Startups often ask, “Do we need a CFO before raising money?” This is a common question, especially in Israel’s fast-growing tech scene. ERB Proximo – an outsourced CFO services firm – frequently hears this concern. In practice, investors don’t necessarily require a formal CFO at the earliest stages, but they do demand clear financial organization and credibility. According to U.S. startup guides, when preparing to raise capital, investors conduct due diligence on a company’s management team and financials. In other words, they will scrutinize your financial statements, projections and controls even if your startup hasn’t yet appointed a full-time CFO. This article explains what investors look for, why CFO-level leadership matters over time, and how founders (and services like ERB Proximo) can prepare for fundraising.\

What Do Investors Actually Check Before Funding a Startup?

Venture capitalists and other investors conduct due diligence prior to investing; thus, they typically request a data checklist, including the startup’s books or results of financial forecasts, as well as metrics. According to the U.S. Chamber of Commerce, VCs will usually ask to review things such as inventory, historic and current contracts, “financial numbers” etc., during this part of their diligence process. Likewise, the U.S. Small Business Administration states that any investor will look at the management structure of an organization or company as well as their market, their products/service offerings, their company governance documents, and their financial statements. Therefore, each founder can expect that he/she/they will need:

1. Clean, accurate accounting: Up‑to‑date ledgers, tax filings and bank reconciliations.
2. Transparent financial statements: Historical P&L, balance sheet and cash flow reports.
3. Solid financial projections: Multi‑year budgets and cash‑burn models.
4. Governance and cap table clarity: Properly documented equity structure and corporate filings.

Achieving these goals establishes trust with potential investors. Indeed, in earlier funding stages, venture capitalists may tend to put more emphasis on the possibility of success in the marketplace and the strengths of the company’s founders as compared to having perfect or complete financials. However, as the start-up develops, organized financial records and dependable forecasting become very important. By the same token, angel investors will expect companies seeking to raise money to have a certain level of financial diligence. One guide on how to raise money recommends that start-ups become “diligence ready” by organizing their projections and reports so they do not look disorganized or cause investors to lose interest.

Do Startups Need a CFO or Just Better Financial Control?

A Chief Financial Officer (CFO) provides strategic financial leadership for startups. SCORE has identified the role of CFO for start-ups as managing the company’s finances through long-term financial planning, fundraising, tax reporting, and record keeping. When executed properly, a CFO or finance leader will allocate funds efficiently, optimize capital structure, and prepare a company to engage with financiers on their own terms

At a recent conference, a CFO noted that an experienced finance leader can “plan to obtain various forms of capital (loans, leases, etc) while also aligning costs to returns and reserving venture capital for core growth.” By having a CFO-level financial leader, the organization becomes more financially sound and credible.

Most often, investors do not expect a full-time CFO at the seed stage; they simply expect strong financial controls. Many founders use the combination of an experienced controller, bookkeeper or fractional/outsourced CFO to fill this void until they can afford/add the full-time position.

ERB Proximo’s typical recommendation is that having a fractional part-time CFO service will provide more value in seeking venture funding than simply having an accountant to perform the accounting function. As a company increases in size, having dedicated financial leadership will give you a competitive advantage. A Finance pique expert stated it this way: “Without a CFO, there is no way to IPO. If you start with a good CFO, you will be ready for the IPO when that time comes.”

When Should You Hire a CFO?

Early stage (pre‑Series A): Before hitting an annual recurring revenue of $1 million, many early-stage (startup) companies can get away with not using a full-time Chief Financial Officer (CFO). Routine accounting and bookkeeping are often done by either the founder(s) of the business or by someone who works in a similar function, such as a controller.

When early-stage companies begin raising funds from investors, it is expected that their respective founders can manage their company’s financials daily. However, eventually, companies will experience increasing operational complexity, which may necessitate an earlier than planned hiring of a CFO.

For example, in Israel, as a company grows and creates value-added tax (VAT) liabilities, payroll taxes, national insurance (Bituach Leumi) liabilities, and quality of service grants (Innovation Authority) there will develop a heavy compliance burden.

Approaching fundraising: A timeline for CFO hiring might look like this: first get solid bookkeeping and tax/accounting support; next add a head of finance or controller to lead the finance function; then engage a fractional (part-time) CFO; and finally hire a full-time CFO when needed. Crucially, ERB Proximo advises that once financing becomes conditional (e.g. institutional VC diligence, debt covenants or grant conditions), “you will need to hire [CFO-level leadership] earlier than you would otherwise”.

Growth stage (Series A and beyond): By Series A and certainly by Series B, investors expect a dedicated CFO or finance leader. TechCrunch reports that many startups now postpone CFO hiring until around or after Series A, but they caution this only works until it doesn’t. CFOs become critical for managing larger budgets, complex contracts, multi-entity accounting, and robust reporting. One CFO coach advises that by roughly $15–20 million in revenue, you’re “pushing it if you don’t have a CFO in place”. At that point, not having one often leads to financial chaos and lost efficiency.

Key Steps to Prepare Your Startup’s Finances

Before (or while) fundraising, follow these steps:

1. Clean Up Your Books. Ensure all transactions are recorded accurately. Pay or file any delinquent tax, payroll or VAT reports, especially for Israel-based startups under its strict deadlines.
2. Build Financial Reports & Forecasts. Assemble income statements, balance sheets and cash‑flow statements. Create forward-looking models (3–5 year projections) with realistic assumptions. Investors will check that “the figures support the appraisal” of the business.
3. Standardize Processes. Set up regular monthly closes, budgeting, and internal controls. This includes clear approval processes for spending and tracking of metrics.
4. Develop Investor Materials. Prepare a professional pitch deck and data room with historical financials, projections, cap table, and governance documents. As one expert says, CFOs are skilled at “putting themselves in the mindset of bankers and investors – they know what money people want to see”.
5. Engage CFO-Level Leadership. When you notice financial complexity (e.g. many transactions, international dealings, or heavy compliance requirements), bring in a CFO – even on a fractional or interim basis. A part-time or outsourced CFO can implement the above steps, shape your story for investors, and only later transition to a full-time hire. In essence, ERB Proximo recommends treating the CFO role as a phased support function rather than waiting for a single full-time placement.

Following this process ensures you meet investor expectations. As the U.S. Chamber guide emphasizes, startups should prepare a due diligence checklist to “audit their company and prepare for the first round of funding”. Being organized now makes fundraising smoother.

Key Investor Expectations Founders Often Miss

1. Financial readiness over title. Early investors prioritize well-managed books, clear financials and credible forecasts more than simply seeing a “CFO” title. According to one guide, VCs focus first on market opportunity and founder capability and use lighter checks on financial maturity in early rounds. Still, sloppy finances will scare away any investor.
2. CFO’s strategic role. A CFO (even fractional) brings strategic planning, fundraising support, and disciplined reporting. SCORE notes a CFO contributes to long-term pricing/product strategy, fundraising efforts, tax planning and accurate reporting. This bolsters growth and investor confidence.
3. Timing is critical. Don’t wait until the last minute. TechCrunch experts advise “err on the side of getting a CFO engaged early” so they know your business story before fundraising. In Israel, the complex compliance stack (VAT, tax, NII, innovation grants) means startups often need CFO-level oversight sooner.
4. CFO alternatives. Before a full-time hire, many startups use fractional CFOs or CFO services (like ERB Proximo’s) to plug gaps. This provides expertise for due diligence and investor relations without over-staffing. Ultimately, the decision is based on your startup’s size, growth rate and financial complexity.

Who Needs CFO Support Before Raising Capital?

The intended beneficiaries of the advice contained within this article are those founders of new businesses as well as those responsible for finance, who are planning on obtaining funding. This guidance applies both internationally and specific to Israel (such as Tel Aviv) where many startups find themselves dealing with different taxation and grant policies. During the time that you have not hired a CFO, it is quite possible to impress potential investors by being prepared, which includes maintaining accurate, reliable financial records.

Having an outside CFO service, such as ERB Proximo, can help you present yourself in a more professional manner to potential investors by handling the following areas: accounting/generating financial statements; planning and reporting during the forecasting process. Ultimately, the objective is to prepare your organization for investment regardless of whether you have a full time CFO or not.

Frequently Asked Questions

Do investors expect a CFO on staff when I raise money? Not necessarily at seed stage. Investors want good financial organization and realistic projections. In early rounds they weigh team and product more heavily. However, having a CFO or strong finance lead – even part-time – signals professionalism.

When should a startup hire its first CFO? Once finances become complex or fundraising nears, it’s wise to add CFO support. A common trigger is around Series A (roughly $1–5M revenue) or when preparing for institutional due diligence. Delaying too long (beyond ~$15–20M revenue) can create costly risks.

Can a fractional or outsourced CFO suffice for fundraising? Yes. Many startups use fractional CFOs or external CFO services (like ERB Proximo) until full-time financing demands a permanent hire. A good fractional CFO will help prepare financials and investor materials on time.

What do investors specifically look at in financial due diligence? Investors request audited or internal financial statements (profit/loss, balance sheet, cash flow), forecasts, cap table and contracts. They check burn rate, runway scenarios, gross margins and revenue models for consistency. Missing or messy financial records is a red flag.

How can I improve my startup’s financial readiness? Keep clean bookkeeping, run a disciplined monthly close, and maintain up-to-date P&L and cashflow statements. Build a realistic budget and cash runway model. Engage expert help when needed: even one ERB Proximo financial consultant can streamline your reporting and make sure you’re fully prepared for investors.