Silicon Valley has a problem that new technology can’t solve: not enough qualified CFOs.
As more startups turn into large, complex firms, many are looking to hire a finance chief who can impose financial discipline and bring a new level of managerial expertise. A successful candidate must have experience dealing with investors and lenders, taking companies public, knowledge of tech-specific regulations and accounting practices, and the tolerance to work punishing hours for a fast-growing, cash-burning enterprise.
Landing such a hire often telegraphs that a startup is serious about graduating to the public markets. But candidates who check all the boxes are in short supply.
What makes recruitment so difficult is that the most experienced candidates—those who have previously taken a startup past the $1 billion valuation threshold to unicorn status—often don’t want to do it again. “The CFOs who have done it before, they don’t want to go backwards,” said Rhoda Longhenry, global head of the financial officers practice at True Search, executive recruiting firm.
The problem is particularly acute among businesses on the cusp of unicorn status. Most unicorns have filled the role, leaving the swelling ranks of up-and-comers to battle for a smaller pool of candidates.
Seventy-one percent of 180 U.S. unicorns had CFOs as of April 17, according to PitchBook, a financial-data company that tracks the private market. But just 64% of startups with valuations of between $500 million and $1 billion had a finance chief. As the higher-value, higher-profile companies snap up CFOs, the swelling ranks of up-and-comers are left to battle for a smaller pool of top-tier candidates.
Many of these companies don’t advertise the positions, often for fear of tipping their hand to competitors. But corporate headhunters estimate that dozens of promising startups are competing to fill vacant finance chief positions. The competition is expected to grow as they mature and as more cash flows their way.
“ ‘You’re trying to find someone who has already seen the movie before. And the problem is: There are not many who have seen the movie before.’ ”
Some of the biggest Silicon Valley companies have struggled to hire—or retain—top talent. Uber Technologies Inc., which spent nearly three years without a finance chief, was rebuffed by a high-profile candidate, VMware Inc. CFO Zane Rowe, before the ride-sharing company ultimately chose Nelson Chai, who holds the position now. The departure last year of Laurence Tosi as CFO of Airbnb Inc., meanwhile, raised questions about Airbnb’s plans for an initial public offering.
These fast-growing companies need more than the basics of financial management from their CFOs. “You want someone who is not just operational, but who is a company builder,” said Eric Gundersen, chief executive of mapping company Mapbox Inc.
Mapbox—listed as a “future unicorn” by research firm CB Insights—has secured customers such as Snap Inc. and Instacart Inc. and raised hundreds of millions of dollars of venture capital from high-profile investors. With more money comes bigger financial decisions. But Mapbox’s first finance chief left the company in June 2018, six months after he was hired. The company has been seeking a successor for several months.
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On a recent flight from Shanghai to San Francisco, Mr. Gundersen found himself describing his model finance chief in a memo that was later published on Mapbox’s website.
Mr. Gundersen wrote that an ideal CFO should be a “functional baller”: confident, entrepreneurial and intelligent, with experience of both public companies and startups. People who view their role in the C-suite as “adult supervision” need not apply, he wrote, but if you’re a master communicator with “cross-functional empathy,” this might be your gig. Especially if you welcome late-night calls from the boss and are ready to help Mr. Gundersen “grow the company and grow personally.”
Mr. Gundersen acknowledges he is asking a lot, but he doesn’t want to compromise. “Look,” he said, “I’m using AI to live-map the entire world every day. Everything about this is ambitious.”
Competition for highly skilled candidates is adding to upward pressure on compensation at a time when salaries of finance executives are rising across the board. Base salaries for finance executives, including CFOs and vice presidents of finance, rose 4.4% in 2017 from a year earlier, the largest annual increase in a decade, according to the Association for Finance Professionals. That was followed by a 3.2% bump in 2018, according to AFP data.
Pay packages at late-stage startups, which often include stock options, are contributing to a frothiness that is causing even established companies to loosen the purse strings to recruit—or simply retain—finance executives, recruiters say.
Former Activision Blizzard Inc. CFO Spencer Neumannleft the videogame maker this year to take the same job at Netflix Inc., where he will receive $5 million in salary and $5 million in annual stock-option grants, according to a securities filing. Activision offered former CFO Dennis Durkin, who had shifted to the post of chief corporate officer in 2017, a signing bonus of $3.75 million to return to the CFO role. Mr. Durkin is also in line for a performance-linked stock grant worth $11.25 million if he stays until March 2021, according to a regulatory filing.
A $3.75 million signing bonus for an internal transfer is unusual, and it is an outsize sign of how far some tech companies are willing to go to retain qualified finance executives in today’s hiring environment.
“It’s crazy. The demand cycle is so high right now,” said Peter Crist, chairman of executive recruitment firm Crist|Kolder Associates, who recently advised Airbnb on its hunt for Mr. Tosi’s successor, Dave Stephenson.
Among the biggest recruitment hurdles for an ambitious startup, executives and recruiters say, is finding a finance chief who has already run the marathon of taking a company public—and wants to do it again.
“You’re trying to find someone who has already seen the movie before,” said Ash Ashutosh, founder and chief executive of Actifio Inc., a data management software startup based outside Boston. “And the problem is: There are not many who have seen the movie before.”
Mr. Ashutosh has plenty of experience hunting for a finance chief. His company, which in August said it was worth more than $1.3 billion, has undertaken at least three CFO searches in the past six years. Its first CFO left in 2014 for health reasons after a little more than a year on the job, the company said. The next CFO left in late 2017 to join another startup. Current CFO Ed Durkin, who is of no relation to Activision’s CFO, started in January 2018.
“You need a CFO ready to go learn new things when the market changes,” Mr. Ashutosh said. “That’s hard to find, because accounting and finance people by the very nature of the job are about predictability and removing uncertainty.”
Joe Kauffman, CFO of Credit Karma Inc., is among a select group of finance chiefs who relish the challenge of priming a startup for an IPO. Earlier in his career, Mr. Kaufman helped two other startups— New Oriental Education & Technology Group Inc. and TAL Education Group —go public.
Mr. Kauffman, shown in Credit Karma’s San Francisco office, says the role of CFO for a startup can be grueling. Photo: Jason Henry for The Wall Street Journal
Analysts expect Credit Karma to follow suit as soon as this year. A spokeswoman for Credit Karma, a personal-finance company that helps users track their credit scores, declined to provide specifics about the company’s plans.
Mr. Kauffman said Credit Karma was already earning just north of $100 million in annual revenue by the time he joined in 2015, but the finance department consisted of two junior accountants. “We were still writing checks by hand,” he said. “It was a lot of sleepless nights.”
Mr. Kauffman’s public company experience made him stand out to Credit Karma. “And if that’s the criteria, then it makes it really hard to find someone,” he said. “Because you invest blood, sweat and tears.”
At Mapbox, Mr. Gundersen says he is continuing to interview candidates. He said he has found more “deeply technical CFOs” on the market today than when he looked a year ago.
The first CFO he hired, John Bonney, declined to comment about why he left Mapbox. Immediately after he left Mapbox, though, he took advantage of a marketplace that needed his skills: He began working as an independent consultant offering CFO services to early and mid-stage startups.
But that didn’t last long. Last month, Mr. Bonney was hired by Harness Inc., a startup that helps engineers deploy software updates. He is the company’s first CFO.