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In PE-VC funded firms, the CFO needs to be a value creator by Pankaj Raina

Posted on 27 November, 2020

“To create value, the finance function needs to provide meaningful insights into the decision-making process. It means getting the right information to the right people on time,” writes Pankaj Raina, Managing Director, Research and Investments, Zephyr Peacock.


Click here to read the full article on “The Hindu Business Line”


Below is an excerpt from the post that first appeared on The Hindu Business Line on 27 November 2020:


Over the last decade, a chief financial officer’s (CFO’s) role has evolved from mere bookkeeping and compliance to include elements of strategy and business operations. Growth in PE-VC investments has enabled many founders to establish businesses and secure money to scale up operations.

PE-VC money is used to hire stronger execution teams, lever up by raising debt, launch new products, invest in marketing, grow geographically, spend on technology and necessary infrastructure, etc. A vital member of all execution teams is the CFO. Starting with angel investing, as the company continues to raise more money, the finance function undergoes many changes. These changes and the accompanying set of responsibilities as the company grows, make the CFO critical.

Data analytics

PE-VC firms have a huge appetite for financial and operational data analytics, particularly data about what drives a business. This data is mostly used to derive meaningful insights for shareholder value creation. Institutional investors require that the CFO create value by combining financial expertise with operational facts to help the CEO and the founding teams make more informed decisions.

A traditional CFO is consumed by the myriad of compliance processes and monthly reporting, most of which can be now implemented through robust ERP systems available. While institutional investors recognise the importance of monthly reporting and compliance, it is now a house view that publishing reports by itself is not value accretive, but rather a report card of a company's financial position.

Many of the financial data points are not directly usable by many departments, including sales, technology, etc. For most enterprises, a way forward is to recruit and train finance officers to wear multiple hats — steward of compliance and reporting — accounting and finance, value creator — strategy and operations, and treasury management.

While all three areas are essential, the value creator’s role is the most important for CFOs in well-funded private firms, given the need to support decisions across a range of operational and strategic matters. Value creation in India is not based on financial engineering and leverage but driving performance improvement across functions.


Meaningful insights

To create value, the finance function needs to provide meaningful insights into the decision-making process. It means getting the right information to the right people on time. Importantly, it implies that the CFO works in partnership with the CEO as a strategic thought partner, aligned around a shared long-term vision for the company and shaping the finance function to meet the business goals.

Despite the role of capital markets in PE exits and debt plays in organisation scale-up, treasury management skill is usually a “good to have” rather than “necessary” skill set. In most cases, good value creators tend to learn this skill over time — however, one notable exception is a company that is raising a pre-IPO round. In that case, capital markets and external investor relations and communications are an essential skill. Financial reporting and accounting continue to be the bare minimum that any CFO would have to do, it is their primary responsibility.

Another important but often overlooked facet in the Indian corporate setting is “governance,” both in the private and listed space. Due to an increase in the number of scams, and misreporting of numbers and facts, the expectation of all stakeholders has increased and demand greater transparency. Companies are now expected to meet the standards of social, environmental, and financial performance — triple bottomline.

Click here to read the full article on “Hindu Business Line”

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Zephyr Management is a global emerging markets investment manager, specializing in the creation and management of highly focused private equity funds

Since its inception in 1994, Zephyr has sponsored and/or managed 26 investment funds in both public and private securities markets representing approximately $1.2 billion in combined commitments and assets under management

Emerging Markets Focus

The firm has initiated several private equity funds investing in several African countries, South Korea, Mexico, India, and Sri Lanka since its founding. Zephyr's funds serve medium size enterprises that are often ignored by larger private equity players. Zephyr funds provide growth capital to established companies with proven business models and sustainable competitive advantages.

Investment activities are currently focused on India, Sri Lanka and Africa.

Zephyr Peacock India

Zephyr Peacock India provides equity financing for fast growing, small to medium sized companies led by strong entrepreneurs and management teams.

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Emerald Sri Lanka Fund

Emerald Fund provides equity financing for fast growing, small to medium sized (SME) Sri Lankan companies led by strong entrepreneurs & management teams.

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Zephyr Acorn provides equity

Zephyr Acorn provides equity financing and business support to innovative early-stage companies in East Africa.

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Active Portfolio Support

The firm's special expertise lies in bringing global best practices to medium-sized growing companies by assisting them in conceptualizing sustainable business strategy, management development, compensation, ESG, expansion outside of their home country, capital structure and positioning for stock exchange listing or trade sale.