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Jun 13

Top 3 Things a CFO Looks For In An Investment

cfo

Top 3 Things a CFO Looks For In An Investment

 

Below are some key takeaways from my interview with Vince Leusner, angel investor for the past 7 years and CFO for hire. Be sure to check out the recording below for the full un-edited interview.

What is a CFO for hire?

A CFO is like a quarterback, bringing together all the information and expertise gathered by lawyers, tax specialists, the controller and integrated systems. He offers financial consulting work for multiple companies at once, doing the same things a full-time CFO would do, only instead of working for a corporate employer, he covers what is needed at small and medium-sized enterprises up to $50 million a year.

What are the most common scenarios for a company to hire a CFO consultant?

  • When a company is growing quickly and navigating new, more complex territory. If a company grows from $5 million to $7 million in revenue, new challenges arise. The owners don’t speak the same language as their banker and need someone with expertise to help them navigate that path of demanding stakeholders.
  • When someone is planning to sell their business for maximum profit. If an owner is planning to exit the business, they want to lay the groundwork to maximize the company’s value and that process begins at least 18 months prior to the sale. Wisely, they reach out to people like a CFO as well as other advisors such as tax and business brokers to stage the business and make it look as valuable as possible to a potential acquirer.

3) When establishing processes to avoid or overcome fraud. If the top accounting person at the company doesn’t have the expertise or is involved in some fraud or impropriety, they bring in a higher level expert to coordinate finances.

What’s the biggest mistake a company makes without a CFO?

  • Profitability analysis: Many companies don’t access the various levels of profitability with each type of client. If they cut out the least profitable client — the labor intensive, demanding clients — they could generate a higher level of profit on lower revenue. Most small, privately-held companies don’t do that sort of exercise.

How did you get involved in Keiretsu?

“Keiretsu was very successful on the West Coast. A few of us were interested in getting it started in the Mid-Atlantic and first sketched out a plan for opening our first chapter in Philadelphia on the back of a napkin. Six years later, we have four chapters and 80 members.

Our members are investing in deals and helping to strengthen the community. We meet monthly, look at 3 or 4 companies, driven by members. Active angels in the community dictate what deals we should look at and pitch them to members. It results in a company moving beyond the presentation stage, where members collaborate and work together to carry out due diligence negotiation exercise to term sheet, resulting in an entrepreneur getting funding.”

 

What does an angel investor need to know?

  1. You’re probably not going to miss out on the next Google. Maintain a high level of discipline, and put in place constraints on the type of deals to invest in, and metrics on deals you want to consider.
  2. Be patient. The average investment is $25,000 on a venture ranging from $500,000 to a few million. Maintain discipline and patience and don’t rush into anything.
  3. It’s a gut feeling. Analyze the risk-reward; if the valuation is too high, it’s harder for a high return to be achieved. Start from a reasonable base. Knowing that difference is a gut feeling.

What are you looking for in an entrepreneur pitch?

  1. Someone who has been successful before. That experience is very valuable.
  2. A company already generating modest revenue. That’s a very good sign.
  3. I want to be the last dollar in a round, instead of the first dollar.
  4. Reasonable statements. Anyone claiming unreasonable growth potential or comparing this opportunity to the next Google is a turnoff.
  5. An IPO as an exit plan. It’s reasonable except it’s really really hard to do an IPO. Even if you build a company that can, you have to rely on market conditions.

If you’re in need of a CFO or are interested in Kiretsu, you can contact Vince at vleusner@keiretsuforum.net

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