Lessons for finance leaders from Ledgy and Sequoia’s London CFO event

After rapid growth in almost all technology verticals over recent years, recent months have seen tech valuations and multiples dip. So as the key strategic partner to the CEO, what can the CFO do to steer the company, inspire the team, and make a difference in the months to come?

Together with Ledgy investor Sequoia Capital, we were delighted to bring together some of Europe’s top CFOs and finance leaders in London for a discussion and networking event. The attendees included experienced investors and those newer into finance leadership roles, who had not experienced a downturn in a professional context.

Ledgy CEO Yoko Spirig hosted a conversation with Ravi Gupta, Sequoia partner and former CFO and COO of Instacart, and Johan Bergqvist, CFO at SaltPay and former CFO at Spotify and Bolt. The attendees heard lessons from Ravi’s and Johan’s experience leading companies through previous downturns, and which actions can help CFOs deal with the difficult moments in a startup’s journey. Read on for a quick summary of the discussion.

Leading through difficult times

The CFO cannot view themselves as ‘the finance leader’. The CFO is a company leader who happens to be the expert in finance.

The job for company leaders is to respond to the real-world situation with the right approach. If your company is not going to be too badly affected, settle people’s nerves and get them motivated to come out of the downturn even stronger relative to competitors. If the company is in a tougher spot – if the business model is particularly capital-intensive, for instance, or if people’s equity will decline significantly in value – the worst thing to do is try to cover up the negatives and hope that things will improve. People always value honesty and transparency, even if they might not like what they hear.

Tactics for improving communication and transparency include increasing the frequency of company-wide meetings: one attendee said that in a previous crisis period, their company moved from monthly to weekly all-hands meetings. This includes opening up for Q&A sessions with the company. “Nature abhors a vacuum”: if you don’t answer the questions, people will invent their own answers with imperfect information, giving rise to more doubts.

The presence of senior leaders around the company, such as in onboarding sessions for new joiners, is even more valuable at this time: hiding away only creates the potential for new uncertainties in the team.

Managing the CEO relationship

The relationship between the CEO and CFO can often be the difference between having a ‘good crisis’ and incurring real damage.

Non-founder CFOs should remember that a CEO and founder cannot just walk away from the role. They are totally invested. In fact, one of the things they are most worried about is that you are going to leave. So help the CEO see that you are “in the boat” with them, and that you will be by their side through the difficult periods. Doing this will ease their worries in the short term and create a real long-term partnership.

Having empathy for the CEO’s situation will help CFOs lead from the front. As a leader, the CFO cannot throw their hands up and blame macroeconomic factors for the situation. Your job as CFO is to make the CEO aware of problems, but to present potential solutions at the same time.

It’s hard to be solution-oriented without actionable data. Proactively deliver information that puts the business in a broader context: “In these market conditions, here is what our financials need to look like to raise at the same valuation as our last round.”

What's happening with equity?

The knock-on effect of lower valuations is that equity might take a hit: for some companies raising at lower valuations, people and investors might even be under water in terms of their equity stakes.

If your company is in this position, you should be up front about the short-term consequences for people but underscore that equity is designed to function as the long-term component of the team’s compensation packages.

When you’re communicating about equity, remember that people will inevitably think, “What does this mean for me?”. If you aren’t able to give people simple, up-to-date information, you increase the risk of disengaging and demotivating the team.

The best people are likely to be more incentivised by equity compared to B and C players. If you are able to be flexible, consider giving people the ability to choose between a higher equity component and a higher cash component.

In summary: these situations are where great CFOs are made

No question: some companies are in a difficult spot at present. As CFO, it’s your job to look after the finances, and so in the tough moments, it’s easy to blame yourself. But pushing on through bad times is how you create some of your most rewarding achievements. CFOs going through this downturn will come out the other side as better leaders and more effective operators.

The worst thing to do right now is to freeze. Whether you choose to shoot for more growth or to defend against existential threats, the current market is in fact a perfect opportunity to think creatively and take bold decisions. Your team, your investors and your fellow leaders will be motivated to help you through, and you will be stronger as a result.