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Pre-IPO Advice from a Premier VC — Great Finance Group!

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Sandy Miller at IVP, one of the premier VC’s around, wrote a blog post today with some advice for tech CEO’s thinking of going public one day. What I thought was particularly insightful were his points around hiring the best CFO and starting to act like a public company NOW (assuming you’re thinking of going public in 12-18 months).

In order to have i) the best CFO and ii) start acting like a public company now, I believe every company needs to have a meticulous understanding of the financial statements (and therefore the business) through a strong finance group. One of the surest ways to delay, or worse, derail an IPO process is to not have a deep understanding of the numbers. Complexity can come from a number of areas including SaaS/subscription accounting rules, revenue recognition, international presence, and/or multiple lines of business. Often, even at later stage companies, the finance group is neglected and perceived as an after thought. Understandably, resources are directed primarily at engineering/product, sales, and marketing groups. But while a successful company needs those strong groups, a weak finance group can come back to haunt a CEO.

There are two types of finance people, accounting and strategic finance. You can’t complete a successful IPO without reliable financial statements, and that’s where robust accounting is important. If they haven’t been at the company awhile, you run the risk of restating your financial results (which your investors won’t like, not to mention any potential IPO investors). While you can technically complete an IPO by having accurate financial statements, you probably wouln’t be in a position to IPO without a strong strategic finance group, often called financial planning & analysis (FP&A). While accountants focus on GAAP and FASB rules, strategic finance people analyze data and variances, and are able to provide real insight and knowledge around budgeting and forecasting. Also, sometimes, the C-suite doesn’t know the key metrics to use to optimize the business until a strong FP&A person can show them.

Depending on the complexity of your business, even if you can’t afford a great CFO right now, think about getting a good accounting and strategic finance group in place earlier than you would think, probably when your company hits the 50-100 employee mark. A strong finance group leads to a knowledgable and smart CFO, one that investors (and even buyers) will feel confident around. A weak finance group, and as a result, a weak CFO, could be the difference between a successful IPO (not to mention a potential sale of the company) and well, a not so successful one.

The entire blog post can be found at Re/code.   Also,  IVP, one of the best in the business.

Christopher Chiou

Bay Area based for 12 years and originally from the NYC area. My career has been spent as a technology dealmaker, advising clients on M&A and capital raising, and as a principal investor backing great companies and teams. I'm passionate about technology trends, traveling, sports, politics, Knowledge, and Duke basketball.

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