Prepared for changes, with a focus on profitability and mastery of technologies: the new role of CFOs

Melanie Perkins, Elon Musk, Sam Altman… When it comes to unicorns like Canva, SpaceX, or OpenAI, the names that come to mind are those of their CEOs or founders. However, behind the success of the majority of companies, there are many other figures who, due to their unique skills and talents, are key to growing within the ecosystem.

One of these figures is that of the CFO, an acronym for ‘Chief Financial Officer’, who assumes the financial management of companies. These executives have become a key piece within the professional framework, and according to a study by the Institute for Business Value (IBV) of IBM, they are considered by CEOs as their main allies. Among their functions are financial planning for the company, analysis of its strengths and weaknesses, relationship with investors, design of strategies to raise capital, and preparing companies for their IPO.

“The CFO needs to complement their global knowledge of financial needs with a strategic vision of the company,” says Alberto Hernández, VP of BBVA Spark. This expert points out that the profile of the CFO evolves as the company grows: in the early stages, they focus on cash flow control and accounting for income and expenses, while in more advanced stages, they occupy a more relevant position, as they are an essential element in conversations with banks and investors to obtain financing and capital. “At first, they mainly focus on day-to-day operations, but later they become a global manager with a future vision,” Hernández explains.

CFOs facing investment slowdown

In 2023, global venture capital investment in startups amounted to $248 billion (€228 billion), the lowest figure since 2017, according to CB Insights. In Latin America, investment decreased by 63% to €2.8 billion, while Europe experienced a 45% drop to €41 billion. In the case of Spain, data from ‘El Referente’ reflects a decrease of 120%, with a total of €1.525 billion.

This scenario, coupled with the climate of geopolitical and economic uncertainty, poses new challenges for CFOs. According to a recent report by the consulting firm PWC, 59% of these executives say that cost reduction is one of their priorities for the next twelve months. Additionally, 89% point out that finding the right balance between investing in new initiatives to grow and cost reduction is one of their main challenges.

“The CFO must be closely connected to the market reality: they have to remain very attentive to investment dynamics and know how to financially position the company in the new focus of investors,” says Hernández. In this context, investors have also changed their decision-making approach: while they used to focus on company growth, they are now prioritizing profitability.

“The CFO has to demonstrate a credible path to profitability, based on robust hypotheses; for this, it is necessary to have well-done accounting, without generating doubts or suspicions, as well as having a solid business plan that the company follows if circumstances do not change significantly.”

Having a solid business model is key to obtaining financing in this new scenario, as also pointed out by Alejandro Quirno, co-founder and CFO of Menta, an Argentine fintech that, by the end of 2022, when the slowdown in venture capital was becoming evident, managed to close a seed funding round valued at six million dollars.

“We had a very different characteristic from the rest because of the pain we are addressing [Menta was born with the purpose of solving problems in the payment infrastructure in Latin America, which forces companies to integrate with each processor in the regions where they want to operate]. It only took us 20 days to close the round, in a context where funds were retracting and cautiously waiting for market fluctuations. This peculiarity occurs when you have a solid business model and investors see that there is a market, a need that is being addressed,” Quirno told BBVA Spark.

Facing market volatility

In the current scenario, CFOs must be agile, stay in regular contact with investors to understand their views on the ecosystem, and be prepared for changes.

“The best advice is to prepare for different scenarios because external markets at this time are volatile. You also need to be attentive to the areas where you operate because in an environment like the current one, structural changes occur in the market and growth opportunities arise: the industry changes rapidly, and when there is a market downturn, the evolution is even faster,” said Andrew Seiz, Vice President and CFO of the Mexican fintech Kueski in a conversation with BBVA Spark.

For Jaime Medina, CEO of The Startup Company, a financial management firm that offers CFO services to startups, these executives must be prepared to support companies if the expected investment objectives are not achieved. “The CFO should have recommended having a plan in case funding is not obtained within the next 24 months after the last round and, therefore, help the company survive in almost any circumstance,” he points out.

In order to ensure the viability of startups and their growth within the ecosystem, Medina advocates for the importance of optimizing cash flow and obtaining alternative sources of financing when the company is in good condition. Additionally, he emphasizes the importance of managing accounts receivable and payable. “You have to ensure that the customer and supplier cycle makes sense for the company and, if necessary, finance the imbalance with short-term bank financing sources,” he notes.

New forms of financing

The contraction of venture capital investment experienced in the last two years has spurred other forms of financing, opening up a range of options for CFOs. Venture debt, a type of loan aimed at startups consisting mainly of debt repaid through interest and a small percentage used to acquire company shares, is one of the alternatives that has gained the most popularity in this new scenario. This is demonstrated by Pitchbook’s figures, which show that between 2013 and 2022, investment in this financial formula has tripled, from $8.1 billion (€7.4 billion) in 2013 to $33.5 billion (€30.9 billion) in 2023.

“There has been a significant growth in private debt funds,” notes Seiz of Kueski. “There has been a movement towards private debt funds away from public markets because with the former, you can choose what kind of risk you want and collaborate in the development of a loan instrument that satisfies the needs of both parties.”

According to Seiz, venture capital investment remains important for a company to grow, while debt-based financing is “a resource to be able to operate and implement your business plan.”

Digital transformation and the role of new technologies

Although the current scenario presents new challenges for CFOs, there are also opportunities that emerge alongside technological advances. Artificial intelligence and data analytics are positioned as key tools that CFOs can leverage to improve their strategic decision-making or optimize their timelines, allowing them to adopt a more strategic role within the corporate structure. “The new tools should help us both report the past with great precision and predict the future with the appropriate certainty,” Medina of The Startup Company emphasizes.

For Hernández of BBVA Spark, having knowledge of data analytics can be crucial for understanding the company’s situation and preparing a solid and attractive business plan. “Having advanced data management will allow you to understand your business metrics very well,” he points out. Having a specialized data profile within financial teams can be very useful for optimizing processes, reducing costs, and defining better strategies.

“Companies that do things well will continue to raise financing, and besides a good product, maintaining financial control is key,” concludes Hernández. Profitability and innovation will be crucial in this new scenario, where CFOs position themselves as the right-hand of entrepreneurs.