Andrew Griffin has spent 17 years as a user of financial accounts as a public tech sector equity analyst, working closely with tech companies and their investors. The former software engineer and tech analyst is now CFO at Bloc Ventures, an investment firm specialising in deep tech companies.
Andrew studied engineering before training as a chartered accountant. His background has given him valuable insight into where the different approaches between accounts preparers and users diverge.
Preparers, he explains, are concerned with presenting a fair and accurate financial picture based on the previous years’ company records. Users, on the other hand, including investors, are concerned with analysing and interpreting these reports, identifying trends and any significant changes, and the reasons behind them.
Accountants, in particular, play a vital role in business finance in terms of reconciling accounts and ensuring accounts remain tax compliant, while CFOs are more of a wing person to the CEO and tend to be more forward-looking.
Even so, there are inevitable skills and knowledge gaps across these in-house, accountancy-based roles, which as a user of accounts, Andrew is all too aware of.
Spotting trends and financial forecasting
“Many CFOs tend to have a huge hole in their ability to look at a set of accounts, identify how they’ve changed from the previous year and to spot trends, particularly in financial forecasts,” Andrew explains. “The ability to communicate financial information concisely in stakeholder-friendly language can get lost for preparers of financial information, who are immersed in the detail. But that’s exactly what is needed when presenting your accounts and reports to analysts and potential investors.”
Communicating financial information concisely and in stakeholder friendly language for both Bloc Ventures and their portfolio companies forms a big part of Andrew’s role. Bloc Ventures specialises in the deep tech space, the technology behind digital economy companies, such as foundation software, hardware, semiconductors, etcetera.
Andrew’s primary focus is what he calls ‘readiness to raise’: building the financial base to show next round investors the basis for company forecasts: don’t just provide a revenue forecast, break it down into price and volume. This can cover everything from supporting companies in tracking pipeline metrics, recurring revenue and all its associated SaaS metrics, cash flow and even the format of profit and loss statements (P&L) which many UK tech companies get wrong.
Financial reports and KPIs
For the eleven companies Bloc Ventures have invested in thus far, there is often a need to restructure financial reports and establish proper KPIs. This is where Andrew comes in. “As a user of accounts, I need reports to be extremely concise, to start with the conclusion and work back from there. That’s part of what we offer for our portfolio companies. We help them bring management accounts and forecasts to life, but concisely, to help companies explain to generalist investors what they’re actually delivering.” This involves pouring over financial reports, identifying trends and looking at any changes and anomalies while benchmarking performance data to potential competitors.
“I’m not interested that your revenue was £100m this year. What I’m interested in is that it grew from £50m to £100m. It’s that change that’s important and what drove that change.”
For companies seeking funding, this additional insight and methodology are crucial. Andrew uses the example of a public company that claimed to investors that it doubled its revenue over the past 12 months. “But it then turns out that the company actually made an acquisition during the previous year, so their organic growth is actually only 10%,” Andrew explains. “A bad company will only report their doubled revenue, but a good company will identify the true nature of their underlying revenue growth, avoiding awkward questions on their analyst call.”
Venture Capital funded businesses naturally focus on growth, and Andrew often comes across companies where the finance team’s growth has lagged behind the wider organisation. There is usually a compulsion to solve this using technology, particularly by upgrading from a basic cloud-based product to an ERP or ERP-like solution.
Transformation and the complexities
“Often, the preference is to ‘rip out and replace’ existing accountancy systems in the mistaken belief that an upgrade to a fuller functioning ERP system will revolutionise business processes more-or-less immediately,” Andrew explains. “I often advise companies to be careful what you wish for, particularly for understaffed finance teams. ERP is like a Formula One car; much faster than a regular car but much more difficult to drive. A lot of finance people who are tasked with transformation often underestimate the complexity. By the time companies are in a position to transform their ERP systems, they’ll have around 10-20 finance professionals, all of whom will need training.”
Andrew says he’s seen companies with botched transformation programmes where month-end becomes a complete mess. So instead of finance being strategic and driving the business forward, they’re constantly having to firefight and fix reconciliation issues.
Instead, Andrew recommends investing in some of the ‘best of breed’ software solutions on the market. These can help smooth the transition process without having to rip out and replace entire systems. “Get advice and ‘war stories’ from those who have been on the same journey and used the same systems,” he adds.
As far as Andrew is concerned, being a user of accounts has been his bread and butter for nearly two decades. It gives him immense job satisfaction. “I’ve always been interested in how businesses tick,” he explains. “Providing funding and forecasting support is a key part of this. There is always an inherent risk in investing in deep tech companies, but if the technology works, there’s a massive market for it.”