œżÉ«”Œșœturned VC Brian Hoyt draws on his experience prepping companies for IPO and other liquidity events, including his own, to outline a playbook for crossing the start-up to scale-up chasm.
Suppose you lead IT at a VC-backed startup. It just crossed $100M in revenue and is approaching a major liquidity event, such as an IPO. Itâs exciting stuff. But as you speak with an expanding cadre of lawyers, accountants, and bankers, you start to appreciate what such an event means for your department.
You start to see the cracks in its foundation. You see the data by which Wall Street will judge your business is scattered across the company, stored and formatted unsystematically. You see the systems that must be repaired (or built) if the firm is to comply with SOX. You even acknowledge that IT has been kept afloat by managed service providers and fractional employees. All of this, you realize, must change. Youâve reached a tipping point at which your IT capabilities must be formalized, but you donât know where to start.
Fortunately, Brian Hoyt does â and heâs been there, having served as œżÉ«”Œșœof real-time 3D content creator Unity Technologies, for which he prepared the IT department for IPO in 2020. Today he serves as partner and chief operating officer of Parkway Venture Capital, which invests in software and AI/ML companies across various sectors. He helps the firmâs portfolio companies tackle the intricacies of crossing the start-up to scale-up chasm.Â
Here, Hoyt shares what heâs learned from scaling IT in rapid-growth companies, both as a œżÉ«”Œșœand an investor, and what should be considered by digital and technology leaders whose firms are heading for major liquidity events â how they might structure their departments so that the company can weather that liquidity milestone and the S-curves in the years that follow.
When you should step up your IT game
There are no exact thresholds for formalizing your IT capabilities, including hiring or promoting a CIO, says Hoyt, but there is one important sign: talk among your colleagues about redoing the companyâs ERP system.
âI think people usually go QuickBooks, NetSuite, then onto something else, or they redo NetSuite. And often your accounting team had to implement NetSuite without ITâs support,â he says. âIt works for their purposes for the time, but when it needs to be refashioned so that it can scale, thatâs the time to bring in someone with some seniority, someone whoâs been through it, because itâs really hard.â
Why does an ERP redo or implementation present such a great opportunity to evolve your IT organization? A couple of reasons. First because, as Hoyt observes, ERP implementations are notoriously difficult. Few leaders will volunteer to drive the work and often it will fall to the accounting team. âIn many cases that wonât work out,â he says, âbecause the accounting team must devote themselves to their principal work, which is critical, and because they have lives and implementing ERP software sucks.â
But also, ERP systems rely heavily on IT-supported capabilities, so any work necessary to implement one will likely involve your team anyway. You might as well be the one to command that work; as a tech leader, youâre especially well suited to it, and doing so will give you reason to acquire resources that lend themselves to causes beyond those related to ERP. In other words, remodeling your ERP can afford the chance to remodel your department â to effectively say, âIf weâre going to do this, Iâll need the following.â
Of course, the ERP sign is only a rough guide, says Hoyt. The right time depends on your business and industry; the more regulated it is, the sooner you should start. He uses selling into enterprise software as an example. âIf youâre going through a lot of security reviews, plan on hiring a œżÉ«”Œșœearlier. My first question [to entrepreneurs in that space] is: How are you getting through security reviews? And they all groan. The people who have a clear answer are going to do better.â
Whom youâll need as you prepare
As it happens, regulation â or compliance â is another area for which youâll need to hire or promote a leader. Although Hoyt stresses he isnât one to âinsist that you hire from outside,â here you likely need to.
âYou need someone who knows the territory, who knows Sarbanes-Oxley and the language of the auditor and preferably someone whoâs even worked at your auditorâs firm and can speak their language and prepare everything,â he says. âOtherwise [the auditors] will grind you into a fine powder because they have an endless bench of people to schedule meetings and ask that processes be explained.â
There are plenty of candidates for this role, Hoyt says, but you might need to look outside the box. âThey might not be in a job called âHead of Compliance.â It might be âIT auditor,â and theyâre tired of flying between Nebraska and New York every week. And I think this has been a huge part of what Iâve done in the past, is finding this person.â
Youâll also need someone to lead infrastructure and ops, which rarely gets the attention it deserves when the firmâs still young and focused on core products and the viability of its business model. Often by the time the firmâs leaders start talking about going public or agreeing to sell, the firmâs foundational technologies may be in need of a closer look. A major piece of this domain is security, which Hoyt says can roll up to the infrastructure and ops lead at first but must eventually become a separate function.
âAs your firm grows and starts looking to go public and becomes a bigger topic, you become a bigger target,â he says. âSome attacks from sophisticated bad actors are unavoidable, but you at least want to ensure that you donât leave yourself vulnerable to avoidable slips.â
Finally, you need someone to lead your financial and business systems. âI love accountants interested in systems,â says Hoyt. âTheyâre often perfect to lead this area, and a lot of modern CIOs need technically minded leaders that they can trust to know whether a system is out of whack or a piece of work can be executed.â
Why is thisleader so vital? Largely, Hoyt says, because of the projects youâll have to undertake to prepare for your liquidity event.
What you must do to prepare
Hoyt suggests that CIOs can learn much about the projects theyâll have to drive for a liquidity event from the focus of Wall Street earnings calls.
âTheyâre all about financial predictability and accuracy. Your firmâs viability as a financial asset largely comes down to investors asking, âCan we trust this companyâs numbers? Will they be delivered on time?â And if you get your numbers wrong, or theyâre late, you canât fix things by saying, âWell, you know, my IT person didnât come through,ââ he says. âAnd you canât continue to spend 90 minutes in exec meetings arguing about whether the data youâre all looking at is right or how itâs defined. If those conversations are still going on, then you know thereâs work to be done and that you need to start it as soon as possible.â
Getting the numbers right may sound simple, but itâs grueling work, Hoyt says, starting with getting your data right at the source.
âYou have to stop fixing problems in the data layer, relying on data scientists to cobble together the numbers you need. And if continuing that approach is advocated by the executives you work with, if itâs considered âgood enough,â quit,â he says. âGetting the numbers right at the source requires that you straighten out not only the systems that hold the data, all those pipelines of information, but also the processes whereby that data is captured and managed. No tool will ever entirely erase the friction of getting people to enter their data in a CRM.â
The second piece to getting the numbers right comes at the end: closing the books. While this process is a near ubiquitous struggle for all growing companies, Hoyt offers two points of optimism. âFirst,â he explains, âmany teams struggle to close the books simply because the company hasnât invested in the proper tools. Theyâve kicked the can down the street. And second, you have a clear metric of improvement: the number of days taken to close.â Hoyt suggests investing in the proper tools and then trying to shave the days-to-close each quarter.
Get your numbers right, secure your company, bring it into compliance, and iron out your ops and infrastructure. Do these things and youâre a long way toward being ready for a major liquidity event â or just your companyâs next chapter.
You canât go at it alone
Hoyt is so knowledgeable in this area that he answered virtually every one of our questions without hesitating. So it should say a lot that, when asked what one bit of advice heâd leave with CIOs preparing for a liquidity event, he pondered his answer for what seemed like 10 interminable seconds.
âMake sure you have the full support of the top officers â the CEO and CFO, or COO. Itâs hard work. And to some extent youâre going to have to make peopleâs lives harder, so thereâs going to be friction,â Hoyt says. âThe only way youâre going to overcome it is if you have top-down alignment. As time goes on, more CIOs are reporting to CFOs or COOs or CEOs. But in some firms, the œżÉ«”Œșœstill reports to someone farther down the food chain. That wonât cut it in a firm preparing for an IPO.â
And thatâs good news for IT leaders looking to take a step forward with their careers at startups and beyond, he adds.
âCIOs hold a unique position,â says Hoyt. âThey can see every part of the company. They see the challenges regarding real estate and ERP and so on. That purview has to be recognized and respected if a firm is serious about playing in the big leagues.â
