Once Burned, Twice Shy

Five years after the Internet bust, tech start-ups are still wooing CFOs. But CFOs have higher standards now.

For many CFOs, joining a technology start-up during the Internet boom was like eloping with a flashy teenager. Such companies were often run by image-conscious executives long on vision but short on operating experience. Metrics like eyeballs and market share were hyped at the expense of cash flow and profits. As burn rates soared and the stock market plummeted, the start-ups fell apart, and their CFOs took their worthless options and moved on—sadder but presumably wiser.

Today, the dot-com rubble has been cleared away. Although technology initial public offerings (IPOs) have slowed since last year (and significantly since 1999), tech start-ups are continuing to woo CFOs. But are CFOs willing to give them another chance?

Yes, say recruiting experts. “CFOs are taking careful looks at opportunities that, two or three years ago, they either wouldn’t be getting calls for or would outright dismiss because of the risk,” reports John Wilson, CEO of J.C. Wilson Associates, a San Francisco­based headhunter.

Larry Ormsby, a partner in the San Francisco office of search firm Korn/Ferry, says he’s getting more calls to find CFOs for IPO-bound companies. Ormsby has three assignments at the moment, which he calls “a lot.” “There was a point where, when you said you had an IPO story, it was almost tongue-in-cheek because you didn’t know if [the company] was really going to go out or not,” says Ormsby. “Now, candidates are taking the opportunities more seriously.”

But this time around, they are doing better due diligence on prospective employers. “Everyone is trying to keep excitement and emotions in check right now,” says Wilson. “And if [a tech employer] is remotely flaky, very few CFOs will have any interest whatsoever.”

Finance chiefs are more particular now, agrees Sharon Wienbar, a managing director at Bank of America’s BA Venture Partners. “If you come in and the books are in disarray, you’re not sure if the salespeople are on the up-and-up, [and] auditors [are] screaming ‘material weakness’—you don’t want to get boxed into that,” she says.

Back To The Excitement

One choosy new tech CFO is Matthew Petzold, who recently joined Motricity Inc., a four-year-old wireless-software developer in Durham, North Carolina. Petzold says he did so in part because he “wanted to get back to the excitement of growing a small business.” Not that his two previous stints were dull: he was CFO at Verestar Inc., a satellite-services provider that went bankrupt in 2003 and was subsequently sold; and at UUNet, the Internet service provider division of WorldCom (now MCI).

Petzold also says he joined Motricity because of what he sees as the high demand for the company’s product, its impressive investor roster, and a customer base that includes Cingular, the nation’s largest wireless provider. He made sure he would mesh well with Motricity’s management, board, and company culture. And the timing was right, adds Petzold; to persuade him to work for such a young company a few years ago “would have taken a lot more convincing.” Even five years after the Internet bust, CFOs are “absolutely being more selective about joining tech start-ups,” he says.


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