Framing
Venture capital investors poured a record $32.8 billion into the blockchain sector in 2021, a figure larger than all prior years combined.
There are at least 50 (announced) crypto unicorns, which is rapidly climbing as more growth equity and crossover investors support Web3.
As a former COO/CFO at venture capital backed > publicly traded companies, I’ve seen 100 - 10K+ employee organizations set strategy, accelerate product and revenue growth by optimizing finance and operations.
I lay out how Founders should think about the Head of Finance / Operations role, and strategies to maximize growth, improve business health, and optimize treasury management.
The role
A Head of Operations or Finance can serve as a thoughtful business partner to technologists (developers) and community builders (marketers) to support growth in a decentralized and volatile Web3 environment. This is a widely scoped role with oversight of Strategy, Finance, Operations and Execution.
Skill buckets to look for:
- Ex-bankers, consultants, investors, accountants, and operations leaders that bring finance and accounting experience, with bespoke financial modeling skills to run scenario analysis based on a range of market, price and regulatory shifts.
- Scaling experience from high growth private tech companies that have seen new products built and adopted in triple digit YoY growth environments. Fundraising and storytelling skills to finance business model acceleration and pivots.
- Public market skillset to plan, manage and execute goals alongside volatile liquid tokens. Endurance to continue moving forward despite rapid changes in market conditions.
- Excel in a distributed remote-first environment by over-documenting, asynchronously communicating, leveraging software tools, and creating content to engage with global communities, tokenholders, and ecosystem participants.
- Insatiable curiosity to learn and tinker with new technologies. The crypto industry has a faster product development cycle than Web 2.0 due to technical composability and a vociferous community of early adopters. Finance/Ops should humbly bring the best parts of Web 2.0 and TradFi, but build enough mental plasticity to reinvent a new paradigm. Maintain emotional clarity when markets drawdown 50%+ multiple times a year and protect your organization from getting rugged.
Growth
Facilitating growth-stage fundraising. While Seed and A rounds focus intensely on the team and market, later stage fundraising is driven by metric-defined growth and product engagement, competitive differentiation, and TAM realization. Nine-figure+ rounds from larger institutional investors require a different lens of relationship building, storytelling against comparable benchmarks, fund lifecycles, and detailed due diligence processes. In parallel, Finance/Ops will own ongoing investor relations alongside reporting and tax requirements.
Delivering product excellence. Design financial operating plans to build and refine existing and new products. Forecast Engineering and Product effort (# of hours by developer type) to build feature sets, develop upcoming releases, and provide ongoing maintenance / support. Provide scenario analysis on product acceleration paths by building a prioritization framework for new feature sets. Add in a healthy buffer to plan for delays and changes.
Build multiple revenue models at once. Crypto startups are uniquely beautiful in that an earlier stage company can pursue multiple business models. A single product could have subscriptions, fees on percentage of assets, variable transaction fees, take-rate on a marketplace, and other embedded primitives.
Invest in community. Versus the traditional Web 2.0 playbook of purchasing Facebook and Google ads, crypto communities organically build content to create brand awareness, educate on feature benefits and increase adoption. Technically robust products only matter if users use (ideally love) them.
Model out incentive design paths. Serve as a financial business partner to founders on developing tokenomics and voting mechanisms. For those new to crypto, Delphi Digital and Messari research are excellent.
Business Health
Whether crypto or not, rule #1 always remains true: never run out of money. I’ll address private crypto companies versus DAOs (see my prior post on Big Tech employees contributing to DAOs). I also recognize a private crypto company can have a sister DAO or foundation.
Expenses to fuel protocol growth: There will be a monthly / quarterly / annual budget including headcount volume and compensation amount by employee (base, bonus, equity and tokens) by function, staged out by hiring date. Hiring plans are tied to product roadmap goals and can be elastically flexed based on fundraising timelines and revenue spikes. The “non-labor” budget will include all marketing and advertising expenses including sponsorships, team gatherings, co-working office rental, etc. Timing of expenses directly impact cashflow. A good rule of thumb is to have 12 - 18 months of cash runway, and a thirteen week (one forward looking quarter) cash forecast always prepared.
Progress tracking: Build operational dashboards to track workstream progress and milestones, with an eye of collaborating with decentralized talent networks. Think two steps ahead of the Web 2.0 “remote-first” office environment and directly plug into the metaverse with every tool you build.
Software stack: Tooling and infrastructure could be an entire post, but the quick hitlist would be Accounting, Revenue (Billing/Collections/Payments), Payroll, Expenses, Invoices, and Insurance. Quickbooks, Ripping and Carta are three easy places to start, with point app integrations for crypto employee payments (Gilded) and crypto tax (Ledgible).
External party management. Finance / Ops will manage tax preparers, annual auditors and other financial consultants. Bookkeeping services may be outsourced to firms like Pilot or Bench for financial statement preparation.
Treasury Management (or avoiding your own crypto winter)
The traditional Web 2.0 financial value creation tools of equity based compensation, stock buybacks, M&A, and cash reserve yield enhancement are magnified in crypto.
Unique advantages of liquid tokens. Token swaps can play defense, serving as diversification against concentration in a native governance token. A solution like Hedgey enables covered calls to generate yield without spot selling, facilitating OTC deals with discounts, time locks and other perks typically reserved for VCs. Swaps can also play offense by serving as a new form of M&A or financial investing. I cover how to build an ecosystem fund in my prior post 3 Page Summary on Building a Crypto Investment Program.
Hedging Options for Contributors. Great projects will take 75% declines and struggle to raise money for no fundamental reason. Be prepared.
Compensation packages in Web 2.0 are rigorous labor-intensive annual procedures, but Web 3.0 protocols enable customization at scale. Platforms like UMA provide KPI options to build custom synthetic tokens that pay out additional rewards if the KPI meets predetermined targets before the preset expiry date like releasing engineering commits, achieving product adoption, or growing engagement count. More on DAO Compensation structures in my previous post.
Crypto-native yield enhancement. Typically, on-balance sheet cash would be held in a money market account generating de minimis interest income. Traditional companies are using DeFi onramps like Meow (4%) or Circle (6.25%) to gain access to higher yielding strategies with minimal risk and operational burden. DAOs will have many more exotic strategies, tools and practices. I recommend Evan Fisher’s post on DAOs and the Progressive Decentralization of the CFO and tinkering with apps listed on DAO Masters.
Finally, for Web 2.0 employees contemplating jumping into crypto, I recommend Dan McCarthy’s piece The Community Garden: The Case for Leaving FAANG Companies for Crypto.
About author:
@kishandao has 15 years of experience building high growth technology companies as a COO/CFO and was previously a growth equity investor at Goldman Sachs.