The startup Chief Information Officer (CIO)’s role is critical when a company is approaching significant liquidity events such as an Initial Public Offering (IPO). The IT capabilities need to be formalized and systematic to meet the demands of Wall Street. CIO turned VC, Brian Hoyt, with experience in preparing companies for IPOs, shares insights from his journey managing Unity Technologies’ IT department for its IPO in 2020.

Liquidity events can expose foundational cracks in an organization’s IT infrastructure due to data scattered, unsystematically stored and formatted. Also, IT may have been surviving on managed service providers and fractional employees. A shift in approach is necessary at this tipping point.

Hoyt is now the partner and COO of Parkway Venture Capital, where he assists companies across software and AIML sectors navigate the intricacies of the transition from startup to scale-up. His experience revolves around structuring IT departments to handle substantial liquidity events and sustain growth spikes in the years that follow.

A critical indication that it’s time to level up your IT game, according to Hoyt, is when there are talks regarding updating the company’s Enterprise Resource Planning (ERP) system. The update of such system is an opportune time to improve your IT organization for a couple of reasons. Firstly, few leaders are willing to take on the notoriously difficult task of ERP implementation, leaving it to the accounting team that often is unable do it. Secondly, ERP systems heavily rely on IT-supported capabilities, so your team is inevitably involved anyway.

The right timing for upscaling can also be largely dependent on the business and industry. More regulated industries should start sooner as compared to others. Hoyt cites selling into enterprise software as an instance where hiring a CIO earlier is beneficial owing to the complex security reviews.

As the organization prepares for liquidity events, hiring experts in regulation or compliance with knowledge on Sarbanes-Oxley is crucial. Such professionals would be conversant with auditors’ language, making the preparation smoother. Hoyt also stresses the need for a lead for infrastructure and operations, given that this area is commonly overlooked. Over time, security must eventually become a stand-alone function due to the increased vulnerabilities as the firm grows and prepares for IPO.

Lastly, leading financial and business systems is important and often fits technical-minded accountants who can address technical glitches and manage projects.

Source: The startup CIO’s guide to formalizing IT for liquidity events.