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CFOs’ Perspectives: Navigating 2023 at the Growth Stage

Written and Moderated by Raz Mangel & Meir Cohen

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The current economic downturn has forced many businesses to adjust to a new normal where capital has become scarce. In this context, the office of the CFO plays a crucial role in managing a company's finances and ensuring that it has the necessary resources to weather the economic storm. At the forefront of this paradigm shift, the role of the CFO has become more critical now than ever.

CFOs are adapting to the new normal by re-evaluating their financial strategies, which is a key approach in the current climate. One of the main objectives of CFOs is to seek ways to cut costs while also maintaining the overall operational health of the company. This involves analyzing the company's financial performance to identify areas where expenses can be reduced, optimized, or reallocated to more critical areas. CFOs are also collaborating with CEOs and executive teams to strategize methods of increasing revenue such as finding new revenue streams, or expanding existing ones.

Additionally, CFOs are embracing new technologies to manage finances more effectively, such as automating and streamlining financial processes and leveraging emerging technologies like AI and machine learning for data-driven financial decision-making and forecasting economic scenarios and trends with greater accuracy.

We recently published a piece about the Modern CFO Software Stack where we describe the shift in mentality of startup CFOs from focusing on accounting and processing to becoming strategic financial leaders that can support the CEO and the executive team to make better informed financial decisions. You can read more about our perspective here.

Ahead of 2023, we conducted several discussions with our CFOs in preparation for this macro shift. During these discussions, we highlighted five key topics including cash flow and liquidity, budgeting and forecasting processes, executive team alignment, communication with investors, and identifying opportunities for growth.

As we near the end of Q1 2023, we followed up with some of our CFOs to ask them for their perspectives in how they approached these topics.

Join us as we delve into the perspectives of Andreas Wieder of BigPanda, Eran Hadad of Coralogix, Keren Herscovici of Panorays, Irena Meadan of Silverfort, and Assaf Cohen of VAST Data.

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Topic 1: Cash Flow and Liquidity Management

Towards the end of 2022, we took steps to ensure that all of our portfolio companies have sufficient runway for at least 24 months, and ideally 36 months. In discussions with our CFOs on how to manage cash flow and liquidity, several tactics emerged: fundraising in the form of equity and debt, increased discipline over expenses, and prioritizing efficient growth.

Fundraising – Equity and Venture Debt

“We engaged in ongoing discussions with several key investors who expressed interest in forming a strategic partnership with us. As part of our proactive approach, we decided to raise additional funds to extend our cash runway, enabling us to pursue growth opportunities more aggressively," explains Eran of Coralogix.

"In addition, we have established a credit line agreement with one of our banking partners to provide us with further financial flexibility, should we pursue potential acquisitions in the future."

Increased Discipline over Expenses

Assaf of VAST Data and Irena of Silverfort discussed greater discipline over their expenses and introducing weekly collection mechanisms. Irena also mentioned implementing “bi-weekly cash flow forecasts and other risk mitigation policies such as foreign exchange policies.”

Keren of Panorays has also implemented more stringent expense policies, saying “We have an approval cycle for each expense in order to ensure a positive ROI can be proven for each item.”

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Prioritizing Efficient Growth

In terms of efficient growth, Andreas of BigPanda discussed working with the executive team on “setting a net burn goal for 2023, and working diligently to ensure that it is met.” Andreas also discussed monitoring the company’s headcount:

“We looked at current hired sales capacity to determine revenue growth and customer collections for 2023. We also reevaluated low performers and used the opportunity to recruit top talent.”

Additional Thoughts

In favor of maintaining liquidity, we also spoke with our CFOs about venture debt, credit facilities, or MRR lines. While the topic of debt requires a deeper discussion, our suggestion to founders is to allow CFOs to explore this option.

We penned this article before the SVB collapse, but believe this topic remains an important point, and that there are other debt providers that are still open to working with strong tech companies. While there could be pressure on terms, CEOs should allow their CFOs to focus on negotiating terms that provide a meaningful runway extension with these alternative forms of fundraising, rather than simply creating another liability for the company.

Additionally, executive teams should prioritize cash collections and collaborate wherever possible with the GTM team to ensure that new and upsell customers pay in advance whenever possible, even if it means offering some form of discount.

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Topic 2: Budgeting

As part of approving the 2023 budgets, we asked our companies to build multiple scenarios of the company's financial performance in the coming year, as well as high-level projections for 2024-2025. This analysis helps the board examine the company's cash flow, while keeping everyone aligned in ensuring a clear path towards profitability and strong unit economics. That way, boards are best positioned to make quick decisions in case performance falls below expectations.

We asked our CFOs how the budgeting process for 2023 changed given the current climate, and what key topics they are focusing on for the year ahead. Efficient Growth, scenario planning, cash burn, and KPI alignment were some of the recurring themes.

Efficient Growth

Eran’s method of building the budget involved not only looking at desired growth, but cross checking it with efficiency metrics and the historical pipeline building capabilities of the company.

“At Coralogix, we prioritize both growth and efficiency in our operations. In addition to monitoring our ARR growth rate, we also closely track our unit economics to ensure that our business remains financially sustainable over the long term. Our KPIs include our Magic Number, which we strive to keep above our benchmark, and our Free Cash Flow (FCF) Margin as a ratio of Net New ARR. By focusing on these metrics, we aim to maintain a healthy balance between growth and profitability while providing exceptional value to our customers.”

Scenario Planning

Keren and Irena have built multiple scenarios when considering their respective 2023 budgets. According to Keren, “We’re placing greater attention towards efficiency, as well as several other metrics that will allow us to be more agile in responding to the market.”

“Certain parts of our business model are stress tested for several scenarios, as well as our ability to capitalize on unique opportunities that might appear” says Irena. “This includes conversion rates, multi-year contract percentages, prepaid contracts, and several others. For the most part, we’re paying greater attention towards key metrics such as efficiency and Burn Rate.”

Cash Burn

With regards to Assaf’s strategy on key metrics, VAST Data has "placed a greater emphasis on maintaining financial stability and cash management, homing in on targets related to our overall Cash Flow and Burn Rate. Our primary objective this year is to remain being a Cash Flow positive business while maintaining meaningful ARR growth and our positioning as a technological leader.”

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KPI Alignment

Ahead of budgeting for this year, Andreas ensured alignment amongst the executive team in terms of defining their key metrics and corresponding benchmarks ahead of building out this year’s budget. “We made sure to discuss what our north star metrics are, and what is needed by each department to ensure we meet them. We concluded that our north star metrics are: ARR Growth, Rule of 40, Net and Gross Dollar Retention, In Quarter Renewal Rate, Magic Number, and Burn Ratio.”

Additional Thoughts

Public market investors still value growth at a rate of ~2x profitability, but they require a clear path to being Cash Flow positive with strong sales efficiency. As growth investors, we also view growth as an essential component for a startup to establish itself as a market leader, however, this growth must be efficient or have a clear line of sight towards efficient growth. We work closely with our portfolio companies’ CEOs and CFOs to help determine the relevant KPIs and benchmarking data for organizations of similar size and stage. We also help them with planning, forecasting, and goal setting in order to meet their industry standards and achieve strong unit economics at scale.

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Topic 3: Maintaining Executive Alignment

Ensuring that a company's financial strategy aligns with its overall business goals is a critical aspect of the CFO's role. It requires collaboration and coordination with other executives, particularly the CEO, to develop a cohesive plan that supports the company's growth objectives while ensuring a strong financial position. We discussed with our CFOs how they approached this process, and what proved to be most successful in terms of achieving executive alignment.

Irena discusses Silverfort’s strategic and business goals during bi-weekly management calls, to which “the budget of each department is built in cooperation with the VPs’ respective department, which are confirmed by the CEO on the various assumptions of the business model.”

Eran first engages in a deep discussion with the CEO of Coralogix on defining the main target for the next year, “We prioritize key areas such as growth, margins, headcount, major business transactions, and Free Cash Flow, and then further break them down into sub-targets that align with our overall strategic objectives.”

Additional Thoughts

Early in the lifecycle of a company founders should establish a cadence facilitated by an open channel for communication and decision-making with the executive team. This motion is critical for achieving the business and financial goals of any company.

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Topic 4: Informing External Stakeholders

Immediately post investment, we work with CEOs and CFOs to help transition processes to become more growth oriented. Some of the steps we take include helping to redefine the company’s board deck if needed, identifying key metrics ahead of the growth stage, and optimizing reporting methods.

As the company grows and the cap table expands, external reporting can become more complex and burdensome. We recommend that our CFOs define a single template that can satisfy the needs of all external stakeholders and determine the proper frequency of sharing financial updates.

Given the current market situation there are increased requests for financial updates, and having the data updated and organized in a template is helpful to lessening the burden on finance teams. Our CFOs have orchestrated a methodology for communicating with external stakeholders about the company’s financial performance and outlook.

According to Eran, “we prioritize transparent communication and reporting to our investors and board members. Our reporting includes a monthly package that provides an overview of key business metrics, and a more detailed quarterly package that includes additional financial details. In our board meetings we provide a comprehensive view of the company's performance and progress towards our strategic objectives. Whenever we encounter changes in business conditions that require adjustments to our original plan, we consult with each director to ensure timely and informed decision-making.”

Andreas “proactively communicates with external stakeholders such as investors to keep them informed and aware of our financial performance and outlook, especially during the current market climate. Maintaining close contact with all Board Members helps focus our strategic discussions.”

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Topic 5: Identifying Opportunities for Growth

Despite the current macro environment, we believe that there are still creative opportunities for growth and expansion. In discussion with our CFOs, we explored various creative opportunities across topics such as Topline Growth, productivity, and sales processes.

Topline Growth

Given Coralogix’s modern architecture and streaming capabilities, they are able to offer a solution at a more attractive price point than the incumbents. Eran says “As a leading provider in our industry, we offer a highly scalable product at a competitive price point. While some of our competitors may charge higher prices for similar offerings, our advanced technology allows us to provide superior value to our customers.”

“In light of the current economic climate, many businesses are looking to reduce their observability costs, and we have seen a growing willingness among even long-time users of our competitors' solutions to switch to our platform. Our focus remains on delivering exceptional value to our customers through innovative and reliable products.”

Productivity

One of the key opportunities amongst CFOs is leveraging new technologies to optimize efficiency and increase visibility across the organization, and we are seeing more CFOs bolster their CFO tech stack.

“We have built a cross-company data and BI team, and we leverage more technologies to accelerate our work around strengthening visibility across Silverfort’s departments, introducing more automations across various processes, and maintaining accurate data with the ability to access it in real time” says Irena.

Sales Processes

Andreas discussed with us different methods of streamlining sales processes such as optimizing messaging and product positioning to fit the current economic environment. He emphasized that “BigPanda's product offers cost-saving benefits and cost avoidance opportunities in our customers’ AIOps journey, and that it’s important for us to bring that value front and center throughout the sales process.”

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Furthermore, Andreas mentioned that “the company is dedicated to making the product more accessible, easy to install and use, and enables customers to obtain value quickly at a lower dollar entry point. Therefore, the team is intently focusing on product-led growth strategies, the positioning of BigPanda and its product in the market, and ensuring clear value realization to both new and existing customers.”

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In Summary

In conclusion, the role of the CFO in navigating a period of economic downturn cannot be overstated. As we move through 2023, companies that have a strong financial leader at the helm will be better positioned to weather the storm, and even come out ahead. By focusing on building strong fundamentals across the business and embracing creativity and innovation, companies will be able to continue raising capital as investors view this period as an opportunity to partner with leading companies and founders.

The CFO has a critical role to play in the company building at the growth stage, and their expertise and leadership will be more important than ever in the months to come. As challenging as the road ahead may be, with the right financial guidance, companies can seize the many opportunities that lie ahead and emerge stronger than ever before.

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Appendix

Key Metrics mentioned in this piece

• ARR Growth
• Net New ARR
• Magic Number
• Gross Dollar Retention
• Net Dollar Retention
• Gross Margin
• Rule of 40
• Free Cash Flow Margin
• Net Burn
• Burn Multiple

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For more GTM KPIs and benchmarking data, feel free to reach out to our investment team.

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BigPanda  | DevOps / AIOps

BigPanda helps businesses prevent and resolve IT outages with its platform for Event Correlation and Automation, powered by AIOps. BigPanda captures alerts, changes, and topology data from across an enterprise’s disparate tools and uses machine learning to reduce IT noise, detect incidents, and surface their probable root cause – in real time.

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Coralogix | DevOps /Data-Streaming

Coralogix is the leading stateful streaming platform for modern engineering teams, rebuilding the path to observability using a real-time streaming analytics pipeline that provides monitoring, visualization, and alerting capabilities without the burden of indexing. Its mission is to make observability accessible to all, enabling users to define different data pipelines per use case, and providing deep insights for less than half the cost.

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Panorays | Cybersecurity / Third Party Security

Panorays is a provider of third-party security risk management software, offered as a SaaS-based platform. The company serves enterprise and mid-market customers primarily in North America, the UK and the EU, and has been adopted by leading banking, insurance, financial services and healthcare organizations, among others.

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Silverfort | Cybersecurity /Detection & Response

Silverfort has developed the first Unified Identity Protection Platform - a single solution that aggregates and analyzes all user authentication activity across all resources. Using Silverfort’s platform, enterprises are able to gain holistic visibility across the board, perform continuous risk analysis of user behavior and apply protection across all assets (on-prem and cloud).

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VAST Data | Infrastructure Tech / Software-Defined Storage

VAST Data is a storage company bringing an end to complex storage tiering and HDD usage in the enterprise. VAST consolidates applications onto a highly scalable all-flash storage system to meet the performance needs of the most demanding workloads, while also redefining the economics of flash infrastructure to finally make it affordable enough to store all of your data on flash.