Why Startups Should Focus on a Strong CFO Before IPO Plans? A Case Study of Indian Startups

For startups, the journey to an initial public offering (IPO) is an exciting yet challenging milestone. While product innovation, market expansion, and customer acquisition often take center stage, one of the most critical yet overlooked aspects of IPO preparation is financial leadership. A strong Chief Financial Officer (CFO) and a well-structured finance team are not just optional assets—they are fundamental to ensuring a successful public listing.

In recent years, several high-profile startups have faced financial scrutiny post-IPO due to weak financial planning and compliance missteps. This raises an important question: Shouldn’t startups prioritize their financial foundation before setting their sights on the stock market? The answer is a resounding yes.

Beyond Cash Flow: The Expanding Role of the CFO

Traditionally, startups hired CFOs to manage cash flow, oversee accounting, and ensure budgets were maintained. However, as startups transition toward IPO readiness, the CFO’s role expands significantly. A strong CFO doesn’t just track numbers—they shape financial strategies, ensure regulatory compliance, manage investor relations, and establish corporate governance frameworks essential for public market success.

With stringent requirements from regulatory bodies such as the Securities and Exchange Board of India (SEBI), startups must be financially transparent and structurally sound before entering the public markets. A seasoned CFO ensures that all financial reports meet compliance standards and withstand external audits.

Why a Strong Financial Team is Crucial Pre-IPO

A robust financial team, led by an experienced CFO, plays a pivotal role in:

• Regulatory Compliance: Navigating SEBI’s requirements, ensuring accurate financial disclosures, and mitigating risks associated with non-compliance.

• Investor Confidence: Institutional investors scrutinize financial statements before investing. A well-prepared finance team reassures investors of the company's long-term viability.

• Corporate Governance: Strong governance structures prevent financial mismanagement and build trust with shareholders.

• Risk Management: Identifying financial risks and addressing them proactively to avoid surprises during the IPO process.

• Sustainable Growth Strategy: Managing capital allocation effectively post-IPO to maintain stable financial health.

Lessons from Startups That Prioritized Financial Strength

Many successful IPOs have been backed by a strong financial strategy and leadership. Companies that invested in a seasoned CFO and an experienced finance team before going public have navigated the IPO process smoothly, while those that neglected this aspect have faced hurdles in the stock market.

Recent trends show startups actively strengthening their financial leadership:

• Nykaa appointed P. Ganesh as its CFO ahead of its IPO, leveraging his extensive experience to ensure compliance and financial stability.

• Zepto brought in Ramesh Bafna, a former CFO at Myntra, to set industry-leading financial governance standards.

• ReshaMandi hired Samadrita Chakravarty as Group CFO to drive financial growth and profitability in anticipation of a potential listing.

• Wakefit appointed Anil Arya as CFO to enhance financial leadership and IPO preparedness.

• Ola Electric strategically transitioned Harish Abhichandani to CFO to strengthen its financial operations before a potential public listing.

These examples underscore the critical role that experienced financial leadership plays in guiding startups through the complexities of going public. By investing in seasoned CFOs, startups can better navigate regulatory landscapes, build investor confidence, and establish robust corporate governance structures essential for IPO success.

How Startups Can Build a Strong Financial Foundation

1. Hire an IPO-Ready CFO Early: Bringing in a CFO with public market experience well before IPO plans take shape allows adequate time for financial structuring and compliance.

2. Invest in Financial Systems: Scalable accounting and reporting systems ensure accuracy in financial data, essential for IPO filings.

3. Enhance Compliance and Audit Processes: Conducting internal audits regularly helps identify and resolve potential financial red flags before public scrutiny.

4. Develop a Long-Term Financial Strategy: A well-defined roadmap for capital allocation, revenue growth, and risk management is crucial for post-IPO sustainability.

5. Strengthen Investor Relations: Startups should proactively engage with investors and analysts, building confidence in their financial health.

Financial Leadership is the Backbone of a Successful IPO

For startups, the dream of going public should be built on a solid financial foundation. A seasoned CFO and a competent financial team not only prepare the company for the IPO process but also ensure long-term sustainability in the stock market. As more Indian startups gear up for IPOs, prioritizing financial leadership should no longer be an afterthought—it should be at the core of every IPO strategy.

A well-prepared financial team is not just a necessity for IPO success; it is a safeguard against potential pitfalls that could derail years of hard work. Startups looking to make a mark in the public markets must start their financial journey long before ringing the IPO bell.