Building a Generational Fintech: Empower the CFO
The role of a CFO will witness a paradigm shift over the next decade. Much like how sales organization has changed fundamentally with technology now at the front and center of sales processes, tooling will start to play a more significant role in how CFOs operate.
At Vertex Ventures, we have been actively investing in the fintech space for a while now. We believe that one of the most critical areas fintech will have a lasting impact on is the technology stack within the finance organization. An easy frame of reference for understanding this is the seamless deployment of a payments acceptance stack in an organization: you never hear of a CFO hiring a tech team to manage acceptance infrastructure (other parts around this are still broken, but more on this later). In a similar vein, we believe that now is the time where a large portion of the Finance stack will be re-imagined, and this is an area we are tracking with interest.
Before we conduct a deep dive into areas of our interest, it is important to get a grip on what the Finance stack looks like today, and more importantly, how finance teams currently spend their time. Based on several conversations with practitioners, we have broadly categorized the CFO organization into seven key functions.
One of the common questions we encounter in this space is as follows: this seems like a crowded market; there are tens, if not hundreds of tools addressing each key function and their respective sub-functions. However, as we peel the onion a little, we realize that companies are solving each activity as a disparate function, and no part of the stack actually talks to each other. A vast majority of the tools are legacy, do not scale well on the cloud, and most importantly, require an army of employees to operate. Therefore, companies often end up building large finance teams who spend the bulk of their time gathering data from different systems, cleaning it up, and then tying it all together to get a seemingly accurate picture of their business.
This tedious process is counterproductive: a lot of effort is spent on backward-looking tasks, with important and strategic objectives that impact the future get missed out. Ask any startup CFO whether they have a mildly accurate cashflow forecast for the next 18 weeks, and the odds are that you will be met with blank stares.
The first time we thought of this, we realized that data reconciliation across acceptance systems is one of the largest and most tedious financial processes that keeps the CFO office perpetually busy. Smart teams have built automated workflows, invariably on excel. However, these workflows are fickle, do not scale, and require constant attention from team members who built them. Our investment in Recko (acquired by Stripe) was a result of this assessment, and while Recko was solving for an extremely large market, they were only solving one of the problems that persist within the CFO office.
The following are some of the areas within this space that we are keenly interested in:
Collaborative Planning and Forecasting
High quality financial planning is the bedrock of any large organization. If you are a respectable listed company (look away some of the listed Indian startups), providing quarterly guidance and tracking the company’s performance against these targets is a large part of continued success in the stock markets. However, this financial planning process remains broken — data resides in organizational silos, and a team of people building complicated excel models weaves it together. Collaboration is unheard of, version control is a nightmare, and the list goes on. Financial planning needs to evolve in large enterprises, but more importantly, it is a missing function in most fast-growing startups, and this needs to change. We remain bullish on startups building modularized planning and forecasting platforms — each customer should be able to toggle functionality based on their business maturity. However, these solutions need to be built with collaboration as a central feature.
Payout Stack
Programmatic movement of money out of an organization is not new: organizations have hundreds of subscriptions that run their tech stack. However, as soon as the procurement team gets involved in purchasing, the payout stack devolves into a set of approvals. Bank transfers with cumbersome email (worse, paper) trails proliferate the system, and a process that was meant to become more efficient becomes clogged with inefficiency as organizations tend to add warm bodies to solve for adjacent, and often higher order requirements such as reconciliation, audit, and analysis. The payout stack needs to evolve, and we are extremely excited about organizations building in this area. Oftentimes, companies will start with a simple yet palpable GTM hook — solve a widespread problem (expenses and reimbursements, for instance), but the opportunity to build a larger platform for the stack is very real. Another relevant topic — and we have seen this work for the pay-in/acceptance stack — is solving the reconciliation problem.
Finance Close and MIS
A CFO has the responsibility of delivering a single source of truth within the organization. In real terms, getting to a single source of truth on all organizational data is a monumental task that commands the entirety of a CFO’s attention. Oftentimes, finance teams are put on a warpath trying to close accounts for a period; Management Information Systems are riddled with errors and restatements, and the whole experience is unsavory. The fact that Financial close and MIS needs solving is well understood. However, the challenge lies in the construct of how it should be solved. The biggest challenge is displacing probably the most widely used (and one of the most versatile) software on earth — Microsoft Excel. Here is the kicker though — Excel works for the most part — the real problem lies in moving accurate data in and out of it. The second challenge is mindset. Finance is inherently an area of apprenticeship and applied learning, and tribal knowledge plays a significant role in how teams operate. A lot of CFOs prefer adding an analyst to solve this problem, rather than investing in a tool. As a result, tools need to be well-built. They not only need to have the right UI, but also a practitioners’ knowledge and perspective. This is a challenging and exciting area, and we remain bullish on the segment.
Workflow Management and Tooling
A lot of what finance teams do involves moving data from one silo to another, typically via the use of excel sheets and with a ton of email traffic involved. This presents a large opportunity as many of these workflows are transferable across organizations. The challenge lies in making them scalable enough to solve use cases across industry segments. An interesting approach we have seen some CFOs use involves tinkering with horizontal no code platforms and making them work for finance teams. However, we do believe that the market is large enough that a workflow and automation platform targeted at finance teams can stand on its own and build a large outcome. There are some obvious hacks that can help drive quick adoption. However, one of our key considerations is this:a mere workflow automation tool by itself might not be sufficient. It needs to add some accounting functionality for it to find feet within the CFO’s office.
Do keep a lookout for a follow-up piece on Working Capital and Cash Flow Management platforms! This post has been a long time coming, and this is an area of keen interest for us at Vertex Ventures. If you are building for the CFO office, please do reach out to me at pkharbanda@vertexventures.com.
