Many young companies think that they already have an accountant and hence do not need a CFO.
We argue that the role of Chief Financial Officer has to be forward looking contrary to accounting perspective which is often backward looking. In addition, in these fast-changing times, the role of Chief Financial Officer has evolved from not just doing a typical CFO job but to assist the CEO in understanding both financial and non-financial metrics.
Our team comprising young as well as experienced finance professionals in Life Sciences, is adapted to the needs of young companies, which is reflected in the following functions.
Managing Risks and Uncertainties
Most of the time, managers seem to underestimate risks or shy away from dealing with it. There are several reasons for that. One of them is the inherent cognitive biases that we all carry on our day to day lives. This leads to distortion of outcomes when the managers make decisions under high uncertainty as they tend to make strategies that are favorable to them. No wonder every entrepreneur considers his product to be the best.
Second, we as humans fail to understand probabilities that we argue to be one of the great tools to manage uncertainty. In order to help CEO get a grip on uncertainty, we at Farmantra deploy several tools such as Decision trees, simulations and others to understand the range of outcomes whether it’s the question of how much money to raise for the clinical trials or the product needs to be built or licensed or the product needs to go through medtech route or therapeutic route.
Capital allocation
As Warren Buffett says, capital allocation is one of the most important tasks of a CEO, yet almost none of the people who rise to be CEOs are trained for it.
Every company goes through a life cycle and based on the stage; the CEO needs to identify the right capital structure. There have been several instances of young biotechs leveraging itself with soft loans to such an extent that they end up filing bankruptcy proceedings. We assist the CEO in making optimal decision in deploying and raising its capital.
Strategy
Instead of suggesting how we build strategies, it’s easy to see in terms of questions for which we provide solutions:
- Should we build or license?
- Should we accept the right of first refusal/offer option for our product? How do we evaluate the risks and rewards of those offers?
- We are a one product company, but we would like to add another pipeline of products. How do we evaluate the risks and rewards of doing so?
- I have the technology that could go through medtech route or classical therapeutic route, which one would I choose and how?
- How do we manage the risks if the results of the clinical trials are negative?
- Many others
- Strategic Planning
- Action
Corporate governance
Although neglected by many young firms, a good forecasting is very important to have strong governance. This reflects management as well as Investors’ expectation regarding how well the team is able to forecast and manage the cash.
Our financial reporting every quarter encapsulates companies’ strategies than just the accounting numbers. We benchmark companies with their competitors to understand where they are in the value chain, where they would be in 5 years, how the company is performing based on KPIs set by the board members? This report helps the BODs to ask tough questions to the CEO and the management team and make sure that company is on the right path.
In addition, we provide a cue to the board and the management the cash burn rates, the cash available, cap tables and several other parameters required for providing a solid corporate governance