Recently, we assisted the founders of two up-and-coming private equity firms. Both were looking to establish their business and launch their respective funds. In both cases, they were wanting to hire a CFO who would work across their finance and operations teams, suited their needs at the time, and would also fit into their budget.
Both firms were at different stages where their budgets were concerned.
Firm A was about to close to its first fund with institutional LPs locked in, while Firm B was still some way from its first close and was still onboarding investors. As a result, these two clients had different budgets and outlooks on the search.
Both clients required seasoned professionals to build out the finance function. This meant knowledge and in-depth know-how across processes, controls, and fund structuring, and established external relationships. There was also a need to be commercially minded and to truly partner with the business.
We recommended both clients consider two types of profile that adhered to the CFO job description, the first being the tried-and-tested CFO - one who has operated at this level previously and will effectively be a plug-and-play hire. Whilst less risky, this option is understandably more expensive.
It gives investors more confidence, but would also potentially need junior support sooner rather than later - adding to budgetary requirements.
The second option was for a next generation of CFO - the classic “frustrated” number two who is seeking to step up and be given the chance to prove themselves. This route is slightly riskier, yet offers someone who can grow with the firm and isn’t averse to being hands-on during the early stage where things need to get done.
Firm A, after much consideration, decided to pursue the more experienced candidate who had already operated at this level and understood the requirements to continue building a successful fund.
Firm B decided to appoint a less experienced yet capable candidate who was operating as a number two and was clearly ready to step up into the CFO role; someone with lots of knowledge as well as the potential to grow with the business.
In both instances, an important feature was the need to offer carried interest. This was more tangible for Firm A as they were already close to 60% deployed at first close, while a “leap of faith” was needed from the candidate accepting the role with Fund B.
In cases such as this, the carried interest angle is essential.
It often helps funds to attract the right calibre of candidate at a stage where they’re less able to commit to a higher cash (CFO salary and bonus) component. Most importantly, it gives a strong indication to the incoming candidate that they are valued and viewed as a long-term part of the firm and its success.
Fast forward to today and Firm A is going from strength to strength. Their CFO has joined the business and is making a huge contribution whilst laying the foundations for the future of the firm, thriving with the CFO responsibilities.
Fund B has their new CFO joining at the very start of 2022. The dialogue between both parties is open and strong, already showing trust and transparency.
Ultimately - where your fund is is the biggest indicator of the type of CFO hire you might make. If you have visibility on management fees being realised, it makes sense to consider the more expensive CFO option. Earlier on in your organisation’s journey? Taking a punt on an up and coming CFO may suit more.
Either way, it’s not set in stone and we always urge clients to think about what it is they need this CFO to do. How hands-on will they need to be? What cultural boxes do they need to tick? This will allow you to keep a broad and open mind.
One Ten Associates works across a large scope of financial specialities, placing exceptional finance professionals in finance, operations, compliance & legal, quant, data & tech, and asset raisers & IR.
If you’re unsure what salary, carry or bonus levels to go in at when recruiting then get in touch today to discuss your needs. Likewise - we will guide you on the type of profile and experience needed for your organisation to thrive.