I participate in a group of about 50-60 CFOs that focuses on the
software sector, finance, and operational issues. Participants range
from sole proprietorship consultants to CFOs in public companies and
venture-backed Series A-ZZ firms. Online inquiries by group members can
be restricted to an intranet-based discussion (potentially using a group blogging service down the road).
When working for ventures, you need to try to leverage informal
networks as much as possible (including using counsel). As examples of
the high-quality things that the peer group can help you get data
points on (sort of a "wisdom of the crowds" thing provided that you
watch out for biases), here are two results polls related to:
- pricing of underwater options
- whether VPs, CXOs, etc. can be contractors
Topic #1
- Managing options-related issues caused by taking on a down-round
(Note: content created by facilitator and trimmed and edited by me a bit with "[]" added for
confidentiality and readability):
-
Most people who have dealt with
this historically have chosen to cancel underwater options and reissue them in 6
months and 1 day. This was the cleanest solution that
avoided triggering variable accounting. Employees are "naked" for 6 months, but
good communications plans help avoid any associated morale issues.
-
After further
research, [CFO] found a very interesting solution working with
[deleted] auditors - a new alternative that leverages the changing
regulations around expensing stock options. There is no such thing as
variable accounting if you adopt FAS 123R - Expensing Stock Options,
which all private companies need to do by 2006 [deleted]. In essence,
if the company adopts FAS 123R now, it can reprice the underwater
options immediately. The company simply needs to recognize an expense
for the delta in value of the options (via Black-Scholes) caused by the
repricing, and expense it over the remaining vesting period of the
options.
-
To make a long story short, the
company will solve the problem by adopting FAS 123R six months before
it otherwise would have done so. There may be some administrative pain to being
on the cutting edge of implementing this, but the company avoids a lot
of overhead and administration for education seminars and general employee
confusion. Accounting absorbs some pain sooner than it would inevitably face,
but the rest of the organization gets to focus on business
execution.
Topic #2 - Whether
VPs, CXOs, etc. can be contractors (each bullet point is a snip of a
selected response from peer support group participants):
- A couple of years ago I did a consulting engagement for an
early-stage company on a 1099 basis and the guy who ran the company
introduced me to people as "my CFO" because that's how he viewed me and
what I was doing. However, I listed the position on my resume as "CFO
(Consulting)" in the interests of accurate disclosure. If the
principals involved have no
objection to use of a particular title and the 1099 person is filling the role, I don't see why not. - Absolutely, in the past
we have contracted out VP of Sales Position, albeit the person worked for us
full time, however he preferred to have his consulting firm (sole
proprietorship) pick up the billing and expenses.
- I also had a similar situation a few years ago. An attorney
advised me that the risk if any resided with the company as a result of
an individual being held out as an officer of the company, which
carries with it the presumption by outside parties dealing with the
individual that the person has the usual authority associated with a
company officer. In many contract situations this is likely not the
case.
- I am assuming this is a question for a resume. Guess I would look
at it from a personal credibility perspective. If I were consulting
and acting as CFO, I might put CFO (consulting, acting or contract)
down, but not just CFO. If I put myself into a hiring manager's role
and asked how I would respond once I found out that it was not a direct
employee position (and I would probably find out), I would probably
react more favorably to the accurate representation. The risk is
getting left behind in the initial cut of the search, which will partly
depend on what someone did in the role.
- We had the same type of situation with an
interim CEO. It really depends, in my opinion, on the responsibilities and
authorities granted by the Board. A title of C-O, to the outside world, implies
an authority, regardless of whether the person is a W2 or 1099 employee. That,
to me, would govern whether the individual assumes the title.
Note: None of the information in this post should be construed as legal nor accounting
advice. Information presented here is a summary of personal
perspectives of various CFOs and finance folks.
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