Taking the guesswork out of finding a PE-experienced CFO for venture and investment firms

There are plenty of corporate recruiters who will probably be able to offer any number of applicants that might (hopefully) possess some attributes your company needs in a PE CFO. That approach is a bit like throwing mud at a wall and seeing how much actually sticks. A top recruiter, however, will take the necessary time and effort selecting only the best performers with proven track records for your organization’s needs.

What qualities and competencies are venture capital and PE firms looking for in a CFO?

Many recruiting companies seem to have trouble placing qualified top talent experienced in private equity (PE) with investment firms, particularly with venture capital companies. These problems are more common than might be expected, due to a number of factors.

For one thing, venture capital firms in particular can pose challenges even for experienced recruiting companies. Characteristics that spell success for a prospective CFO in a PE environment can be tricky to nail down. Qualities and experience that made for a successful CFO for a non-PE firm may not always translate well outside into a more expanded, faster-paced role where they are out of a once-comfortable niche thrust into a position more akin to gatekeeper.

Second, the necessary skills for succeeding as a CFO with PE are often lacking, either in experience, temperament or the ability to adaptto a work environment that can be 180 degrees from what they previously experienced.

Flexibility and agility are a must: a candidate needs a sense of urgency, a constant quest for improvement and a track record of successfully exceeding expectation, with improved financial outcomes. Then there are adaptability issues: a PE CFO needs to be able to agile and informed enough to quickly build on new financial models along with the ability to quickly scale a business operation.

Excellent communication skills are essential as is the ability to ask the right questions to the right sources at the optimum times.

Surprisingly, experience itself isn’t always a good indicator of future success elsewhere, particularly if placing a former CFO of a publicly traded company, for example, into a CFO position, where that person is no longer responsible for traditional bookkeeping functions but must now report on numerous value-creation and strategic financial restructuring programs.

An exception could be the size of the candidate’s previous employer(s): if a $500 million firm is looking for a CFO capable of helping them double revenue by global expansion, they’ll want someone who has a track record of managing an organization with revenue of $1 billion or more along with complex international strategies and operations. On the other hand, those from larger companies also may have had access to more resources – something that may require a new PE CFO in a smaller company to have to deal with.

Finally, the ideal PE CFO thinks like an owner, with an entrepreneurial outlook, a concise and clear communicator and a hands-on approach, while knowing what “good should look like” within the organization.

You need more than a bookkeeper

Statistics show that close to 75 percent of CFOs lose their jobs when a company either purchases or switches to a PE investment firm. That’s in large part because they may have been excellent controllers and accountants but almost always come up lacking in planning strategic sensibilities and insights. In fact, being a PE CFO requires the ability to wear many hats: managing up, often acting as a departmental ambassador as well as external having enough polish to externally represent the company as a firm trading on the public record.

Most bookkeepers and controllers are not accustomed to the more complex analytical and strategic planning aspects of a PE CFO, with a tendency to use a “rearview mirror” perspective rather than look forward “through the windshield.”

Consequences of deficiencies in placing the wrong or unqualified talent:

Deficiencies in areas such as accounting, personnel, portfolio and time management skills as well as technological expertise can abound. Missed opportunities, disgruntled investors and employees as well as growth stagnation are just a few of the pitfalls from hiring the wrong CFO. While it’s certainly possible for a current CFO or someone from a non-PE firm, the odds aren’t in their favor. 

A little advice to prospective CFOs of PE firms

A long-time CFO who now finds him or herself in that position needs to learn to very quickly adapt or else begin a job search since the handwriting has probably been on the wall from the day of the PE acquisition. Keeping one’s job, then hangs on knowing what they don’t know, and how to tap into the resources networks needed to fill in their knowledge gaps in skill sets and experiences.

One good networking and thought-leadership resource is the Private Equity CFO Association (PECFOA), with its local chapters in many cities around the country. It’s a good way to interact, exchange information and collaborate with peers facing the same types of experiences and challenges as most other PE CFOs.

One more thing

Working with recruiters who are themselves directly involved in hands-on PE and other investment funds is a much better bet for finding the ideal CFO candidate than working with most other types of corporate head-hunters. Knowing what makes a successful CFO for a PE enterprise is half the battle, so who better than a firm which deals with PE to identify and make CFO recommendations? That’s something for your managers to keep in mind during the search process.

Alex