The Chief Financial Officer (CFO) is a typical early hire in the high-stakes world of startups, where the initial focus is frequently on obtaining capital and scaling revenue. To secure their foundation, prominent founders are, nevertheless, increasingly reversing this priority and choosing to hire a Chief Audit Executive (CAE) first.
Companies getting ready for institutional investment are increasingly prioritizing operational security and control over pure growth strategy, which is a counterintuitive move.
Securing the Ship Prior to Sailing
The CAE is in charge of the independent Internal Audit function, which is dedicated to evaluating and enhancing governance procedures, risk management, and internal controls. Hiring this executive early, according to experts, takes care of important infrastructure requirements that the strategy-focused CFO frequently ignores:
Risk Mitigation First: Startups grow quickly, frequently surpassing their capacity to control risk. The first task assigned to a Fractional CAE is to perform a rapid risk assessment, identifying critical exposures in areas such as supply chain, cybersecurity, and regulatory compliance.
Building Controls In: Designing robust internal controls into new processes, like an expense policy or sales commission structure, is far less expensive and more effective than later overhauling defective systems. In order to stop early fraud, the CAE makes sure integrity is ingrained from the start.
Asset Safeguarding: While the CFO manages how money is raised and deployed strategically, the CAE ensures that capital is not lost, wasted, or stolen through mismanagement or weak governance.
The New Metric for Valuation: Trust
To investors and partners, having an independent audit function—even a partial one—indicates maturity.
According to one venture capitalist, “a strong CAE validates the founder’s commitment to governance.” “It indicates that the business is prepared for an audit and that the management team takes operational integrity seriously, which seriously jeopardizes our investment.”
The Appropriate Operational Order
The order is important for high-growth businesses:
CAE: Provides dependable assurance by establishing controls, safeguarding resources, and confirming that procedures are operating as intended.
CFO: Performs strategic financial modeling, fundraising, and valuation using the safe, trustworthy data and operations supplied by internal controls.
Essentially, the best founders understand that before optimizing their company’s strategic direction with a CFO, they must first make sure it operates securely and ethically—the CAE’s domain.
