#1 So What’s a VC Fund CFO?

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Next week: we’re sharing our latest VC Fund Model, stay tuned!

Today’s Top 3:

• The VC market is rocking and breakout companies are raising more capital. How are VCs and companies keeping up? Answer: getting leverage wherever possible (including from CFOs)

• VC budgets are driven by fund size. Understand core vs. optional services. From there, prioritize the right way to invest in the firm to keep up!

• @TheFundCFO industry is growing rapidly with these VCs. VCs must choose if/when to hire and part-time vs. full-time. The timing depends on key priorities!

Setting the Stage: Market Update on VC & CFO’s

Venture capital is changing faster than ever before. Recent headlines like “Global venture funding hits all-time high” and “Traditional VCs turn to emerging managers” tell part (but not all) of the story. VCs are funding more and more companies at a rapid pace. Some thoughts:

1. Companies are staying private longer (i.e. Airbnb, Coinbase)

2. Technology is changing every industry

3. Select VC firms have generated amazing returns for their investors

4. There is more capital chasing VC than ever before, making it more competitive to stay on top

5. To maintain and/or create an edge, VC investors/firms need to focus on what they do best, investing

Meanwhile, more companies, more CFO’s (“Demand for Part-Time CFOs Heats Up”). A CFO helps a company manage all things finance. Venture capital firms are often advising their companies to “Hire a CFO” (Jeff Jordan, a16z). Depending on the revenue and stage of the company, this can be a part-time or full-time hire.

Are VCs Eating Their Own Dog Food?

Today, there are thousands of VC firms, growing daily. Are these VC firms hiring a CFO themselves? At the right time, yes. Before they to do, they are covering the CFO responsibilities with their existing resources (including their own time).

What do these part-time or full-time VC Fund CFOs do? These are the top 3 responses we are hearing from the funds we work with / speak to:

1. Own all things finance, develop / oversee key finance processes (i.e. The Fund Finance Playbook)

2. Maintain and update core finance files to inform strategic decisions (budgets, fund models, forecasts, etc.)

3. Push forward finance initiatives weekly, including accounting, audit/tax, legal, investor reporting, etc.

We recently asked our Twitter audience and now we are asking you. When should a VC fund hire a consulting CFO? Somewhere between $10m-$200m? What about a full-time CFO? $500m+? Let us know what you think @TheFundCFO.

Building a VC Firm – Where to Invest?

As a VC, your top priorities are to raise capital and invest in great companies. However, you still are running a business, which requires more time and attention than most expect. You need to invest in the right team, software, and services to provide support as you grow.

First, it’s important to start with a simple budget (for a more detailed discussion on this than we have time in this article, see our article with Oper8r here). Here’s some quick math:

Typically, an emerging (“new”) VC fund charges a 2.5% management fee and 0.5% for fund expenses. Almost all LP investors will say the management fee is not there to make VCs “rich.” It’s there to cover core expenses (i.e. salary, office, software) as a firm grows. We typically see VCs budget 75%+ of the management fee for salary and team expenses. Fund expenses include certain types of legal, finance/accounting, audit/tax, and deal-related expenses.

Service Provider Support – Core vs. Optional

The core service providers we see for emerging VC funds include legal, fund administration/accounting, audit & tax. These are typically table stakes. Investors often like to see these “guardrails” in place to feel good about the guidance / support around an investment firm.

Informed by our work with hundreds of funds, we believe anything you spend money on should give you “leverage” in the form of more time, better investment opportunities, and ability to grow faster. Our first questions when we meet with a VC:

1. How do you want to spend your time as the founder(s) of the firm?

2. How do you want your team to spend their time?

3. What time investment will give you the greatest “return” as you grow?

This is where firm founders have options. Where could a team use additional areas of expertise or more time? The larger “optional” service provider expenses include compliance, CFO, operations, information technology, and human resources / recruiting.

Should You Hire a CFO? Yes, no, maybe so… (+ further reading)

It depends. How do you want to spend your time, your team’s time, and what’s the greatest return? What’s your current budget and best way to allocate accordingly? These are nuanced questions and different firms have different answers.

We’re excited to dig deeper here every week, working alongside groups like @OpenLP, @Oper8r, @KauffmanFellows, and @WeekendFund (Our Stack @ $10m), who are all sharing data and resources to drive answers!

That’s all for today folks! Thanks for your support and spreading the word! Share this on Twitter or LinkedIn to help grow “the crew!”

Next week: we’re sharing our latest VC Fund Model, stay tuned!

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