Do you have the right finance executive in place to lead your organization through an IPO and beyond? While the IPO market is currently chilly, it will warm up again eventually, and it can take months to hire and onboard a high-performing finance chief. And even once you have one, it can take years to develop the operational rigor necessary to successfully enter the public markets. If you want to be ready to take the public markets by storm when conditions normalize, right now is the time to focus on your executive talent bench.
However, it can be difficult to know what to look for when hiring a high-caliber chief financial officer (CFO). Which operational qualifications are critical? And which might be a distraction or unnecessary roadblock during your executive search? While there’s no shortage of anecdotal opinions on the matter, ICONIQ Growth dove into data on dozens of public software companies to develop a broad and quantitative point of view.
Methodology
We studied 72 venture-funded SaaS companies (including several ICONIQ Growth portfolio companies) that IPO’d between 2015 and 2021. Using LinkedIn, public filings, press releases, and internet archives, we identified every head of finance (or equivalent position) [1] at each company between founding and IPO. We collected over 60 data points on each finance leader, including their entire work history, career progression, area of expertise within finance, and more. In this summary of our findings, we’ll focus specifically on the cohort of heads of finance who were in this leadership role at the time of IPO [2]. If you’d like to access our findings on earlier-stage leaders, please reach out to us.
Companies included in this analysis:
Trademarks are the property of their respective owners. None of the companies illustrated have endorsed or recommended the services of ICONIQ.
The perfect time to think about hiring the CFO who will guide your company through IPO is two to three years prior to your desired public offering window.
Among the companies we analyzed, the median timeframe for hiring the CFO who led the company through its IPO was 27 months in advance of the event. In terms of revenue, 44% of companies made this hire after reaching $100M ARR, 31% of companies hired this leader between $50-$100M ARR, and the remaining 25% filled this role before reaching $50M ARR.[3]
At one extreme, our dataset contained a single CFO who joined his organization as employee #14 at $300K ARR and scaled with the company for over eight years through (and long after) its IPO. While this is clearly possible, it is uncommon as many finance executives specialize in a specific stage of company-building. It’s rare to find someone who demonstrates the versatility to lead both an early-stage startup and a public-ready enterprise. On the other end of the spectrum was a company that filed for its IPO just one week after hiring its CFO and went public one month later. But even after considering those outliers, we believe a two to two-and-a-half-year pre-IPO timeframe is optimal, as it allows sufficient time for the CFO to develop the organizational discipline necessary to accurately forecast revenue and hold their peers accountable for predictability.
As discussed during our ICONIQ Ideas online conversation with Snowflake CFO Mike Scarpelli, titled “Building Enduring Public Companies,” forecasting is arguably the most important factor in determining public readiness. As Mike said, “The street is not forgiving when you miss your numbers, so it’s important you have confidence in your [ability] to guide your business.” In a recent analysis, ICONIQ Growth found that a company’s ability to “beat and raise” revenue estimates each quarter post-IPO is strongly correlated with performance. We believe building this organizational muscle can take several quarters, which is why the CFO should have ample opportunity to “dress rehearse” prior to their public market debut.
As a final timing consideration, don’t forget to build in at least six months, possibly longer, for the CFO search process.
CEOs should prioritize candidates with public company CFO experience.
Among the companies in our dataset, most entered the public markets with a CFO who had prior public company experience.[4] Sixty-five percent of those hired between $50-100M ARR, and 68% of those hired after $100M ARR, checked this box.
We believe public company experience is particularly important for CFOs because—unlike other functional leadership positions—the public versus private dichotomy is not simply about scale. Being a public company CFO requires a different knowledge base (e.g., SEC disclosure requirements) and set of skills (e.g., forecasting and “beat and raise,” and the ability to build credibility with the investment community). In contrast with other executives whose roles may not change overnight once a company goes public, CFOs will find meaningful differences in their “new” job and thus benefit from prior exposure to this environment. It may introduce significant risk to ask someone to “learn on the job” when operating in a public company environment for the first time.
More specifically, we believe late-stage CEOs should look to hire a CFO from a public SaaS company—or at minimum, a technology company—given business model complexity. We found just one example in our study of a late-stage CFO hire from outside the technology industry, with the majority coming from SaaS.
As an alternative to public company CFO experience, CEOs should consider candidates with public company exposure at (S)VP levels, not necessarily private company CFO experience.
Hiring a prior public company CFO will not be an option for every company. Roughly one-third of late-stage CFO hires in our study did not have this qualification. This raises the question: what is the next best alternative? A private company CFO? Or a public company (S)VP? Or someone with both backgrounds?
The answer may come as a surprise. CEOs in our study chose to prioritize public company SVP/VP experience over private company CFO experience more than twice as often.
Given the stark differences in the role of a public company CFO versus a private company CFO, it stands to reason that public company experience, even in a non-CFO role, may be viewed as more germane.
In many cases, someone who hadn’t held the top finance job before may have reported directly into the CFO. Despite not overseeing the entire function, they may have built skills that will be valuable when they take the reins – for example, forecasting, if they were in a VP FP&A role. We believe recruiting someone who has worked under and learned from a public company CFO can be a powerful alternative to recruiting a public company CFO.
CEOs should not feel restricted to the limited pool of candidates who have directly participated in an IPO process before
While public company operating experience may be critical, the data shows that prior IPO experience is not viewed as necessary. Many of the CFOs hired by companies in our dataset had been at public companies, but joined these companies after their IPO had taken place. We often hear “IPO participation” cited as a must-have qualification, but our data suggests that this may instead be viewed as a “nice to have.”
As the IPO process tends to be fairly prescriptive and well-documented, we don’t think it’s necessary to constrain your CFO search to the limited pool of candidates who have rung the opening bell before.
ICONIQ Growth endeavors to help founders and CEOs make data-driven executive hiring decisions. If you are a hypergrowth SaaS company, please feel free to reach out if you think we can be helpful. Our full analysis on this topic includes additional insights including the prevalence of various types of finance backgrounds among CFOs, data on titling, trends on earlier-stage finance leaders, when to hire your first Head of Finance, and more. We are happy to share the full report upon request.
Published:
October 18, 2022
