It can be tough for a new company to attract venture capital these days -- and it can be even harder to find a veteran chief financial officer (CFO) with the sort of expertise to handle the detailed planning and projections that must be pulled together before the company can start calling on prospective investors. Given the no-guarantees atmosphere of today's economy, nobody can blame a seasoned CFO for being reluctant to sign on at a young company.
There is, however, an alternative -- an increasingly popular way for young companies to get the in-depth, yet short-term, help they need, and to do so without obliging the much-needed CFOs to give up their security and financial safety nets. Call it rent-a-CFO
BIRTH OF A NOTION.
Begin with John Tatum, who was lured from investment banking into the world of startups when he became CFO of a young company in 1990. After that business was sold, another small company wanted to hire Tatum, but could only afford him part-time. "John said he could do that, and maybe even turn part-time CFOs into a business," explains Michael McCracken, president of Tatum CFO Partners, which was founded in 1993 in Atlanta and began a nationwide expansion in the late '90s. Adds McCracken: "What you find in companies today is a much more intense requirement for knowledge."
That demand for financial know-how surfaced at CeLight last summer. Growth at the 2-year-old optical telecom company, which is based in Silver Spring, Md., was such that money matters could no longer be left in the amateur hands of the outfit's engineers and marketers. As co-founder and CEO Amir Shaked explains, he couldn't afford a full-time CFO, so he hired Hal Van Horn from Tatum for several weeks on a project basis. By November, when CeLight was starting to get serious about looking for Round 2 financing, Van Horn was on board full-time. The deal closed on that financing, $45 million, in June.
"It was extremely hard work to get that $45 million," recalls Shaked. The market was deteriorating rapidly, so the bar kept getting higher -- and due diligence was becoming intensely diligent. When potential investors looked at the CeLight's budgeting process, they wanted to know, "Is it meaty, or is it hype?" Shaked says, adding: "The depth of the team is very important in today's climate."
TIME AND MONEY.
Van Horn describes the financing process as a three-month task that ended up taking eight months. A veteran of a big corporation, Van Horn finds it more interesting to work with small, young companies where he is "directly responsible for moving the ship along." At the same time, he has the Tatum network, now 350 partners across the country, providing both job security and a deep base of intellectual capital. At one point, when the VCs demanded information he didn't have, Van Horn was able to e-mail the network and have answers or advice from half-a-dozen partners by morning.
Similarly, when Cytura Corp., a Florida software company founded in 1998, wanted outside capital in September, 1999, it hired Carl Beling of Tatum as CFO. Beling began by working one day a week, but went full-time as the responsibilities continued to mount. Now, two months after Cytura received $11 million, Beling is part-timing once again. "It took us, from the time we really got serious, close to a year to secure that financing. We worked on it long and hard," says Beling, who took pains to note that the outfit is "not a dot-com. We sell to brick and mortar companies."
When Robert Weis founded CFOs2GO in the mid-80s, he was its sole CFO. After a couple of consulting jobs for Bay Area companies, his business took off -- so much so that he now boasts thousands of CFOs and other financial professionals in his database. CFOs2GO works on a recruiting model, but, in addition to filling full-time openings, it also will provide consulting CFOs to any business needing, say, 20 hours of advice per month. CFOs are also made available on a contract basis to corporate clients requiring specialized expertise for periods of several months at a time.
IN, OUT, OVER.
"The notion that built our company and fed our staff for the last three or four years was being able to give startups deeper talent than they could ever get otherwise," Weis says. As for the sort of CFOs interested in taking short-term assignments, Weis sees them more as designers than caretakers. "These people live for the projects," he says. "The last thing they want is the mundane."
Overall, McCracken says, CFO tenure is shorter today -- "an average of three years, now that the lifecycle of business is changing." That's because VCs push companies to grow quickly, and the CFO who fits the bill for the first two years might not be the same individual best suited to see a business through an IPO or merger. Similarly, the best one for the merger might not be the right choice to watch over a mature company.
All the CFOs in the Tatum partnership have a minimum of 20 years in business, with at least five of those as a CFO. McCracken, for example, put in 22 years at Ernst & Young, where he came to recognize the huge market for portable CFOs. "There are CPA firms, there are law firms, but there were no CFO firms," says McCracken, who helped lead Tatum's nationwide expansion.
COSTS AND BENEFITS.
A short-term CFO goes on the client company's payroll for as long as he or she works there, with Tatum receiving a monthly fee equal to 20% of the CFO's salary. The hiring company pays no recruiting fees, relocation costs, or severance. Weis says CFOs2GO charges typical recruiting and placement fees -- 30% for a CFO, 25% for a comptroller -- and will prorate those costs if the professional is need for less than a year.
Any difference in cost between tapping the Tatum partnership and traditional hiring is minuscule, says Shaked. Although the work needed to get that $45 million in venture capital is over, Van Horn will be staying on indefinitely at CeLight. "The No. 1 asset a company has today is cash -- and you need someone smart to manage it," Shaked notes. In an economy where cash is king, the CFO is the palace guard.
By Theresa Forsman in New York
Edited by Robin J. Phillips