Superhero CFOs: how an optimal tech stack helps reveal great powers

CFOs handle past, present and future financial data. They are at the core of every strategic decision and have mission-critical tasks to achieve. At Balderton, we believe CFOs are superheroes and like every superhero, CFOs need optimal equipment to make the most out of their powers. Same as Iron Man with his J.A.R.V.I.S (which literally means “Just A Really Very Intelligent System”), CFOs need to implement an optimal tech stack to complete their day-to-day missions.

Our statements

I interviewed multiple CFOs from startups, scaleups and large businesses to better understand their pains and needs today and the innovations they are looking for. Here is what we learnt.

1. CFOs suffer from manual and repetitive tasks and are looking for workflow automation solutions to improve productivity and cost efficiency.

At the beginning of a company’s journey, Excel is the main tool for accounting (matching of cash movement with invoices paid and product sold, VAT calculation, reporting) and invoice management (sending invoices and bank transfers). But as you scale, the volume and complexity increase, hence the need to implement specific tools to automate overwhelming tasks.

“You want to make your accounting as simple as possible as you want to be fast in your tax calculation and reporting” — Real Estate scaleup (c. 400 FTEs)

2. The CFO tech stack is overly complicated so they are looking for simplification and integration.

CFOs use a lot of different tools and gather information from multiple sources. This is highly time-consuming and can lead to manual errors and missing data which can have a serious impact on the business. However, companies have different needs depending on their size and industry, leading them to adopt one of two different tech stack strategies: one-stop-shop vs integrations.

“While it is generally preferable to have everything under one umbrella — integrations can allow for a more tailored approach, which can be better suited to a company’s specific needs and industry” — Financial services company (c. 60 FTEs)

3. Finance departments need to collaborate both within their team and with multiple teams across an organisation: remote work has increased the need for the implementation of digitalised processes.

Email is often the only communications method used — and sending excel exports over and over again is a mess. CFOs want to improve collaboration, productivity and data accuracy. We’re therefore seeing a trend towards the use of more advanced better collaboration and communication tools — either with standalone products or integrated features.

“You need to start using collaborative tools. Excel doesn’t work anymore when people are not in the same room” — US-based tech scaleup (c. 2000 FTEs)

4. With the rise of digitalisation and e-commerce, CFOs are processing huge amounts of data and need tools to handle, gather and analyse it.

CFOs are becoming more strategic as they have more and more data inflows. Innovations have the potential to significantly reduce time spent acquiring, scrubbing, and structuring data. In recent years, the amount of data which SMEs generate has increased to the point where they may even need to enter the world of ERPs. And this is especially true for online-only businesses which need direct integrations with ecommerce platforms.

“Because of growing volumes, we need an integrated system where we can have a better overview of our inventory” — Food startup, selling online and offline

5. Managing liquidity, budgeting, forecasting and planning are becoming more and more important and CFOs need real-time and automated solutions.

During the health crisis, all businesses had to face new challenges. Some saw an unexpected sales decrease while others had issues with their suppliers who couldn’t deliver on time, leading to late deliveries to their end-customers and ultimately late payments. For both businesses suffering from uncertainty and those growing rapidly, we’ve seen a higher need for financial management and forecast scenarios. With Excel being the main tool for most companies, there is a need for real-time, automated and collaborative solutions.

“We use excel for financial planning and analysis but we are currently looking for a proper tool which would give us forecasts of costs and hires based on our expansion plan” — Scaleup in logistics (c. 100 FTEs)

6. New regulations on e-invoicing and VAT real-time are being implemented in Europe and CFOs need solutions to help them be compliant.

VAT is digitising. Global tax authorities are imposing a surge of new complex and diverging digital and live transaction reporting, replacing the traditional VAT return. The UK was the first country to implement the Making Tax Digital regulation in 2019. This led to a huge adoption of cloud accounting software such as Xero or Quickbooks. VAT real-time and e-invoicing will come into effect in 2024 in France and Spain, thus there should also be a growing demand for cloud accounting and specific tax management solutions.

“We needed to implement a solution to automate subscription management and VAT compliance” — SaaS startup (c. 20 FTEs)

Our landscape of the CFO tech stack

I mapped the CFO tech stack into specific categories referring to the role’s main tasks. The CFO role expands as the company grows, and the bigger the company, the more structured the finance team becomes. Note that the CFO tech stack is very different depending on the size of the company. Some tools might not be useful at the beginning, some others might be replaced as you scale and some others might become obsolete when you reach a certain size.

Let’s dig into a couple of (non-exhaustive) interesting trends

Building the one-stop-shop for SMEs

As we’ve already discussed, CFOs currently use many different tools and require information from multiple sources. Gathering data manually can lead to mistakes and missing data, which can have serious consequences: misunderstanding a financial situation could lead to very bad decision-making, and false reporting could ultimately mean painful fines. CFOs, and particularly those who work for SMEs, need simpler and more integrated tech stacks.

We’ve seen a lot of players in the CFO tech stack aiming to become the one-stop-shop for SMEs. As SMEs generate increasing volumes of data, it makes sense to build a unique source of truth with an all-in-one tool. These players usually start with a specific feature and then try to expand into the value chain. Ultimately, they often provide financing solutions to SMEs.

Some players start with banking or accounting, which are the first two pain points a CFO faces.

• These are good entry points from which to grow and add features which businesses need as they scale. In addition, these products tend to be sticky with high barriers to entry. However, banking is already a competitive market with strong European players such as Revolut. Balderton was a seed/early Series A investor in Revolut, which is now the leading European modern global bank for consumers and businesses, valued at over $33bn after raising a $800m Series E in July 2021.
• The global accounting market was valued at $12bn in 2020 and is expected to reach over $20bn by 2026. The Wall Street Journal recently highlighted in a post that VCs were targeting startups with AI accounting software as spend management is even more important in this uncertain economy.
• We believe there is room for disruption in the accounting space as the market is largely dominated by old and local incumbents. Indeed, all European countries have their leaders: Cegid in France, TeamSystems in Italy, Datev in Germany, etc. Cloud adoption in the UK is close to 50%, and it must be even lower in the rest of Europe since the UK implemented the Making Tax Digital back in 2019.
• Xero is a very good example of a successful company that managed to disrupt the NZ, US and UK markets with cloud accounting. However, if European countries share International Financial Reporting Standards (IFRS), each country has its own accounting methodologies and tax regulations. Thus, a European winner in the accounting space would need to have an architecture such as integration of new accounting rules / policies / tax rates is relatively simple. Moreover, go-to-market strategies might be different from one country to another.

As other tools part of the tech stack for SMEs easily integrate with banking and accounting software, they are highly scalable products.

• Expense management is an extremely hot category, with more than $2bn raised from 20 European players over the past 10 years. We, at Balderton, were very happy to participate in Yokoy’s Series A and B last year, a company which provides finance teams with a 360-degree financial cockpit to manage all business expenses.
• We’ve also seen cashflow management tools become a must-have for SMEs — especially in periods of crisis. These provide SMEs with a centralised solution for all their bank accounts, allowing them to visualise their real-time cash position. Some players also provide cashflow forecasts features helping SMEs to create scenarios and visualise their cash impacts.
• Finally, we’ve seen very interesting companies in the AP/AR space. We believe these solutions will be more and more useful as new regulations on e-invoicing come into force across Europe. We’ve seen examples of very successful companies abroad — such as Melio in Israel and Bill.com in the US — and we are very excited about the European ecosystem. On the billing side, we were glad to back GoCardless during its Series B in 2013, which reached unicorn status in February 2022.

Ultimately, we believe these players can coexist, even if they are indirect competitors — the European SME market is big and growing (there are 25m businesses in Europe!). If you are building something in the space, please reach out, we would love to chat and share our knowledge. You might have very different views, we warmly welcome them and would be happy to discuss!

The increasing need for monitoring, budgeting, planning and forecasting financials

A 2009 McKinsey survey showed that FP&A became more important after the financial crisis. In 2020, McKinsey also highlighted the importance of scenario-building and the higher responsibility of the FP&A team during the Covid-19 crisis. What we see today with the ongoing health crisis and the Ukraine War is that businesses need to focus even more on monitoring their cash position and forecasting financial scenarios.

Survey on finance teams responsibility post 2008 crisis

FP&A is a set of planning, forecasting, budgeting, and analytical activities that support a company’s major business decisions and overall financial health. But FP&A means different things depending on the size of the company. For traditional SMEs and startups, FP&A refers mainly to cash flow management and forecasts. For scale-ups and larger businesses, FP&A means building long-term strategies by pulling data from BI tools, data warehouses, accounting software, HR tools, CRMs, etc. to build financial forecasting scenarios.

Today, CFOs from all types of companies still mainly rely on Excel or Google Sheets. They need to gather data manually, do manual cash reconciliation from all bank accounts, update that reporting frequently, and build new financial scenarios over and over again. Incumbents — such as Anaplan or Adaptive Insights (acquired by Workday for $1.5bn in 2018) — only address large businesses. Those tools require heavy and long implementations. They are also slow and difficult to customise as the FP&A team needs to rely heavily on Customer Success to make modifications.

“We are using Spreadsheets today but we are thinking about implementing one of the new existing solutions. We want something lean and similar to Excel” — Scaleup in project management (c. 100 FTEs)

“There is a gap in the market as there is no FP&A tool for scaleups. So far we have been using Sage Intact for FP&A but we still have to use Excel” — SaaS scaleup (c. 200 FTEs)

“We don’t use a really interesting and connected planning tool, we still rely on Excel. It works but that is it. We have to find a more powerful and integrated tool where we can build automated financial planning” — SaaS scaleup (c. 2000 FTEs)

“We are using an FP&A tool for planning and reporting. It is very rigorous: making changes in financial modelling is tricky as we need to rely on Customer Success. Moreover, it is slow in loading data. Ultimately, we still need to use Excel / Google Sheet” — US-based tech company (c. 6000 FTEs)

There is room for disruption and it is already happening. As mentioned, we are seeing new cash flow management tools. By being connected to all bank accounts, they offer real-time visualisation of bank cash inflows and outflows and allow to create scenarios. They usually address small businesses with less than 100 FTEs and are used on a daily basis by the CEO or the CFO. If they are easily scalable, barriers to entry are quite low and those players need to build differentiation — either via their product strategy by building automated bucketing, easy customisation in cash flow forecasts, and adding new features of AP/AR management — either via their go to market strategy by addressing specific verticals.

We are also seeing a new generation of FP&A tools addressing scaleups and larger businesses — either trying to replace Excel or being a layer on top of Excel. They integrate with all sorts of software — accounting software, HR platforms, CRMs— and have the capacity to handle a high volume of data. We believe successful players will be the ones providing a powerful product able to integrate with multiple data sources while being fast and easy to implement, as self-served as possible, adaptable and easily customisable. Collaboration features are also very important for FP&A executives to communicate within their team and with other teams across the business when building budgets.

Another very interesting space is crypto-focus CFO tools.

We just recently invested in Request.Finance, a payment infrastructure for B2B crypto payments. I will kindly let you read the great article written by my colleague Maxime giving more details on our thesis.

Big up to every company helping CFOs in their superhero missions!

We at Balderton are a multi-stage firm as we raised two new funds last year, one of $600m dedicated to early-stage investments and another one of $680m to invest in growth-stage companies. Essentially, we can support companies at every stage of their journey so feel free to reach out!

Thanks to David and Andrea