If you’re a CFO, you know the option is always out there: shed the nerve-jangling life of a full-time finance chief, hang a shingle, and begin providing finance services to multiple clients on an interim or part-time basis.
Many experienced finance leaders have made that transition, in some cases opting to work alone, in others founding or working for a larger firm with a number of professional colleagues. While such ventures often start out serving the industries in which its founders are experienced, many branch out after a while, preferring to beef up their client lists and gain experience in various niches.
For someone with strong experience in a highly specialized vertical, however, the best business gambit may well be to stay strictly focused on it.
Gregg Beloff and Daniel Geffken were CFOs with long histories of working for life sciences companies when, in 2011, they formed their own firm, Danforth Advisors. Today they oversee a 50-employee stable that includes 10 finance chiefs; the others serve in vice president of finance, controller, and financial planning and analysis roles. All of Danforth’s clients are in life sciences.
The firm’s preferred model is to offer a fully integrated finance department as a managed service, although many clients cherry-pick the specific role or roles they need to fill.
The precise number of Danforth clients varies from week to week; when CFO spoke with Beloff on Dec. 5, the count was 105. In addition to the typical pre-revenue firms, Danforth also serves those with products on the market, including some publicly held ones of various sizes topping out at market capitalizations of $1 billion-plus.
Danforth will stay with a client for months or years, as needs dictate. Most clients are pre-revenue companies trying to bring new drugs to market; pharmaceutical firms account for 70% of the firm’s revenue, which currently totals about $12 million annually. The rest comes from other life sciences niches: medical devices, diagnostic and reference labs, and digital health technologies that leverage big data, analytics, and biometrics.
Being able to speak in the language of science is part of the specialized expertise the firm can provide, according to Beloff. “We are at the intersection of business and science,” he says.
But there’s more than that. “Life sciences is such a unique business model,” Beloff says. “It has its own parlance and a very tightly knit ecosystem. Shared among all of the disciplines we serve are the same providers, capital backers, and sell-side and buy-side participants.”
Most of the clients are, of course, looking for financing. “We can say [to a client], ‘Based on our knowledge of the market across our client base, here are the funds that are interested in the space you’re in or interested in companies at your stage of development,’ ” says Beloff.
Typically the clients are hoping to go public sooner or later, which, to the extent clinical trials are successful, introduces the strategic element of deciding when it’s time to hire a full-time CFO. Danforth usually exits a client at that point, but not always. Clients may be unwilling to take on that expense, and indeed, Danforth has had a hand in 20 IPOs over the past four years.
“The amount of money it takes to develop a drug is so large that these companies don’t want to allocate much of their cash to G&A functions and bring in those fixed costs,” Beloff says. “You don’t know if the public offering is going to be successful.”
Such a company might hire a controller but not much else in the way of finance and accounting staff, he notes.
“But the controller is not SEC-literate, doesn’t know how to prepare an S-1 [registration statement], how to organize a banking syndicate, or how to put together a deck that you can take out on [an investor road show],” says Beloff. To boot, some of Danforth’s clients are foreign companies that need a CFO’s expertise because they don’t know anything about the U.S. capital markets or business landscape.
Besides, the hiring market for full-time CFOs is very tight. One of the clients Beloff works directly with, pSivida, has a $60 million market capitalization but “couldn’t attract anybody right now,” he notes. “There are just too many job openings.”
The firm is located in the Boston area, the world’s leading life sciences hub, but plans to grow further by launching a physical presence in other hotbeds. Contenders include New Jersey/Philadelphia; Austin, Texas; North Carolina’s Research Triangle Park; San Diego; San Francisco; and Seattle. It’s also weighing the possibility of expanding its product offerings to include more technical accounting services as well as services oriented toward the public sector.
Almost all of Danforth’s professionals are employees of the firm rather than contractors. They get a nominal base salary plus an hourly rate that varies according to the kinds of services they provide. That makes the arrangement cost-effective for the client, according to Beloff. “You’re not paying a CFO to do controller work,” he says. “You get a controller when you need a controller and a CFO when you need a CFO.”
Beloff, in fact, is quite up-front about his own mix of abilities. “While I can help a CEO in ways that a controller can’t, in 17 years of being an operating CFO I’ve never once had the password to the accounting system, and for a very good reason: I wouldn’t know what to do with it.”
Beloff decided to get into the interim market partly because so many opportunities in the life sciences space ultimately lack longevity. “There aren’t too many of these companies that are successful in the long run,” he says. “The average tenure of a CFO was approximately two years. I thought it would be easier to diversify my risk across multiple clients than to concentrate risk in one employer.”
He was also, he says, simply ready to start something of his own. It’s been a learning experience — one that at times has proved humbling: “It’s been so much fun, but I will frankly admit that after running my own business for six years, I can’t believe how naïve I was as a [full-time] CFO. You learn a hell of a lot running a business.”