MBA Mondays - Business 101 for startups by Fred Wilson

Operations, Finance, etc. 11: VP Finance vs CFO

Today on MBA Mondays we are going to talk about the financial leader in an organization. Sometimes this person is called the VP Finance and sometimes they are called the CFO. What is the difference? When will a VP Finance do? And when do you need a CFO?

Like all titles, they can get mangled. A person might be promoted from VP Finance to CFO without exhibiting the characteristics I am going to ascribe to a CFO. That happens all the time. But if you really need a CFO and you have a VP Finance, you will know the difference.

A VP Finance is what you need when you want a leader who will keep the wheels on the bus, who will make sure there are financial controls in place, who will make sure the books, records, and reports are accurate and timely and well presented, and who will make sure you have the right amount of accountants and clerical staff on hand to manage the work of the finance organization. A VP Finance is largely about "what happened" and a little about "what is happening right now?"

A CFO is what you need when you have all that I described above but you also need a forward looking financial mind at your side, when you need deep strategic thinking in the financial function, when you need to do big transactions (both M&A and financings), and when you need someone to manage your relationship with investors (particularly public investors). A CFO is largely about "what is going to happen and how do we get there?"

I generally encourage companies to wait as long as possible to bring on a CFO. Great CFOs are few and far between. And in order to recruit one of them, you will need an interesting business and a meaty role. VP Finance talent is in larger supply and they can take you very far. Get a VP Finance onboard as soon as you can afford one. They will let you sleep at night. Get a CFO on board when you are ready to take on the world. You can't do that without a strong one at your side.

From the Comments

Mark MacLeod added:

Before moving into the VC World last year I spent 11 years leading finance for various startups, so I have some thoughts on this:

Fred's distinction between VP, Finance and CFO is, as usual, on the money. BUT, I think the role of a CFO can and should be broader in a startup and that there is a business case to bring that person on earlier than Fred suggests.

In a startup you need people to wear multiple hats and startups need the forward-looking & transaction capability early. Plus, as soon as you have institutional VCs they want proper governance and communication.

So, I recommend starting with a part time CFO as soon as you hit series A. This person should not be someone that is between full time gigs, but someone committed to part time who has the right experience. Someone who can run the back office, has some transaction, budgeting and investor relations experience.

I have held a VP finance title once and CFO title every other time. My duties were the same. As was my impact.

IMHO the role of a startup CFO is to be the right hand of a CEO and bring as much leverage to that person as possible, freeing them to do what they do best. If that person is technical, then get out and help close business deals. If that person is a rainmaker, then run the internal operations so she can get out more and bring in the deals!

One final point: even if you have a "CFO" early in your lifecycle, if you truly have a huge opportunity on your hands then at some (pre public) point you will likely switch that person for someone that has the "big", "public" experience you need. All goo.