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Why Some Unicorns Lack A CFO

Despite the $1bn+ valuation, some don't see the need for one

24Feb

The phrase ‘unicorn’ was little heard of a few years ago, mainly because there were so few of them. Indeed, the word itself was used precisely because it conveyed that sense of rarity - otherwise they’d be called them pigeons or mice. However, the last couple of years has seen an explosion in the number of companies valued at more than $1bn. Back in October, Business Insider reported that 1.3 ‘unicorn’ companies were created every week in 2015. Messaging platform Slack, for example, is now worth $2.8 billion, while online HR provider Zenefits is worth in excess of $4.5bn. There is now a certain shame for companies who have not yet attained unicorn status.

The poster child for the unicorn boom is Uber. Uber is the most valuable private startup in the U.S., worth an estimated $64 billion. What’s really unique about Uber though, other than its sheer size, is its decision to go without a CFO, having left the post vacant since March 2015, when Brent Callinicos stepped down from the position.

A company spokeswoman explained in an emailed statement that, ’We have not been looking for a CFO and we have not spoken to a single CFO candidate since Brent left. We have a deep bench and the team is managing things very effectively.’

Many have focused on the implications for their attempt to launch an IPO. Under Sarbanes-Oxley, companies are required to have a CEO, a chief accounting officer, and a CFO. It’s usually advisable that CFOs are in their role for at the very least a year before a company goes public - longer for a company of Uber’s size - so the lack of haste Uber is showing in its search for Callinicos’s replacement would indicate they’ve no plans to launch any time soon. However, this argument suggests that the only reason a company needs a CFO if it’s launching an IPO? But is this the case? And if it is, should wannabe-unicorns be following their lead?

Other unicorns have similarly decided to eschew the traditional CFO, including Slack and Zenefits. And it’s not just unicorns. At least seven U.S. companies with revenue above $5 billion don’t have an official chief financial officer, including CBS and Oracle. To say that the role has been simply gotten rid of at the firms would obviously be misleading, it’s more the case that the responsibilities have been shared around. The CFO articulates a company's financial strategy, both internally and to external investors. It would seem logical that this is better being centralized. It could be that the volume of venture capital is delaying companies’ attempts to go private, and they do not feel a pressing need. However, businesses aspiring to reach unicorn status are finding it increasingly hard to raise the capital they need, and a CFO will likely become a necessity. It is also likely that we will see many more IPOs launched as funding dries up.

The decision of established companies like CBS and Oracle to go without a CFO, however, suggests that there’s more to it than simply thinking they can get away without one. While it’s true that not all smaller businesses need a CFO, as their financial pictures simply aren’t complex enough to warrant one, high value-companies are likely to need one given the challenges of fast growth they usually have. It may simply come down to the lack of available talent out there to fill the roles. William Austen, president and chief executive officer of Bemis, a supplier of packaging materials, claims that: ‘The CFO role is a critically important role, and I’m not going to settle for any candidate. It has to be the right candidate, and I will take the time to find the right partner for me with the right chemistry for myself and the rest of the leadership team.’

Unicorns have always prided themselves on doing this differently, and their rapid growth without a CFO suggests that they are doing ok. With the drop-off in venture capital, however, they could find themselves in a different situation and facing new challenges that require a CFO at the helm. Ross Fubini, a partner at Canaan Partners, in Menlo Park, California, notes that ‘the role will start mattering more in this climate. Private capital is starting to say now we are willing to put more money into high-growth companies, but we want to know which parts are performing well.’ Often, it is only the CFO that has this kind of overview of a company’s finances that will satisfy investors.

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