PAIBsStart-up CFOs

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Despite the risk, some finance chiefs would rather roll their sleeves up at a start-up instead of working at a brand-name corporation. Jemelyn Yadao looks at the ambiguous yet crucial role of a CFO at an early-stage companyIllustrations by Benedetto Cristofani

Leading the start-up way

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PAIBsStart-up CFOs

V ictor Tan’s career has been a lengthy journey of learn-ing and progression with a

few stopovers at large international companies, including a Big Four. However, earlier this month, he stopped in his tracks and went back to the start.

The Hong Kong Institute of CPAs member left his role as direc-tor at a specialist IT and critical facilities consulting company to work at a start-up – his own. “My partner and I identified a need, we developed a technology to address that need, and we’ve got to a position now where the technology has been developed and the proof of concept is done. It’s time for me to focus full-time on developing the product that will leverage on that core technol-ogy,” explains Tan. Without going into the details, he says that his start-up revolves around recreational sports technology.

The prospect of seeing the product turn into a global household name is one of the main reasons he couldn’t resist jumping ship. For other finance chiefs, the lure of working for a start-up usually lies within the opportunity to create a finance function from scratch and play a key part in a fast-growing environment.

Recent Hong Kong start-up suc-cess stories include online lending platform WeLab – which started in 2013 and now boasts around three

million users – and fashion e-commerce start-up Grana – which raised US$3.5 million in seed funding. While the upsides for start-ups can be huge, to get to that stage, the start-up chief financial officer has to address a wide range of issues that their counterparts in bigger companies don’t normally have to deal with.

As Tan is finding, start-ups often demand more and the CFO has to wear different hats. “I am the CEO/CFO/business developer/product developer/technician/tea lady,” he says. “We don’t have a specific divi-sion in terms of responsibilities. By virtue of our backgrounds, we tend to gravitate towards a certain role but the roles are not clearly defined, not at this stage.”

The obvious problemEarlier this month, Chinese e-com-merce giant Alibaba announced the first three start-ups selected for its HK$1 billion investment fund under its Hong Kong Young Entrepreneurs Foundation. Online fashion rental and sharing site Yeechoo, on-demand logistics company GoGo-Van, and Shopline, an e-commerce platform for merchants, were all chosen to receive a portion of the fund to help scale their businesses.

But despite the often positive news in the start-up space, the grim reality is that almost nine out of 10 fail according to Fortune,

with one of the primary drivers, of course, being the lack of sufficient resources.

Unlike established organiza-tions, new cash-strapped start-ups do not have the luxury of having reliable sources for funds, neither through its own revenue or profit, nor the ability to borrow from the banks, notes Tan. “We haven’t got any revenue stream yet. But you need to have incoming funds from somewhere to pay for the outgo-ings.” He is currently in the process of applying for the local govern-ment’s innovation technology fund.

Therefore, having a CFO or finance director with top-notch fundraising capabilities is criti-cal for start-ups, particularly for meeting the funding needs of the company’s product develop-ment plan. “You can have the best technology in the world but if you can’t implement that into a product that people want or to convert the technology into a product that you can put to market, then your start-up is not going to be successful,” says Tan.

It’s commonly believed that the right time for start-ups to bring in

“ I am the CEO/CFO/business developer/product developer/technician/tea lady.”

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a CFO is when it is generating mean-ingful revenue or when the founders are planning for an initial public offering. But Honnus Cheung, CFO at Travelzoo Asia Pacific and an Institute member, thinks that a CFO with industry knowledge, and whose role today is more collaborative and has more strategic influence, can be hired much earlier on. “In the tech industry, for example, you need to at least have a prototype that has passed a few tests first. Once you have the prototype, then you can dis-cuss the business plan with the CFO who can start to give valuable input – how to do the fundraising, whether you should grow the business aggressively or develop the product technologically at the kick-start via getting funds from angel or private investors,” says Cheung, who has worked for the Asia operations of both Yahoo and her current com-pany from the start-up phase.

Hands-on-roleStart-ups require more of a roll-up-your-sleeves approach from the CFO and often entail deep involvement across the company. Some such as food delivery service company Foodpanda need experts to help build the proper procedures for each team. “Start-ups tend to have dif-ferent or even new business models compared to what is normal on the market. As the CFO of a new start-up, you have to work very closely

with each department to understand each process,” says Billy Lau, CFO at Foodpanda and an Institute mem-ber, adding that this is key to further analysing business performance as well as helping management make executive decisions.

Lau, who joined Foodpanda last year, previously worked at KPMG for almost five years before start-ing his own restaurant business in 2011. “These experiences helped me identify what typical challenges start-ups encounter when setting up procedures and developing best practices for the business model.”

For Karen Ho, CFO at WeLab, her key responsibilities include much more than just building back-end infrastructures from the ground up. “Apart from setting up the infrastructure from scratch – system, policies and processes – I am part of the leadership team building an early-stage company, which comes with its own unique challenges,” says Ho, an Institute

member. “For example, hiring a team within a short period of time, dealing with regulatory uncertainty since we are disrupting incum-bents, building a young team’s culture, and dealing with people-related problems that came with a fast growing company.”

The hiring process was an unex-pected challenge for Ho. “Accoun-tants are naturally risk adverse by training and candidates prefer multinational corporations and Big Four accounting firms. When we first started without a strong brand name, it was very difficult for us to attract talent,” she says.

Start-up CFOs often take on increasingly diverse duties as their companies grow, such as merger and acquisition activities.

This was the case for Cheung at Travelzoo. The acquisitions, which took up most of her time and focus when she was the first finance manager at Yahoo’s Asia Hong Kong office, further strengthened the Internet company’s position in the Asia-Pacific market. “I handled quite a lot of M&As, some of them were successful, such as the Kimo-Yahoo merger in Taiwan, some of them were not successful,” remem-bers Cheung. “But when I joined, Yahoo had zero revenue in Asia and had less than 24 folks. When I left, the company was valued around US$1 billion and had around 1,500 folks in Asia. Most of the roles

“ Once you have the prototype, then you can discuss the business plan with the CFO who can start to give valuable input.”

According to a survey conducted

last year by Invest Hong Kong, 1,558 registered start-ups were operating in co-

working spaces in Hong Kong, a 46 percent increase from 2014. Fifty percent of the start-ups were

founded by Hong Kong locals,

while 43 percent had founders

from China and Taiwan.

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PAIBsStart-up CFOs

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came either organically or through the M&As that I handled.”

Another role for the start-up CFO is fundraising at different stages of a company’s growth. Working closely with WeLab’s Founder and Chief Executive Offi-cer Simon Loong Pui-chi, Ho not only helps to ensure the company’s strategies are being implemented effectively, she also plays a role in adding financial heft. Earlier this year, the company completed its series B fundraising, one of the largest in the FinTech industry. “After months of hard work...With the funding and support from influ-ential investors we are now in an even better position to take on the competition,” says Ho. “No doubt, there are a lot of ups and downs but that’s what makes life interesting.”

Investor relations are normally also a big part of the job for a start-up CFO. One of the biggest differ-ences in working at a start-up is the importance of “personal branding,” notes Cheung, who, because of her Asia start-up expertise, was assigned by Travelzoo’s founder to establish the company’s footprints in Asia when she first joined. “During that time, I was already part of a solid finance and banking network in Asia, which Travelzoo

didn’t have. That means the banks, the investors trust me and trust that I wouldn't join a bad company due to my previous track record,” she says. “Your personal integrity and professionalism is something you can take away from your previous job. You yourself will have a track record even if your next job is less famous or is a start-up company with no track record.”

Cheung adds that such cre-dentials usually come in handy when interpreting an early-stage company’s projected profit and loss to stakeholders.

Positive energyMost start-up CFOs agree that outstanding communication skills are important. “In a fast chang-ing environment, processes must be learned and understood by the individual,” says Lau at Food-panda. “Also, always ask if what you’re given is the perfect system for the business model.”

As with any organization, risk management is vital for start-ups. However, new start-up CFOs should have the flexibility to for-mulate a risk management strategy recognizing that the company may push to grow as quickly as possible. “As the CFO, it is important to be

able to keep up with the pace of business expansion and ensure that the company’s interest is pro-tected,” says Ho at WeLab.

However, being overly risk-averse and unable to see the bigger picture could hinder the growth. “With any idea that is put out there, it’s easier to find risks or negatives with it than positives.” says Tan.

Staying positive and energetic is crucial for CPAs thinking about joining a start-up. “Accountants need to step out of their comfort zone – that is the only way to learn and grow,” says Ho. “In this ever changing world, the accounting training gives you the skillset but you also need the right mentality to excel. WeLab’s founder Simon is a CPA too and see what he achieved.”

“ You yourself will have a track record even if your next job is less famous or is a start-up company with no track record.”

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