The Rise of the Fractional CFO

FEI Daily spoke with Chris Legg, Senior Managing Director at Progress Partners, about the benefits and drawbacks of the position.

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From 2019 to 2020, there was a 27% increase in CFO resignations. Now, interest in fractional, or part-time CFOs has skyrocketed. Part-time CFOs save money and can adapt quickly to what an early-stage startup needs. But not every venture-backed startup can, or should, pursue a fractional CFO.

FEI Daily spoke with Chris Legg, Senior Managing Director at Progress Partners, about the benefits and drawbacks of the position.

FEI Daily: What explains the recent rise in fractional CFO positions?  

Chris Legg: Many financial workers have decided to explore part-time work, or leave a job, in response to the changes we’ve all experienced as a result of the COVID-19 pandemic. Even before 2020, there was a 27% increase in CFO resignations, and since then many others have discovered the achievable benefits of remote or part-time work.  

We’ve also seen a record year in 2021 for venture capital funding so far with more than $288 billion invested worldwide. Much of this growth was in late-stage companies, but early-stage startups also saw significant investment. An early-stage startup is likely smaller, more agile, and requires a different level of financial expertise than a larger, more established company, or even a late-stage startup contemplating an exit.  

With a record level of market activity, both for VC and M&A, as well as a new growth in part-time, flexible work, it only makes sense that CFOs, like anyone else, evaluate whether they’d like to work with just one company, or many smaller companies at once.  

FEI Daily: Why is it beneficial to have a fractional CFO at the helm of any startup?  

Legg: Fractional CFOs can save startups money on a traditional CFO role, while also providing the necessary expertise needed to navigate a booming VC and investment market.  

Most startups don’t have someone on staff qualified to serve in a CFO role, which means they will need outside guidance at some point unless they invest significant resources into filling that position. For a CFO, this can mean a very entrepreneurial, flexible work schedule, and can enable them to advise several startups, instead of diving deeply into just one company in the role. 

This could also help a CFO explore a new industry or field. If someone’s primarily focused on the financial side of a health tech startup, heading to a digital advertising startup or even an automotive tech startup is an entirely new experience. It’s a great way to get a sense of what you’re looking for in a CFO position.  

FEI Daily: What are the career prospects if a CFO is considering taking a part-time position?  

Legg: As startups grow, there’s always the chance to go back to full-time work, especially if you’ve strongly connected with a company and enjoy providing your services there. However, only two in five startups are actually profitable. Ensuring you’re bringing in the right amount of work while being part-time can be challenging if you’re not established in your target industry.  

FEI Daily: What potential drawbacks are there to a part-time CFO position?  

Legg: A startup that is seeing a large amount of growth in a short amount of time may need full-time CFO services, but only have the budget for a part-time position. Consider the needs of the position before diving in. However, it’s always possible that a full-time position opens up as the company scales. Also consider whether you’ll be as invested in your role when working part-time versus full-time. Some individuals find it more rewarding to work for one company, as opposed to many smaller startups.  

FEI Daily: How does the role differ from a full-time position?  

Legg: Fractional CFOs get to touch a variety of different interests, companies and industries to get their job done. Further, they may feel they can bring a bit more outside perspective into their day-to-day, as they’re not focused solely on one organization 100% of the time.  

Flexibility and the ability to build something are key components of the role that may differ from a full-time job. Every CFO position is different; however, this largely depends on the needs of the company in hiring a CFO.  

FEI Daily: What should financial executives keep in mind as interest in the role continues to grow?  

Legg: I have worked with many fractional CFOs as a banker. We complement each other as they are key part of any sale or fundraising. The good ones can be helpful to our process as a good #2 to the CEO.  With 30 years of banking experience, I have a lot of appreciation for the role that we play and also how a good CFO (fractional or otherwise) can complement our process as we work side by side to deliver multiple good options to the company. 

M&A activity, and VC activity, are likely to remain strong for the remainder of the year. As startups continue to navigate this activity, in addition to SPAC interest, they’ll need experts to rely on who can usher them through any growing pains. Fractional CFOs will only become more popular with startups seeking a great deal of knowledge for a fraction of the traditional cost – and financial executives who capitalize on this sentiment are likely in for a very exciting future.