Betting on the CFO stack to catalyze the fintech market

The fintech market has experienced a significant downturn in venture capital funding, following the booming year of 2021. CB Insights data reveals that global funding for fintech startups in 2022 plummeted by 46% to $75.2 billion, compared to the previous year's $139.8 billion. With early 2023 data indicating no immediate rebound in venture funding for fintech, even Stripe 's $6.5 billion raise may not be sufficient, given that it was a down round.

However, within the expansive realm of fintech, which encompasses various companies like Chime , Alpaca , and Brex , a closer examination of evolving trends is crucial. This is where CFOs (Chief Financial Officers) come into play.

The pivotal CFO role

While CFOs are often regarded as the cautious individuals, demanding receipts and meticulously overseeing budgets, they play a critical role in a startup's growth, particularly in a market where capital has become scarce. TechCrunch previously reported on a wave of CFO turnovers at companies that had been on the path to an initial public offering (IPO) before the market halted their progress.

Despite the challenges they face, CFOs have reasons for optimism. Numerous fintech startups are now developing tools tailored specifically for CFOs and their broader office, often referred to as the "CFO stack." These tools aid CFOs in managing finances more efficiently and effectively, enabling them to make informed decisions and maximize available funds.

The emergence of the CFO stack

One notable tool is Brex 's corporate card, designed specifically for startups. It offers various features to help CFOs better manage expenses, including real-time expense tracking, automatic receipt capture, and customizable spending limits. Moreover, Brex provides a rewards program, allowing startups to earn points on purchases for redemption towards travel, advertising credits, and other benefits.

BILL is another popular tool among CFOs, providing an automated accounts payable and accounts receivable platform. Streamlining the payment process, it simplifies cash flow management and minimizes the risk of late payments. Additional features offered by BILL include invoice management, payment scheduling, and automatic payment reminders.

Furthermore, there are several fintech startups dedicated to providing financial services tailored specifically for startups. SeedFi , for instance, offers loans and credit lines to early-stage companies that may not meet the criteria for traditional bank loans. By utilizing a proprietary underwriting model that factors in revenue growth and customer acquisition costs, SeedFi expands financing opportunities beyond conventional credit scores.

Ramp is another startup focused on offering financial services to startups. Their corporate card aims to help companies save money on expenses, with cashback rewards on purchases from selected vendors and discounts on various business services, such as Amazon Web Services (AWS) and Zoom .

Although the decline in venture capital funding has undoubtedly impacted the fintech industry, CFOs now have access to an increasing array of tools and services that enhance financial management, enabling better decision-making and optimizing available resources.

Consolidation and integration of tools in the finance value chain

Rather than using multiple best-of-breed solutions, finance teams are progressively opting for single-vendor solutions that provide an integrated offering of treasury management along with other CFO software functions like FP&A, financial close, external reporting, A/R, A/P, tax accounting, and procurement. A survey conducted by Bain Capital found that a significant majority of respondents expressed interest in switching to such comprehensive solutions.

This consolidation is evident in the expansion of existing tools and the introduction of embedded financial services. Companies like Agicap , for example, have evolved from providing cash flow visibility to offering forecasting, invoice management, and collection/payout facilitation. By providing an all-in-one solution, these tools eliminate the need for some small business owners to hire a dedicated CFO.

Embedded payments have also gained prominence, with companies like Billtrust embedding payment links within their billing solutions. By leveraging existing supplier relationships, these companies act as merchant-acquirers, facilitating card payments for their customers. This approach enables additional revenue capture with minimal customer acquisition costs, which is beneficial for sustaining growth in a subscription revenue model.

However, expanding along the value chain is not without challenges. Regulatory and compliance procedures often dictate distinct and complex workflows for CFOs. For instance, A/P automation players have struggled to successfully expand into invoicing or A/R automation. Instead, a logical product strategy involves building on existing data acquired through expense management, gradually progressing to A/P automation, procurement, forecasting, and working capital loans.

Software solutions are not limited to automation; they now leverage complex data to deliver unique, actionable insights. Some companies are using alternative data sources and benchmarking to increase accuracy and actionability. Vic.ai , for example, leverages a unique dataset to provide intelligent spend and bill payment capabilities, which can identify deviations in typical patterns or handle new invoice templates sent by existing suppliers.

Adapting to new trends, requirements and CFO expectations

Recent macroeconomic events, such as the COVID-19 pandemic, geopolitical conflicts, inflation, and rising interest rates, have highlighted the importance of cash preservation and business planning for finance leaders. Companies are increasingly focused on sustaining cash and extending runway. This entails balancing burn with growth, tapping into revolving lines of credit or growth capital, and adopting new strategies like FX hedging, sales tax optimization, or preventing accidental churn.

The frequency of budgeting has also increased, with some FP&A teams shifting from quarterly to monthly rolling forecasts. New tools like Pigment , Mosaic , Abacum , and Causal have emerged to address different segments of the market, either building on existing spreadsheets or seeking to replace them entirely. These Wave 3.0 FP&A tools offer cheaper price points, cleaner user interfaces, and modular capabilities that enable users without finance backgrounds to make informed decisions.

The proliferation of new payment methods, loyalty programs, and wallet models has led to complexities in downstream reporting and reconciliation of payments. Classifying payments accurately requires judgment and critical thinking at various reporting levels. To address this, companies like Proper and Fragment automate payment processing and transaction allocation, reducing the burden on finance teams. The rise of the FinOps role within the finance function reflects the increased focus on managing and streamlining the quote-to-revenue process.

CFOs' evolving needs are influencing the pricing and packaging of financial technology products. Flexible pricing models that align with the value customers gain, such as consumption-based billing, have become more prevalent. Companies like Metronome and Sequence simplify the billing process, allowing finance and payments teams to adjust procedures without extensive coding or developer involvement.

The coalescing of the finance value chain in CFO software presents opportunities for enhanced efficiency, better decision-making, and revenue growth. One common challenge faced by billing software vendors is the complexity of processing a combination of one-time and subscription purchases. These two business models often involve different billing and provisioning processes, making it difficult to streamline the overall billing workflow. However, Sequence , a company founded with a specific purpose in mind, aims to simplify the billing process for any pricing or payment type.

Sequence 's premise is to provide a solution that requires minimal coding or changes to existing systems. By doing so, they aim to improve the data exchange between finance, sales, and repository software, enabling a more seamless billing experience. With Sequence , companies can overcome the obstacles associated with managing diverse billing models and ensure smoother operations across different payment structures.

By offering a comprehensive and adaptable billing solution, Sequence aims to empower finance teams, sales departments, and other relevant stakeholders to efficiently manage billing processes, regardless of the pricing or payment type involved. Their approach eliminates the need for extensive customizations or coding modifications, making it easier for businesses to streamline their billing operations and improve data exchange between key departments.

In a market where traditional billing software struggles with the complexity of mixed payment models, Sequence 's simplified approach holds promise for organizations seeking a more streamlined and efficient billing process.

Go-to-market and distribution strategy with CFOs

When trying to appeal to finance leaders, companies should keep the following points in mind.

Focus on ROI

Finance teams are typically very cost-conscious, so it's crucial to demonstrate a strong return on investment. Differentiating based on delightful user experience alone may not be enough. Finance professionals have a long-standing familiarity with tools like Excel, so emphasizing the financial benefits and value proposition of the product is essential.

Start with a compelling wedge

The most effective strategy for expanding into the CFO value chain is to start with a product or solution that is closely aligned with bank accounts and accounting data. By establishing a strong presence in these areas, companies can build trust and credibility, making it easier to introduce additional capabilities and expand into other parts of the finance workflow.

Don't underestimate the mid-market

The size of the organization will influence the specific needs of the finance team. The mid-market segment often presents significant opportunities, as larger enterprises may already have complex legacy systems in place, while smaller businesses may not have sufficient pain points to justify investing in third-party solutions. Understanding the target market and tailoring the product roadmap and go-to-market strategy accordingly is crucial.

Think about the broader team

Finance teams are increasingly playing a cross-functional role within organizations. Consider how the product can cater to other departments such as HR, legal, procurement, GTM, product, and engineering. Enabling collaboration and providing seamless integration with these teams will support the evolving role of the CFO and enhance the overall value proposition of the product.

The landscape of the CFO stack is vast and diverse, with various financial products, enablement software, and core tools available. Exploring the opportunities within this category across the US and Europe is an ongoing process, and there is still much untapped potential for innovative solutions to address the evolving needs of finance leaders.