New on FinoLib · Volume IV: Finance Careers
I have just published a new article on FinoLib, my free finance education library: Finance Team Structure at SaaS Firms, Startups and Asset Managers. It is part of Volume IV: Finance Careers. Below is a summary of the topic in plain, expert language, so you can follow the idea even before you open the full article.
B.5 IT / Software / SaaS Company
The idea in plain words
A mature software or subscription company’s finance team looks like a large corporation’s, but subscriptions reshape it: revenue is earned over time, software development costs can be capitalized, stock-based pay is a big cost, and indirect tax applies in every market.
Key points
■Sizes assume roughly $1–5 billion of ARR and 5,000–20,000 employees; at $100–500 million of ARR, divide most teams by three to five.
■The Controller owns revenue accounting under ASC 606 or Ind AS 115, so the people who book revenue do not report to the people paid on bookings.
A closer look
A mature IT, software or SaaS company’s finance function looks like a large corporate’s on paper, but four mechanics reshape it: subscription revenue recognized over the contract term rather than at a point of sale (ASC 606 in the US, Ind AS 115 in India), capitalized software development costs, large stock-based compensation programs, and indirect-tax exposure in every country where digital services are sold. The team sizes below assume a public or late-stage private software company with roughly $1–5 billion of annual recurring revenue (ARR) and 5,000–20,000 employees; as a rough heuristic, at $100–500 million of ARR divide most of them by three to five.
Recap
A mature SaaS company’s finance function resembles a large corporate’s but is reshaped by subscription revenue, capitalized software, stock-based compensation and indirect tax. The Controller owns revenue accounting.
B.6 High-Growth Startup / Scale-Up
The idea in plain words
A venture-backed scale-up builds its finance team from scratch. At seed stage there may be only a fractional or first CFO. A first accountant arrives at Series A, a full-time CFO and a separate planning team by Series B, and revenue accounting, RevOps and audit readiness by Series C.
Key points
■The org chart shown describes a Series B to C company of roughly 100–500 employees.
■Finance headcount typically grows from 0–1 at seed to 10–25 by Series C.
A closer look
At a high-growth, venture-backed company the finance function is built from scratch, usually starting with a fractional or first CFO and a handful of hires. The table below describes a Series B to Series C company, roughly 100–500 employees, past its earliest days but well before the build-out of B.1: Large Industrial / Consumer Corporate. The stage table under it shows how the team typically grows to that point (Part D traces the whole path).
B.7 Asset Management Firm
The idea in plain words
An asset manager’s finance team keeps the books of the management company and also oversees the books of every fund it runs. Each fund’s NAV, the price investors buy and sell at, is struck daily, usually by an outside administrator or custodian.
Key points
■Sizes assume $100–500 billion of AUM and 1,000–5,000 employees.
■Investment operations, performance and transfer agency oversight often sit under a COO or a combined CFO/COO.
A closer look
An asset manager runs other people’s money for a fee, so its finance function keeps two kinds of books: the management company’s own accounts (revenue, compensation, distribution costs) and the accounts of every fund it manages, each a separate legal entity owned by its investors. A US mutual fund even has its own board, its own treasurer and its own certifying officers (Rule 30a-2 requires the fund’s principal executive and principal financial officers to sign each Form N-CSR). The table assumes a manager with roughly $100–500 billion of assets under management (AUM) and 1,000–5,000 employees; at $10–20 billion of AUM, most teams shrink to two to five people and much of the work moves to outside administrators.
A worked example
Worked Example: How Fee Revenue Moves
An asset manager’s revenue is AUM multiplied by the fee rate, accrued daily on each fund’s NAV. Take a manager with $60 billion in active funds at an average fee of 55 basis points (bp; one basis point is 1/100 of 1%) and $40 billion in passive funds and ETFs at 6 bp. Line Formula and substitution Result Active fee revenue $60 billion × 55 bp $330.0 million Passive fee revenue $40 billion × 6 bp $24.0 million Total revenue $330.0 million + $24.0 million $354.0 million Blended fee rate $354.0 million ÷ $100 billion 35.4 bp Markets fall 10% $354.0 million × 90% $318.6 million (−$35.4 million) $10 billion moves from active to passive $50 billion × 55 bp…
Recap
An asset manager’s finance function keeps the management company’s books and oversees every fund’s books, whose NAV is struck daily by an outside administrator or custodian. Revenue is AUM times the fee rate.
What the full article covers
In the full article I take you through these sections:
■B.5 IT / Software / SaaS Company
■B.6 High-Growth Startup / Scale-Up
■B.7 Asset Management Firm
It includes worked examples, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume IV: Finance Careers
Read the full article on FinoLib
The complete article, Finance Team Structure at SaaS Firms, Startups and Asset Managers, with every worked example, diagram, quiz and source, is free to read in Volume IV, Finance Careers on finolib.com.
Explore the Finance Education Series: Vol. II — Capital Markets · Vol. I — Global Economy · Vol. III — Finance Encyclopedia · Vol. IV — Finance Careers · Vol. V — Personal Finance