The CFO as a venture capitalist - KPMG United Kingdom
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The CFO as a venture capitalist

The CFO as a venture capitalist

In a world where businesses must make serious and rapid investments in innovation, the role of the CFO is changing.

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Widespread disruption – driven by digital technology and customers’ changing expectations – is posing an existential threat to many businesses. 39% of CEOs believe disruption will weaken or eliminate some of the traditional leaders in their sector. 72% say the next three years alone will be more critical to success than the last 50 years put together.

To survive and prosper, businesses must innovate fast. They must get better at anticipating the impact of events in the world around them and must increasingly look beyond their own industries to find new partners and build new, sustainable business models. Failing to do this – or not doing it fast enough – means to risk becoming irrelevant.

In this challenging landscape, where innovation is the key to survival, what role should the CFO play? How should finance processes evolve to support the need for investment at pace? And how does the CFO mindset need to change when it comes to investing in disruptive innovation? These are some of the questions finance leaders met to explore in the first of our new series of Future of Finance breakfast events.

Investing to innovate

John Bason, finance director at Associated British Foods (ABF) plc, joined to share his experience of supporting innovation at this large and diverse group. ABF has seen operating profits multiply five-fold over two decades, taking the group to the top 30 in the FTSE 100. Acquisition has been an important part of ABF’s strategy. The group has sought out and invested in businesses with the potential to help ABF move with consumers’ changing tastes and preferences – and this has seen the CFO role come to share many similarities with that of a venture capitalist.

Looking outwards

By encouraging the business to cultivate an outward-looking mindset, the CFO can help generate a flow of potential deals for the innovation portfolio. The business should be alert to emerging trends and major events across markets and seek out the support of the CFO to understand their future impact as well as the threats and opportunities they bring.

Showing imagination

Every opportunity to make an investment requires a bespoke approach that reflects the motivation and priorities of the different stakeholders. In building an innovation portfolio, the CFO must be flexible about the deal structures used to bring new partners in. Roles for the founders of a business being acquired, buy-back options for key investors and ceding a degree of control, for example, are some of the tactics ABF has adopted to make a series of successful strategic acquisitions and joint ventures in recent years.

Enabling investment

The CFO must lead a function that is forward-looking and agile. Traditional activities such as tracking metrics and maintaining control are still important, but must be balanced with the function’s role as an enabler of innovation. Analytics can deliver a faster, more accurate assessment of risk and potential rewards, helping the function speed through innovation investments, rather than slowing them down with excessive caution as it might have done in the past.

Showing courage

In disrupted markets, new ventures may be in for a bumpy ride, perhaps failing to achieve projected profits or margins as unforeseen market events work against them. Here the CFO must show courage, backing the venture through troubled times to give strategy a chance to come good. Where the original analysis of the opportunity is correct, this is often the right approach. Where a change in strategy is deemed necessary, the decision must be bold and fast.

Building relationships

More than ever, disruption provides the CFO with the opportunity to move the finance function out of its traditional role as gate-keeper – with the power to withhold or release capital for investment – and to position the function as a partner to the business, guiding business leaders as they face complex, fast-paced disruption. In this role, the CFO can shape a narrative that helps business leaders understand how the business’s financial model needs to evolve to sustain future profitability and – in doing so – can become a strategist and architect of the future.

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