank you. It's been really interesting. And by the way, you've given me one of the best selection criteria for a CFO I've heard, which is they have to make my funders happy above all else. Otherwise, I won't get the money next time.
Thank you for that. Absolutely. No worries at all. Well, have a great day. Thanks, Chris. Thank you. Bye-bye. Thanks for listening. And I hope you enjoyed this episode. feel free to tell me what topics interest you most I would really love to hear your feedback Don't forget to check out our latest CFO 4.0 webinar on budgeting and planning in a volatile environment.
Click the link in the show notes or visit www.itassolutions.co.uk and click on our events page for more info and great content. And if you want to reach out at any point, tell us what you liked, tell us what we can do better, then feel free. Just email us at cfopodcast.itassolutions.co.uk. Thank you and speak soon.