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As an early-stage investor, the first real test of whether the conviction I had to invest in a seed stage company comes if the company can raise their Series A round at a premium to the valuation I invested at. While having great traction at Series A is half the battle to get investors to be interested, Series A investors are looking to back a team that is set up for scale. No Series A investor is willing to take the key man risk where the CEO is still every department's last line of defense.

The other day I heard a great way for any CEO to test whether their company is ready for Series A. Here is the test: Could she step away for two months to go raise money from new investors and the business will keep moving without needing her in every room?

If you couldn't then you don't have a company yet. You have a very demanding job you built for yourself. And the longer that stays true, the longer you're stuck doing everyone's work instead of the three things a CEO at this stage should actually be spending time on, which are raising the money, hiring the people who can carry the company, and leading with the vision that people underneath you can build against.

So, what does fixing it look like? It comes down to have four people between you and the company, each owning a piece big enough that you stop being the connective tissue holding it all together. Let's see who they are.     

A good COO is the person who takes the operational weight off you entirely and turns it into a running machine. The ideal COO should be able to take finance, growth, ops, and the boring but critical stuff like risk and compliance, and drive them towards the performance and metrics that you are promising Series A investors that this round will unlock.

The ideal profile is someone who has had strong operating experience, preferably one step below COO in a prior scaled startup either in the same industry or across your current and future markets. This person has had clear impact in their current role serving below a strong COO and is ready to step into the COO role themselves. If you have hired the right COO, the first thing you should see is that your hiring plan for several junior people shrinks.

A strong COO doesn't need a small army under them to get the same output a weak one would need twenty people for. They absorb complexity instead of multiplying it. Yes, you might need to hire more people but a strong COO will make those hires for performance without increasing the number of reports that the CEO needs.

A good CTO owns product and engineering so the person who decides what gets built is the same person who has to answer for why it slipped. What separates a good one at this stage is two things: Can they hold the product vision themselves, meaning they can sit with a customer problem and land on what to build without waiting for you to hand it to them, and can they look at your current infrastructure and tell you honestly where it breaks at ten times the load, not just where it's held up so far.

Most startups already have someone with the CTO title by this point. The question isn't whether to hire one, it's whether the one you have can do both of those things well, or whether the CEO has been carrying half of that job. The one exception is if you are a product led CEO yourself, someone who still wants a hand on product decisions because that instinct is part of what got you here. That's fine, but be honest about it so your CTO is not always getting overriden by you.   

The third is HR, and it reports straight to you. At the seed stage or earlier, who you hire is basically a translation of a vision that's still mostly living in your head and shifting week to week.

At Series A, you need someone who can take the vision of the organization, the needs of the other departments and translate it into repeatable hiring process that gets you strong talent that are able and willing to roll up their sleeves and get in the messy work of building a startup into a scale-up. And people trust them enough to bring problems to their desk, because they know that the HR would address the issues appropriately. Most founders end up with someone strong at one of those and weak at the other, and only notice once the team's grown past the point where it's easy to fix.  

No serious Series A company doesn't have a CFO. The CFO manages two distinct finance functions in your business, one person keeping the books honest and the treasury tight, another building the model, managing datarooms and joining investor calls with the CFO.

You will know that you have a competent CFO for the first time if finance becomes one coherent function across both functions, freeing the CEO up to focus on the 3 functions we talked about. Many first time CEOs struggle the most with hiring a strong CFO. In the next issue, I'll get into what actually separates those two finance functions, because founders conflate them constantly and it costs them more than they realize. 

Get this org structure right and you stop being needed everywhere. 

And the thing about needing to be needed everywhere is that it feels like commitment while you're doing it, but once you let it go, you will realise quickly that it has been limiting you from being the best CEO for yourself, your employees and your investors.

If this issue made you think about the team you need to build, forward it to another CEO who is also thinking about the team they need to build. They will appreciate you thinking of them.

That's all for today. As always, thank you for being an engaged reader. Let me know your thoughts on this issue. I read all your emails.

Until next time,

Jasiel

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The information contained in this newsletter is intended for discussion purposes only. This newsletter contains the current, good faith opinions of the author but not necessarily those of Accion Impact Management, LLC (“AIM”). The newsletter is meant for educational purposes only and should not be considered as investment advice or a recommendation of any type.  The documents may contain forward-looking statements.  These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking statements are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements.  Any forward-looking statements speak only as of the date they are made and AIM assumes no duty to and does not undertake to update forward-looking statements. This newsletter is not an offer or a solicitation for the sale of a security nor shall there be any sale of a security in any jurisdiction where such offer, solicitation or sale would be unlawful. An investment with AIM involves a degree of risk, and may only be made pursuant to the respective offering documents and organizational materials governing such investment.