Bessemer’s Jeff Epstein on the best advice to startup CFOs navigating uncertain times
You are reading the second installation of our new thought leadership spotlight, “The Evolving Role of the Startup CFO.” This series features perspectives from prominent players in the startup ecosystem. Leading our second spotlight is Jeff Epstein, Operating Partner at Bessemer Venture Partners.
It’s no secret that market conditions are tough right now. But for startups, hunkering down isn’t an option: a startup has to build and grow in order to survive. So, what’s an ambitious business to do?
Rather than growth at any cost, “you need to grow in a rational and balanced way,” advises Jeff Epstein, Operating Partner at Bessemer Venture Partners (Bessemer). Over a long history that stretches back to the Carnegie era—and through plenty of trial and error—Bessemer has learned how to identify investments that can go the distance and build businesses that are fit to last. As the leader of Bessemer’s CFO Council, with plenty of direct CFO experience of his own, Jeff specializes in the kind of financial strategic and operational excellence that supports dynamic startups at many different stages of growth. We sat down with Jeff to get his best advice for CEOs kick-starting their company’s finance function and CFOs positioning their businesses for long-term success in uncertain times.
Get the right person at the right time
Startup businesses at different stages of growth will benefit from having different profiles in the financial leader seat. “At a company with about $5 million in revenue, the finance leader is very hands-on – both a player and a coach,” Jeff says. “Fundraising experience is not as important in this early stage, because the CEO usually leads fundraising. When a company reaches $50 million in revenue, the finance leader often fills three different functions simultaneously. They should have a keen, nuts-and-bolts accounting knowledge; they should be able networkers, ready to pound the Wall Street pavement and raise money from bankers and investors; and they should be eagle-eyed analysts, adept at forecasting, budgeting, and financial planning.”
Equally important to these skills is the working relationship between a CEO and a CFO. “Entrepreneurs are optimists,” Jeff says, “they believe things can be ‘bigger and better,’ and have an unreasonable confidence they can overcome all obstacles.” The board and investors, on the other hand, more often have a more balanced view. “At the best companies, the CFO is a counterbalance to the CEO, offering an alternative, more cautious point of view. Ultimately, the CEO makes the decisions.” Jeff says, “If there’s mutual respect between the CEO and the CFO, the CEO will make better decisions.”
Distinguish hopes from expectations
“The first rule of a CFO is: never run out of cash.” In today’s market, when capital is so expensive—and thus harder to come by—this caution is more important than ever, Jeff says. “It requires discipline that many companies didn’t need when they were growing 100% or 200% each year— they need to have it now.” At Bessemer, portfolio companies often aim for what Jeff calls the “Goldilocks Budget,” an aspirational plan that includes a contingency to balance the chance of success against the probability of falling short. It’s better to discuss probabilities openly with the company’s board, even welcoming disagreement about the best approach—so long as everyone gets on board with the ultimate decision.
Planning ahead and building in a buffer have always been sound strategies; now they matter more than ever. “The general framework hasn’t changed,” Jeff says, “For venture-backed companies, your cash runway, the number of months you have until you’re out of cash, is critical.” In 2021, companies raised venture capital in three months or less; today, it may take six months or more. In this market, the best CFOs try to extend their cash runway to two years by keeping costs low. They under-promise and over-deliver.
Don’t be afraid to experiment
Startup CFOs shouldn’t only hedge against risk. It’s equally important to remain innovative and nimble when it comes to the company’s day-to-day operations. Think about how to do more with less,” Jeff advises. “For instance, consider whether expenses like software and office space could be streamlined to cut costs and help the company work more efficiently. Companies are now closely measuring productivity,” he reflects. “For instance, do you need to pay New York or San Francisco wages to employees living in lower cost locations?
Big gains can also be found when companies scale up by improving their processes and automating —important evolutionary changes that companies might not have prioritized in an easier market environment. “Maybe you haven’t done that because you weren’t focused on process improvement as you were focused on growth,” Jeff suggests, “Now is the time to go back and improve all those processes.”
Build a team you can be proud of
In the end, piloting a company’s finances through choppy waters isn’t so different from smoother sailing. At least, the secret to a satisfied CFO is the same as ever: “the number one thing is being on a winning team.” And that still means scoring big, but home-runs might be harder to come by in a tough market. So, it’s more important than ever for CFOs to be proud of the teams that they build. “Not only your peers, and your CEO, and your board, but the people that you hired, and recruited, and trained,” Jeff emphasizes.
With skill-building and collaboration-enabling companies like Guild Education, Box, and more in the Bessemer portfolio, Jeff knows intimately the importance of assembling the right people and giving them the right resources and capacities for the job. A strong CFO can transform a somewhat experienced and partly trained team with less-than-ideal processes and systems into a well-oiled machine. Whatever the outcome in uncertain times, that’s something to be proud of.
In the next installment of our Evolving Role of the Startup CFO series, look out for some key tips from Chris Garber at Guild, a Bessemer portfolio company.