Newgen CFO Arun Kumar Gupta believes only those CFOs are successful who can execute the founder’s vision through their understanding of the finance world, and it’s not about simple planning
As part of Inc42’s CFOs In Tech Series, which is powered by HSBC, we spoke to the man at the helm of the software services company Newgen’s financial affairs
The key to the company’s IPO milestone was building relationships with merchant bankers, international and domestic lawyers as well as regulators who are key stakeholders in a startup’s financial vision
A CFO needs to be instrumental in finding the right resources for the founder’s vision – Arun Kumar Gupta, CFO, Newgen
In the last decade, Indian tech startups have evolved and matured, managing to attract the attention of large domestic and global investors. And this evolution has been experienced first-hand by India’s IT services and software companies. Many have flourished to become household names in India, while several such as Newgen Software Technologies have achieved global fame as well thanks to their wide presence.
The journey of Newgen was “a struggle in the initial days”, says Gupta, albeit a rewarding one. He claimed to have successfully transformed a small-sized organisation scrambling for funds into a multinational offering services such as business process management, enterprise content management and customer communication management solutions in nearly 70 countries. That’s all part of managing the resources and allocating them to the areas that drive the vision, as Kumar put it.
Gupta, who has been at the helm of Newgen’s financial affairs since October 2010, has played a major role in transforming it from an organisation having outstanding loans into a cash-rich organisation that is regarded as a pacesetter in the software industry. In its FY20 financials, the company said it is also exploring a SaaS model for further penetration into markets.
Newgen’s revenue from operations went up 6.5% YoY in FY20 at INR 660.8 Cr. The company, which launched its IPO in 2018, is currently listed at INR 253 per share. It touched a 52-week high of INR 288 per share in November this year on the Bombay Stock Exchange after falling as much as INR 107 per share in March.
The key to this IPO milestone, according to him, was building good relationships with merchant bankers, international and domestic lawyers and other stakeholders. In the last two years, Newgen’s finance team dealt with aspects such as risk exposure, contrary to liquidity management, day-to-day compliance, cost of finance, RoI, planning, budgeting, pre-listing, etc. Preparation is as much a part of the game as execution for today’s finance teams, according to Kumar, and startups need to look beyond just
How CFOs Impact Fundraising
Seldom can a startup achieve growth and expansion without regular funding — bootstrapped startups are rare and even if a company does not raise funds for years, financial management is not something they can ignore.
Prior to its entry on the exchanges, Newgen has had several banks and venture capitalists (VCs) putting in funds into its operations. That is where a CFO matters the most. In Gupta’s opinion, finance heads play an important role in closing VC funding rounds but also for long-term relationships, as they are among the first people to communicate with the VC and know the ins and outs of the financials. “The role of a CFO is to convince the VCs that your business can give high returns. The CFO is instrumental in closing investment deals,” Gupta said.
In order for a tech startup to get set on a clear growth trajectory, Gupta recommends that founders hire. “CFO candidates that have good knowledge of fundraising, connections in the market and an understanding of regulatory requirements, as they will set up and enhance the structure for growth,” he said.
Over the years, Newgen has received funding from IDG Ventures, Ascent Capital and HSBC PE among others to drive its global expansion, particularly in the US and other developed markets. Such funding has also proved crucial for Newgen’s focus on product development.
Highlighting the example of HSBC’s investment and the relationship building between the banking major and Newgen, Gupta explained, “HSBC is not exactly a banking partner for our India operations, but it can be a partner in the future. We don’t have a current account with HSBC and it’s a customer and was our investor till 2013. Ours is an evolving relationship with HSBC.”
Gupta himself has had an engrossing journey in his career, moving sectors and geographies in 25 years. Before landing in the tech industry, he worked in the tea industry and the manufacturing sector. He said that he started out in the tea industry after studying CA, cost accountancy and company secretary courses in Kolkata, from where he moved to Satyam Computers in Pune.
His experience in handling overseas operations came from setting up the Satyam operations in the UK. Before joining Newgen, he worked with Thermax, the heavy engineering giant and P&O, the shipping giant for around six years, where he headed its finance section.
Where Startups Struggle With Finance
While both tech startups and traditional companies need CFOs to manage the financial affairs of their companies and plan growth strategies, they differ in many crucial aspects. Traditional companies have well-established systems and processes in place already by virtue of meeting policy-level compliance. Their relationships with banks, investors and auditors are already mature, so their concerns are fairly different from those of tech startups.
Gupta believes that tech companies consider these luxuries. “Efficiently managing existing resources is important. Thus the role of the CFO starts from setting up the entire structure and developing the policy and governance framework. Setting up of boards and committees and framework for compliance requirements is another key task.”
An important challenge for the CFO of a tech startup is managing bankers since this can be crucial for future fundraising and even IPOs. Bankers tend to offer conservative cash limits to startups, since the risk factor is high and the transaction volume is small. With performance and survival in the market, things improve as scaling up occurs rapidly after brand recognition.
The same applies for managing relationships with auditors and compliance officers, reckons Gupta. The pressure to establish the relationship with them is difficult initially, but an experienced CFO brings in all their experience to complete this task.
”At times, investors want RoI, and, then, they look to focus on optimising costs in order to achieve that. ”
The CFO’s job here is to strike a balance between the competing concerns. Explaining to investors that a product company needs to invest in sales and product infrastructure in order to achieve long-term gains becomes crucial. “This becomes a reason for debate in a growing company where you have to invest heavily for growth”, Gupta says.
Working With The Founder’s Vision
The growth of Newgen exemplifies how a CFO can guide a tech startup into a direction acceptable to investors and promoters while allowing it to retain a competitive edge in a crowded market and showing enough growth to continue to hold the trust of VCs.
The CFO’s equation with the founder can make all the difference in the startup world. Startups live or die based on the passion and vision of the founders, but all business leaders also need to introduce widely divergent strategies that do conform to the founder’s vision. The CFO is no exception to this rule.
Weighing in his experience during a crucial IPO time at Newgen, Gupta spoke about scepticism that founders often show with regards to making disclosures and how a CFO should deal with it. “During an IPO, it becomes challenging to provide the level of details required about a company as well as the founders and their families. As CFO you have to play a crucial role in working this out within the company.”