This article has been published on Medium first on November the 24th of 2016.
Interview with Raffi Kamber, partner at Alven Capital
When is the right time to recruit a Finance team and how to do it?
If this question is not the first in the minds of the startups’ founders, it is, actually, a key success factor. We have collected the opinion of Raffi Kamber, partner at Alven Capital, who has invested in more than 100 startups in Europe over the past 17 years, including Drivy, Stripe, Algolia and Frichti.
Is the Finance function essential for the successful development of a startup?
[Raffi Kamber]We don’t really talk very much about it, whereas the Finance function is an extremely important cornerstone for a startup. It is particularly essential to know how to monitor your expenses and plan your cash inflows and outflows to avoid very unpleasant surprises.
How is the Finance function organized in a startup?
I think we have to identify three stages in the "financial" life of a startup:
Number of employees: 2 co-founders, "pre-financing", little or no income
The startup generates few financial flows (whether incoming or outgoing) and it is sufficient to have one external accountant, who works with one of the co-founders. You have to estimate between 1,500 and 2,000 euros in fees per year.
Number of employees: 20–25 people, post seed-funding/serie A, little income
The company also keeps its external accountant. However, an Administration and Finance Manager is often necessary to link the operational team to the accounting department, to help the CEO with his budget and reporting, and to take on legal and human resources tasks.
This profile is therefore very multi-tasking, and essential for the proper financial and organizational operation of the company.
Number of employees: 50 people, post serie A or B, 1.5+ million euros/year turnover
A true finance function is needed at this stage. Public accounting can remain outsourced. However, an internal team is being set up with generally 2 or 3 people: an administration and finance director, a management controller and an accountant. The team's responsibilities are: reporting (reporting all operational team information, revenue, expenses), management control, budget planning (every 3 to 4 months), as well as transversal projects related to the company's growth: fundraising, monetization, opening new countries for example.
What are your tips for recruiting these types of profiles?
Before you even recruit employees, you must carefully choose your accounting firm at stage 1. Many accountants have had very little exposure to digital companies. Experts who have already worked with start-ups and who are familiar with this "Young Innovative Company" statute, will save the founding team valuable time. In addition, it is important to ensure that the firm is able to adapt to the pace of a startup's life, but also that it works with online tools (its own platform or market tools).
In "stage 2", the "multitasking" profile is very difficult to find.
The ideal person is generally around 30 and had one or two experiences related to finance/law, and knows the start-up universe.
You must therefore identify potential candidates within start-ups that have "evolved" a lot and have therefore partitioned their financial, judicial and legal functions. Potential candidates often look for a new opportunity in a younger structure in order to find transversal responsibilities.
Alright, in other words, they're bored, their start-up is about to become a "big company"?
There is also another possible source of candidates: people who come from audit and consulting, who are generally highly structured, comfortable with numbers, and ready to develop expertise on legal issues. In this case, I would recommend exploring with the candidate his/her ability to adapt to a start-up environment, as well as his human qualities. Indeed, this person will be a central contact point in the organization in the absence of a Head of Human Resources, both for current employees and the acquisition of future talent. There is no margin for error, given the competitiveness of the start-up recruitment market.
Finally, in "stage 3", a start-up usually has a CFO. The technical qualities are always as essential, but the responsibilities related to human resources management are entrusted to a dedicated person. This allows the CFO to spend more time on relations with investors. Indeed, at this stage, this person is often an essential intermediary for the CEO with current investors and a central element in the fundraising process. Ideally, he/she is visible and exposed in the world of Venture Capital and perfectly masters its codes.
Profiles for this kind of job are also relatively rare. In an ideal world, the administration and finance manager recruited in step 2, "grows" with the start-up and then occupies this job. It also allows you to capitalize on our very detailed knowledge of the company's history and DNA.
What salary should be proposed to these "talents"?
I want to tell you that there are no rules, it is all a matter of negotiation. But I feel like I'm not going to get away with this! [smile]
So just for the record I would say: for a relatively "junior" profile ( 3-4 years of experience): around 50-60 K€ gross per year; for candidates who were working in consulting or auditing, who make a real effort on their remuneration: 60-80 K€; and finally for experienced financial officers: 100-120 K€. In addition to each package, depending on the company's policy, there are mechanisms to link it to the company's performance, making it possible to retain talent over the long term, such as founder warrants (BSPCE).
If you were to name a role model for start-ups, in terms of financial management, what would that be?
I immediately think of the Mailjet team. After starting with an accounting firm, an Administration and Finance Manager joined the team, a profile that is comfortable in a wide variety of fields as I described earlier. An external part-time CFO then came to strengthen the financial processes and prepare them for the arrival of the current CFO Laura Pallier, who was previously at KPMG. The Mailjet team has therefore passed the 3 stages mentioned with brio.
They have rigorously structured their Finance function, both in terms of internal processes and recruitment.
Their reporting and forecasting analyses are fair and accurate, their expenses are kept, their P&L is under control: it is an incredible comfort of mind for their investors, and also for the management team, which can focus on the operational.
Do you have any SaaS tools/solutions to recommend to the Finance teams?
Honestly, I don't have any reference tools in mind, Microsoft Excel remains predominant. Few solutions are suitable for small structures, and this is where Qonto can provide real added value.
The industry is still in its beginning and still has to be conquered. A word to the wise!
Do you have any final advice for startups that would like to pitch Alven Capital?
For a first contact, I often advise to use something quite simple in the pitch, a brief and clear explanation of what the company is doing (What is the tagline of the start-up? Do we immediately understand what it does?), data as much as possible (metrics, market, etc.) but also to try to suggest an investment thesis through the presentation.