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Unicorns Seem To Be Coming Round To The Idea Of Hiring A CFO

Despite a recent reluctance, many are realizing their importance

12Oct

Earlier in the year, we looked at tech unicorn’s seeming lack of interest in hiring a CFO. At the time, Uber was supposedly without a CFO, as were other giants including Uber’s Asian rival Grab, Pinterest, Slack, and Zenefits.

However, it appears that some unicorns have had a change of heart. Social media unicorn Pinterest, for one, has only recently hired its first CFO, former Twitter vice president of finance, Todd Morgenfeld. Morgenfeld will take charge of 40 members of its finance staff, overseeing the social media platform’s attempt to meet its ambition forecasts of expansion from $169 million in revenue last year to $2.8 billion in 2018.

Uber too appears to have hired itself a CFO, although in slightly more confusing circumstances. The ride-sharing app had supposedly left its CFO role open since March 2015, when Brent Callinicos vacated the role, leaving its highest-ranking finance employee as Head of Finance Gautam Gupta. However, contrary to its public announcements, according to an application for non-immigrant workers, Uber had in fact promoted an unnamed internal employee on January 16 to the role of CFO - presumably Gupta himself. Uber’s reluctance to publicly acknowledge it has a CFO is confusing, with many attributing the hesitance to a potential IPO, something CEO Travis Kalanick says he is leaving till ‘as late as possible.’ Pinterest’s CEO and co-founder Ben Silbermann has similarly denied that hiring a CFO means that an IPO is on the cards.

If we are to take both Uber and Pinterest at their word that the hires are not part of a grand scheme to go public, it is likely that they are simply a reflection of the new climate for tech companies, repositioning themselves as the massive tech bubble we have seen inflate over recent years calms somewhat. Venture capital funding for Silicon Valley startups dropped nearly 20% in Q1, with the barrier to funding significantly impacted by the rash of startups to receive huge funding rounds over the last year that failed to hit their growth targets. The hammering of tech stocks early in 2016 will also likely have served to weaken VC’s appetite for risky investments. As a result of these factors, valuations have generally fallen this year, with venture capitalists reporting a fall between 30% to 50%. Many unprofitable, yet high growth businesses, have subsequently faced a liquidity crisis, and they have had to adapt fast.

The focus on top-line revenue growth at all costs initially helped dozens of private companies achieve unicorn status. But this strategy has started to change. Traditional metrics of profitability, cash flow, and sustained revenue growth are consistent drivers of higher valuations, and those looking for more sustainable success are focusing on the tried and tested business strategies that they had previously purposefully - almost ideologically - eschewed. In our article earlier in the year, we noted that Ross Fubini, a partner at Canaan Partners in Menlo Park, California, had said ‘the (CFO) role will start mattering more in this climate.’ It appears that Fubini was right.

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