The CFO of a venture capital company reached out to discuss a potential job opportunity. He wasn’t sure whether to accept the situation and wanted to make sure he checked the situation thoroughly.
The CFO has been with his current company for six years. He had a good relationship with his CEO and board, enjoyed working with the financial team he had built, and felt comfortable in his work. Like many CFOs, equity compensation was a significant part of his total compensation. Unfortunately, the company had not yet achieved its expected revenue growth, and the preferred stockholders’ options far outweighed any reasonable sale price. the company that would acquire it in the sale.
Having been in a similar situation, I was able to share my experiences with him. In one company, I survived a sale where the shareholders lost all their investment, and in another I left before the sale.
Benefits of Staying with a Venture Backed Company with No Equity Upside:
· Resume Development: Remaining in the sales process adds a strong point to a CFO’s resume.
· Deal Bonus: To drive sales, companies can offer deal bonuses to the management team to encourage them to stay with the deal. This can partially reduce the loss of equity.
· Future Opportunities: Board members can help place a CFO at another portfolio company or serve as a reference if they are going through a sales process.
· Knowledge: The current company’s CEO, board, and team are widely known, while a new company comes with unknowns, including equity results.
Benefits of Leaving a Venture-Backed Company with No Equity Upside:
· Potential equity overhead: A new company can offer a very large amount of capital.
· Market Perception: Staying at an underperforming company for a long time can affect the way prospective employers view the CFO.
· Unconfirmed Support: There is no guarantee that board members will appoint, or recommend, a CFO to another portfolio company.
· Limits of Networking: Board members have worked with many CFOs throughout their careers and may not be willing to network aggressively on behalf of any CFO.
Dangers of Traveling:
· Burning Bridges: Improper timing can result in burning bridges, which can destroy or destroy future references. Even if the CFO does not provide the board member’s name as information, there is a possibility that the prospective employer will contact the board member in a retrospective manner. Backdoor scams are very common, especially in small job markets.
· New Levels of Uncertainty: The new level may not always meet the CFO’s expectations.
· New Positions Work: The new position will often require more work than the old position when the CFO arrives early.
Comments for CFOs:
• Notice Period: Give at least four weeks’ notice of voluntary resignation and be available to answer a reasonable number of questions after leaving. Giving only two weeks notice does not give the company time to plan the change. These actions will enable the CFO to leave the company in the best possible way.
· Timing Risk: CFOs who work for companies with no financial equity and get hired before, or during, the company’s sales process, find themselves in a difficult position. If the CFO accepts a new job offer and leaves the company, this action can damage the sales process and will certainly burn bridges with the company. If the CFO declines the job offer and stays with the sale, the CFO may pass up a good opportunity. If the company’s business is still going strong, the CFO may be able to delay the start date until the deal closes.
Notice to Board Members:
· Contingent Deal Bonus Plan: If the venture-backed company does not have equity, develop and implement a contingent deal bonus plan that incentivizes your CFO and other team members management to stay with the company in the sales process. This reduces the likelihood of a C-Level executive leaving before or during the company’s sales process.
What happened to me and my colleague?
Colleagues’ decision: The CFO took another position because the previous board did not consider the sale of the company. He is happy with his decision.
· My experience: Regularly selling another company without a fee earned me a bonus, and the members of the board of investors gave me references. However, there were no CFO opportunities in some of their companies. Leaving a company that I believed was undervalued before it was sold ended up burning bridges with two members of the board of investors. Obviously I did not exercise my stock options.
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