For finance leaders, managing international payroll and compliance requires expertise. Our ‘Guide to EOR for Startups’ offers a detailed look at efficient global payroll management & compliance. This guide will help you:

• Manage cross-border payroll easily

• Navigate tax implications across jurisdictions

• Reduce financial risks associated with global growth

Download the EOR Guide

10 Reasons Why I’m Churning

Churn is going to get really ugly in 2026. It’s going to break unit economics and put many companies out of business. But…it will also be an opportunity for other vendors to capture more new business.

Some reasons are the same, but AI has created new reasons to churn vendors in 2026. If you own your department’s budget, then you should be thinking about these as well.

Below are 10 reasons that are top of mind (in no particular order):

1. Agent-Readiness Is the New Integration Story

Vendors used to brag about integration counts (and that matters). Now I want to know if your product can be driven by an agent.

• Do you have an MCP connector?

• Are your APIs clean enough that an agent can actually use them, or is everything locked behind a UI?

• Are you the best for AI agents to work with?

Customers will flock to the vendors that are the best for AI and AI agents. Vendors must expose clean APIs/MCP/agent-readable surfaces in 2026. And leaders should be obsessed with doing that (like Pedro).

2. Vendor Consolidation Is Growing

AI is enabling (and forcing) companies to go multi-product much sooner and with a lot more products. But this also means I will be consolidating even more vendors because there will be more overlap.

Recently, one of my vendors added a tool that did ~60% of what I was paying another one of my vendors ~$80K/year for. The 60% wasn’t perfect, but it was good enough. And the remaining 40% gap either wasn’t that big of a deal or we could leverage AI to fill the gap.

We churned, saved $80K, and had minimal impact on our processes (some was actually a bit better because we built a custom tool for those specific features).

3. Trading Nice-to-Haves for Tokens

“Nice-to-haves” have always been at risk of being cut when belts tighten, but two additional things are happening today:

1. AI has pushed more tools into 'nice-to-have' territory.

2. Departments are being tasked with budget tradeoffs. If you want a bigger token budget (most do), then something else needs to be cut.

Headcount is obviously the biggest lever, but as more things move into “nice-to-have”, those become a bigger risk.

4. Stupid Pricing Models

Pricing models have become a key strategic decision with AI. Seat-based pricing was so easy in comparison. It’s much harder to get right today with all the flavors of consumption-based pricing.

I hate nothing more than feeling like I am getting a bad deal. So when pricing doesn’t align with how I perceive value, I feel like I am getting screwed.

Companies are scrambling to update pricing for an AI world (where seats become meaningless for most). And they should. But a few pieces of advice:

• Get cross-functional involvement and test it with customers. And continue to iterate. You can’t set it and forget it anymore.

• Be generous with existing customers. Pricing model changes often feel like it’s a bad deal for them (especially CFOs).

• Don’t sneakily add a price increase with a pricing model change. This happened to me recently and that kicked off a churn conversation.

5. Weak Support

This is increasingly becoming a differentiator. The AI support bots are cool (but they are table stakes).

I want real support (technical support, “forward deployed engineers”, CSM, or whatever you want to call it) that can help me get implemented quickly and be there as needs change, especially as I adopt your AI stuff.

Last year I churned from a vendor that refused to get on a call with me to discuss massive overages. They wanted me to sign an SOW and pay for the privilege of talking with them about why I didn’t understand our bills. That is a problem in itself…

6. Weak Brand Erodes Trust in AI Roadmap

Every (good) tech company has goals in 2026 to materially leverage AI across the company so everyone wants to be on the best tools to leverage AI.

Branding works on me whether I like to admit it or not. A strong AI brand from another vendor opens up the churn conversation. “Am I on the right tool? My vendor can’t do that much with AI.” I want my teams using the best AI stuff.

7. Building Internally

I don’t want to build software internally. No one does (at least they shouldn’t). But it’s increasingly becoming a viable option for many areas.

But even more important than a full internal build replacement (which I think will continue to be rare) is the internal build of add-on features. We still want the core tool, but the individual features can be replaced with some light internal vibe coding or AI magic.

I have already done this with a few features. Not only did we save money, but we were able to customize those features more to our needs.

8. AI Lowers Switching Costs

In the past, I found myself frequently saying the following as it relates to our tech stack:

If I could snap my fingers and be on [X] vendor, then I would. But I am too busy to implement right now, it’s not worth the change risk, we have other priorities, etc.

AI and the AI-native companies have lowered this barrier. This means downgrades will increase for most vendors…

9. The AI Experimental Budget is Ending

We created an AI slush fund for our teams to experiment with AI. But that era is ending. Now we are pushing departments to narrow the list and choose.

You can’t have Claude and ChatGPT enterprise plans. Choose one.

Or the finance department has a lot of overlapping AI forecasting tools. You must consolidate. We want teams to start measuring the value they are getting. If value is weak, then it’s time to cut.

10. I Have Had Time to Prepare for the Churn

AI (and process changes) has changed what I need in my tech stack.

This started happening last year, but it was too soon to churn, so I got stuck renewing for another year. I have a few of those contracts ending this year.

90%+ of the software churn from AI hasn’t hit yet because of this. Time was needed to update processes, evaluate alternatives, build something internally, etc. And folks may have had to sign another one-year contract to bridge the gap.

More churn is coming…they just haven’t had the chance yet.

Churn Breaks Current Unit Economics

If churn is increasing (which it is), then a lot of company unit economics are going to break.

A CAC payback period of ~18+ months is no longer an option for most companies. That only worked in the old SaaS world when we assumed 5+ year average customer retention.

• Goal #1: Figure out how to win in 2026 (with AI)

• Goal #2: Lower your CAC payback period

The hottest AI companies can still fundraise to fund their high CAC paybacks, but most of us can’t do that anymore. And even the fundraising for the hottest AI companies will eventually dry up if CAC stays high.

Higher churn requires a lower CAC payback period for the math to work.

Below are some public and private company CAC benchmarks. They are both too high for the age of AI.

Public companies: median 20-month S&M payback period

Private companies: might have a slightly lower median, but still high. Below are the top-quartile payback periods of a top-decile firm (ICONIQ)

Footnotes:

• Check out the EOR Guide. It’s a must-read if you have international employees or are thinking about expanding more internationally.

• Want to sponsor? Email onlycfo@onlycfo.io

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📚 This Week’s Interesting Things:

Big 4 is getting leaner…

Deloitte is cutting a lot of their generous benefits (parental leave from 16 to 8 weeks, reduced PTO, pension plan frozen, etc). There will be more companies that follow…

And KPMG just fired 10% of their US audit partners.

Slow growth is a valuation death sentence

As I discussed in my last post, investors are assuming slow growth means AI is destroying their business, so it has zero terminal value now. And the valuation multiples reflect that…

Everyone Trying to Get Anthropic Stock

The seller is a banker and really wants some Anthropic stock…This used to be a joke, but now homes in the Bay Area are being priced with pre-IPO equity.

For finance leaders, managing international payroll and compliance requires expertise. Our ‘Guide to EOR for Startups’ offers a detailed look at efficient global payroll management & compliance.
This guide will help you:

• Manage cross-border payroll easily

• Navigate tax implications across jurisdictions

• Reduce financial risks associated with global growth

Take control of your financial strategy today.

Download the EOR Guide

ServiceNow’s Worst Day…Ever

Three days ago, ServiceNow experienced the largest single-day stock price crash in its history (-18%). And it took the entire software industry down with it (software ETFs were down ~6%).

ServiceNow’s Q1 results must have been disastrous to send the stock down ~18%, right?

Nope. They were actually pretty good with a “beat and raise” quarter.

• Quarterly Revenue: $3.770B (22% YoY growth) vs $3.745B consensus (+0.7% beat)

• Adjusted EPS: $0.97 vs. $0.96–$0.97 consensus (in line to slight beat)

• Q2 Revenue Guidance: $3.818B guidance vs $3.748B consensus (1.8% beat)

• AI Momentum: Raised 2026 AI-related revenue target to $1.5B (from $1B).

In more ordinary times, you’d think the stock might be up (or at least flat) with those results. Certainly not down 18%.

But that is not the environment software is in today. ServiceNow’s results were just “pretty good” and the story wasn’t super clean…

Software Investors in 2026: Shoot First, Ask Questions Later

The stock market is not always rational (especially in the short term). While ServiceNow was down nearly 18% on Thursday, some investors realized on Friday that maybe this was a buying opportunity and sent the stock back up 6.5%.

Every software investor has their finger on the sell button and is just looking for a reason to press it. Any reason…

On Thursday, there were 83M ServiceNow shares traded, which has only happened a couple of times prior in the history of the company.

There are two related things that got ServiceNow shot by investors:

1. “Pretty good” doesn’t cut it in 2026

2. There was noise in the financials/story

Anything other than clean, stellar performance is interpreted as “AI is killing the business”. Software investors are looking for reasons to say you are going to get wiped out by AI. And if you look for something hard enough, you will find stuff that supports the “AI just wiped out [X] segment of software” thesis.

And ServiceNow’s results and story definitely gave the thesis room to grow:

• Is AI destroying their pricing power? Q2 non-GAAP operating margin guided at ~26.5% (well below Street expectations of ~30–31%)

• Is there really just a timing issue or is growth just slowing? Management said there was a ~75 bp headwind to subscription revenue growth from delayed on-prem deals in the Middle East due to the conflict in Iran.

• Are they truly winning with AI or mostly just cannibalizing their legacy revenue? Q2 revenue guide was disappointing given the Q1 beat. If they are a major AI beneficiary then why is overall growth not stronger?

• Is ServiceNow buying growth via M&A because organic is quickly weakening? ServiceNow’s $7.8B acquisition of cybersecurity company Armis closed in Q1 and had a noisy impact on results and forecasts.

Bill McDermott, ServiceNow CEO, mentioned their “beat and raise” a couple of times on the earnings call. Below is how I heard it in my head, lol.

C’mon guys…We just beat and raised. Why are you giving us such a hard time!

In the Q4 earnings call Bill actually said the below in response to ServiceNow supposedly dispelling organic growth fears:

I noticed that we lost about $10 billion in market cap on that because of the worry. So now the worry is gone, you can give us back the market cap. — Bill McDermott

Moral of the story?

By default, software investors want to sell. They are looking for a reason. They are practically begging for it. And it’s causing all software names to take a hit.

Not all software or their AI story is created equal, though. For instance, the ones that win in the long term may see earlier short-term pain as they aggressively rebuild for the AI world.

The broad-based fear selling might create some buying opportunities…

Is ServiceNow Cheap Yet?

As a multiple of EBITDA, ServiceNow has never been cheaper. By a long shot. Part of that is simply being a more mature business, but they are still one of the fastest growing public software companies AND they are the 3rd largest in revenue scale.

ServiceNow’s FCF multiple is the 6th lowest FCF/EV multiple for companies growing revenue >15%.

And ServiceNow has one of the highest RPOs of any public software company. They have about two years of current run-rate revenue locked in under contracts.

But the bajillion-dollar question is:

What companies get disrupted by AI versus what companies become more valuable because of AI?

Problem is that 90%+ of legacy software probably sits in the first bucket. And the 10% may temporarily look like losers with cracks in their story as well as they rebuild to become AI winners.

The AI Story: Nothing Else Matters

If a company doesn’t have a clean AI story (with financials to back it), then investors will shoot first.

But in order to create a long-term AI story, companies may need to walk in front of a firing squad. They may take some flesh wounds along the way, but it might be necessary for them. And it could present a potential buying opportunity for investors if the company can become an AI winner.

But many stocks will become “cheap” for a reason. The terminal value goes to zero. And if that is true, it’s hard to be cheap enough for investors to not lose money.

Some folks like to say the following about building companies: “It’s a marathon, not a sprint”. But that is likely bad advice today…if you are not sprinting toward an AI story then the rest of the race may not matter.

Footnotes:

• Check out the EOR Guide. It’s a must-read if you have international employees or are thinking about expanding more internationally.

• Want to sponsor? Email onlycfo@onlycfo.io

Subscribe now

📚 This Week’s Interesting Things:

Insane how fast sales rep sentiment has fallen at ServiceNow…sales reps are the closest to the customers and what they are saying/doing so it’s usually good to listen to them.

I feel this one deeply…those additional token costs got to come from somewhere. And it’s headcount.

Global payroll costs extend far beyond salaries. This guide breaks down international payroll expenses, compliance costs, and hidden fees so you can forecast accurately, reduce risk, and improve cost efficiency as you scale. Built for finance leaders managing multi-country operations.

Guide to International Payroll Costs

Pricing Pressure Will Crush You

AI is lowering the ceiling, squeezing the middle, and pulling out the floor. This is one of the biggest threats to company valuations. And it has completely changed how I am approaching new vendor contracts and renewals.

I am the signer on all our material vendor contracts so I am not only seeing this threat with our customers, but I AM the threat on the vendor side…

The ROI companies get from Claude (and other AI tools) is creating a new pricing anchor that everyone is subconsciously referencing. The effect? It feels like I am overpaying for basically every single other tool.

I hate feeling like I am overpaying…

There are three pricing reference points I think about:

1. Ceiling: Perceived value by the customer

2. Middle: Vendor alternatives

3. Floor: Building internally

The Ceiling is Falling

AI feels a lot like magic today. The perceived value is through the roof because these AI tools deliver much stronger outcomes than what was possible just a few months ago.

And because of this, vendors can price aggressively.

With our AI tool you can 10x productivity. Just think of all the headcount savings you will achieve by leveraging our tool. Based on our discussions, we believe it can save you two FTEs. At an average cost of $140K per FTE ($280K headcount savings), you will be saving $130K because our tool is only $150K!!

And it’s true. The labor market is huge…AI has barely started to make a dent in the theoretical TAM of knowledge work.

The Carlyle Group released some data this week on where companies are finding budget for AI. And guess where it is coming from? Most of the budget offset is coming from internal headcount. AI isn’t trying to replace your SaaS tools. It is trying to replace your people.

CFOs are increasingly finding the budget through hiring freezes (no backfills) and layoffs.

But eventually the AI magic wears off. Not that AI isn’t amazing. Of course it is. But our expectations are also increasing really fast. Human replacement cost is the current anchor price, but that won’t last long.

As mentioned in my tweet above, my new anchor price/ROI is Claude. And as AI adoption in the corporate environment grows, everyone’s expectations will also rise. Many employees have really just started to understand what’s possible with AI over the last few months, and that may be bad news for many vendors…

While the savings from two fewer employees may seem amazing today, tomorrow it will just be the expectation that more work can get done with a lot less.

Our willingness to pay near the human replacement cost will diminish (the ceiling falls) as we start to ask more about alternatives and the possibility of building some things internally.

The Middle is Tightening

AI productivity gains mean:

1. More competition. Anyone can build software today (and many are). More competition = more pricing pressure.

2. Existing vendors are going multi-product a lot faster with a lot more products. A multi-product company can price more aggressively because the incremental product is much cheaper to build, sell, and maintain.

Renewals have often been pretty automatic. Send the renewal to me and as long as you don’t increase prices too much then I will sign it. But I am increasingly pushing an evaluation at renewal for the larger vendors. The price difference for essentially the same functionality has shocked us at least a few times already.

The Floor is Disappearing

Historically, I have viewed the pricing floor as vendor alternatives, but building internally is increasingly becoming a real threat. No one really wants to build internally, but the threat has a lot more teeth today.

Everyone is doing it to some degree. It may not be a full vendor replacement (although that is definitely happening), but building smaller features internally is becoming increasingly common. A lot of downgrades are coming…

Example: I downgraded a large vendor's AI feature

During a recent low 6-figure vendor renewal, I negotiated a 45% decrease in spend. We added their AI features last year, but I churned them on the renewal. It was incredibly valuable when we bought it. Saved a bunch of time.

But…since then my company fully rolled out Claude. And we quickly discovered that we could do 95% of what their AI tool could do for us with some Claude integrations. And the Claude token costs were ~15% of what the vendor was charging us. Plus it was more customizable.

Easy decision to churn that feature.

In Summary…

This post is a little bit doom and gloom, but the very best companies will still maintain real pricing power. However, the gap between the best companies and everyone else will continue to widen. Pretty good doesn’t cut it anymore. Expectations are too high.

My recurring message stands: accelerate or die. Seriously. If you don’t, the pricing pressure will squeeze the life out of you.

Footnotes:

• Check out these offshoring costs by country (both salary and employer burden) so you can decide where to focus global expansion.

• Want to sponsor? Email onlycfo@onlycfo.io

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📚 This Week’s Interesting Things:

Contract Term Length:

This is from me, but it’s related to this post so I am going to share it :)

I have expressed a lot of opinions about multi-year contracts in the past, so you won’t be surprised to hear that I still hate them. At least for 99% of vendors. AI just makes multi-year contracts even less sensible.

“Anthropic, please don’t enter our category 🙏”

Alex summed up exactly how every single software/AI CEO feels in 2026.

Claude Comes for Business Intelligence Companies

Even if it’s not perfect, if it does ~80% of the job (and at a fraction of the price) then it is probably good enough for most companies. And pricing pressure increases…

Payroll is entering a new era with AI-driven compliance, real-time visibility, and higher expectations from the board.

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Payroll Strategy Toolkit

Snowflake CFO Retires a Billionaire

Michael Scarpelli joined Snowflake as CFO shortly before their IPO and had stock options worth ~$1.5 billion (at least on paper) just a couple of months after they went public.

It’s rare that CFOs join the “Three Comma Club” (billionaire), but CFOs and other executives are definitely not underpaid…

In this post:

• Breakdown of all the public information on exec compensation

• CFO compensation data across all public software companies

Filings and Proxy Statements

If you are a named officer (or board member) of a public company, you kiss privacy goodbye. We get to see a lot of your finances (at least with respect to a significant part of your net worth).

Everyone Gets Your Offer Letter

When a company goes public, they must file the offer letters of the named officers (at least a total of 5). As such, we have Scarpelli’s original offer letter…

• Base salary: $300K

• Target bonus: $300K

• Equity (stock options): 1.25% of fully diluted with early exercise rights

• Right to invest in Series F: Right to purchase up to 0.25% of fully diluted shares

The cash comp was certainly on the low side given Snowflake’s scale and growth. Equity at 1.25% was on the high side for a CFO joining at the scale Snowflake was at. Not crazy, but high side. The options had a grant date fair value of $20.2M.

The right to invest in the next round is interesting. This isn’t unheard of, but isn’t included for most private company CFOs. More common when near an IPO like in this case.

The offer letter provides helpful context to the next piece of compensation information we get when a company is public…

💡 Check out Deel’s payroll guide to learn more about compensation strategies. They also have great compensation benchmarks.

Form 3 - What You Got?

When going public or when someone gets promoted into a named officer position they must file form 3. It lists the type of equity, the amount, and nature of indirect relationships.

Preferred Stock: We know Scarpelli had the right to buy Series F shares based on his offer letter and now we know he did invest (he also invested in the Series G). He spent ~$15M of his own money investing alongside those two rounds.

Common Stock: Scarpelli has an early exercise provision (common for all execs) so he probably early exercised to get those shares.

Stock Options: This is the equity compensation he got that we saw in his offer letter. Looks like he got another ~330K stock options between his signed offer letter and his initial grant.

Form 4 - What You Doing?

Officers and directors also must report all their equity activity (buys, sells, exercises, etc) on Form 4.

Typically officers sell stock in one of two ways:

1. Net-share withholding: Public companies typically issue RSUs so there is a tax event each time RSUs vest. It’s common to sell (or company withholds) enough RSUs to cover the tax liability. These are automatic and don’t signal anything about an officer’s belief about the company.

2. 10b5-1 planned sales (scheduled sales): Almost all officer stock sales go through this so they have a solid defense against insider trading. These scheduled sales are predetermined (at least 90 days after adoption).

Scarpelli had both of these because he also got PRSUs after they went public and those vested over time after they met the performance conditions. Scarpelli wasn’t shy about selling Snowflake stock….he has sold $600M worth of stock since the IPO.

And he did pretty well timing the top with his largest block. He sold the biggest block of shares ($240M worth) near the peak of Snowflake’s stock price (the golden era of SaaS).

Proxy Statement - How Much We Paying You?

Few people actually read proxy statements, but there is some interesting information in them…particularly around officer and director compensation.

Scarpelli announced he was retiring last year (following Slootman again). Scarpelli was Slootman’s CFO at ServiceNow and Data Domain before joining him at Snowflake. Just a reminder that if you are a good leader, then your bosses will bring you to the best companies.

Base salary: $500K

Target bonus: $500K

Snowflake’s bonus plan is paid out quarterly based on revenue. It had a minimum target of 85% (i.e. <85% got zero) and then paid out linearly through 100%.

A total of 110% bonus pool over-achievement was possible if they met the targets of three “gate” metrics:

• Non-GAAP gross margin

• Non-GAAP operating margin

• Revenue growth of a specific product

New equity awards: $29M

Equity comp is obviously where the money is at…

100% of Scarpelli’s equity comp was in the form of PRSUs (had to hit certain targets to vest). This is somewhat unusual. Most have a combination of regular service-based RSUs and PRSUs, which is what the rest of the officers at Snowflake got.

His target PRSU grant was based on a minimum achievement of 80%, otherwise, 0% would vest (they hit 89% in FY25).

PRSU targets:

• 50% revenue

• 25% FCF

• 25% non-GAAP operating margin

The grant date value of the award (assuming 100% achievement) was $29M. This is based on the stock price at the time of grant of $163 so obviously, if the stock price increases/decreases, his realized value will change. Also, he could overachieve and get up to 120% of the target PRSU. So his grant could be worth up to $36M.

He vests in the PRSUs as follows: 33% upon achievement and then quarterly over the next 2 years.

Still Vesting

The big money potential is often made by joining a pre-IPO company so you can get a large grant and a much smaller valuation before the IPO (like Scarpelli did). But executives can make decent money after going public as well…

A closely tracked number is the market value of unvested awards. How much is the executive getting paid to stick around?

Most of the below is vesting over the next 2 years.

How Much Equity Does Scarpelli Have Today?

Scarpelli officially stepped down as CFO in September of last year. At the time he left, he had $518M net value in Snowflake stock (vested stock options and all of his common stock).

While we don’t know if/when he sold that, since after stepping down as CFO he doesn’t have to report it, based on the last known amount…Scarpelli made over $1B at Snowflake. He actually realized $600M (by selling) and had $518M worth remaining. Also, Scarpelli continues to vest in his previously outstanding awards because he entered into a 12-month advisor contract after stepping down as CFO in September. So he will make another ~$20M as a very part-time advisor. Not bad…

Seeking the Tres Comma Club

Usually you only join the Tres Comma Club by being a founder, but some lucky executives can also become billionaires. Scarpelli certainly did well. There might be a couple of other CFOs that realized more (like the Nvidia CFO), but relative to company size and length of time, I am not sure anyone can beat Scarpelli…

Below is a list of all public software company CFO compensation. Couple of notes:

• I worked with Claude to get all the details. Took several iterations but there could still be some mistakes

• Equity comp is based on grant date FV, averaged over 3 years

Footnotes:

• Great read: Payroll Strategy Toolkit. My friends (and today’s sponsor :) at Deel wrote the playbook for how payroll should work in 2026.

• Want to Sponsor? I am opening up the rest of the year now so email me at onlycfo@onlycfo.io to have your wildest marketing dreams come true.

Subscribe now

*nothing should be considered investment, legal, tax, or any other kind of advice

Global payroll costs extend far beyond salaries. This guide breaks down international payroll expenses, compliance costs, and hidden fees so you can forecast accurately, reduce risk, and improve cost efficiency as you scale. Built for finance leaders managing multi-country operations.

Guide to International Payroll Costs

The Hidden Costs of Stock-Based Comp

With the collapse of software valuations, stock-based compensation (SBC) expense is being debated again. But these discussions usually lack real substance so they aren’t helpful.

The question is not “Does SBC expense matter?” Of course SBC matters. All else being equal, lower SBC expense is obviously better. But the “How much should we have?” and “How to measure it?" are much harder questions to answer.

Bill Gurley (VC at Benchmark) kicked off the discussions last week with an article where he argued that software folks are finally waking up to the real cost of stock-based compensation. Here is his final paragraph:

The current environment is revealing a cost that was always there, hidden in plain sight behind an add-back. The companies that navigate this well will be the ones that start doing the honest accounting — treating SBC as what it always was: compensation, denominated in cash, paid for by shareholders.

We knew that high revenue growth in the software industry was hiding a lot of sins of inefficiency (both cash expenses and non-cash SBC sins). But the promise of extremely high future profitability and the large revenue multiples that came with it were justifications for those inefficiencies.

Since software efficiency metrics and shorthand valuation metrics ignore SBC, the problem only becomes painfully obvious when revenue growth slows.

As they say, “when the tide goes out”…

While I agree with most of Bill’s article, our conclusions on what companies should do likely differ slightly.

I want to address 4 questions in this post:

1. Is the company’s SBC expense too high?

2. Is focusing on profitability a trap in 2026?

3. How should you measure SBC’s impact?

4. Will SBC drive more layoffs?

1. Is Your SBC Expense Too High?

Where I agree with Bill is that SBC expense is basically just like a cash expense. It’s a real cost that has negative impacts on shareholder returns. Essentially all of our metrics and shorthand valuation models completely ignore SBC. That created an environment of ignoring this real cost.

The ultimate long-term valuation of a company is determined by its FCF/share potential. Cash expenses decrease “FCF” while equity compensation (SBC) increases the “share” part. Both are bad for the metric.

High-growth companies:

If growth is strong enough and terminal values are high, then relatively high SBC expenses don’t really matter.

Yes. All else being equal, lower SBC is better. But if you are growing 100% YoY and SBC is kinda high at 5%….does anyone really care?…No.

You are growing the pie a lot faster than you are diluting it, so the tradeoff is acceptable.

Low-growth companies:

Most public software companies (and LOTS of privates) sit in this bucket today. And that’s why SBC is getting a lot more attention.

Revenue growth has slowed and terminal values have been decimated (thanks Claude :), which has crushed valuation multiples.

When this happens, investors value profitability a lot more (particularly near-term profitability). And folks start caring about SBC a lot more because near-term FCF/share drives the valuation.

The expectation has been that when a company’s growth rate slows and the future is uncertain (terminal value falls), then you cut expenses and focus on near-term profitability. This is how you maximize shareholder value given the new investor focus on near-term profitability (including the impact of SBC).

This is the private equity playbook - acquire a struggling business with decent retention (slowing growth, weak profitability, and/or out of control dilution) and prioritize extreme profitability.

However, I think this playbook is going to get a lot of companies killed in 2026 (see next section).

2. The Profitability Trap

The software companies that overly focus on FCF (and cutting SBC) over innovation in 2026 are going to get killed.

Byron is one of the smartest software VCs and he agrees with me…accelerate or die.

In the short-term I can see this playbook appearing to work. Investors may reward them with higher valuations because FCF/share increased while growth is little impacted.

But it’s not the next 6-12 months that matter…

It’s 12+ months out after long enterprise contracts end and customers have time to move off of tools embedded in their processes. It will quickly become a death spiral of churn, slow/negative growth, and weakening FCF margins.

Cutting cash expenses (and/or SBC expense) is not going to save your company in the Age of AI. We are in a “accelerate or die” technology shift.

Am I saying “growth at all costs” is back? That’s a dangerous thing to say, but…kinda. Doesn’t mean you should blow all your money, but if you don’t innovate then I don’t think you will be around in 18ish months…

We will see many companies that took the profits over innovation path that generate 35%+ FCF margins within 12 months. And then we will see them get absolutely crushed and that FCF/share will quickly sink to zero.

Be efficient if you can, but you must innovate and grow.

3. How To Measure SBC’s Impact

There are two ways to look at the impact of SBC:

SBC Expense (GAAP):

This is what most people look at. It’s the accounting expense that gets recorded on the income statement. But accounting rules can be misleading…

There are lots of complex rules, but essentially the accountants come up with a fair value on the grant date and then that same amount is expensed over the vesting period (regardless of what happens to the stock price).

The most common types:

1. Stock options: The default for private companies. To determine the fair value companies perform a Black-Scholes model and then that is the price that gets expensed over the vesting period.

2. RSUs: Public companies usually give RSUs and the fair value that gets expensed is typically just the stock price on the grant date.

Example: $1,000 RSU granted at $50/share with 4-year vesting = $12,500 expense per year over 4 years. It doesn’t matter if the stock price drops to $10 after 6 months. The expense is the same.

So is that $12,500 GAAP expense too high?

Without further information, I have no idea. If the stock trades at a 100x revenue multiple (when it probably should be 10x) then that is probably an awesome deal. Dilution is likely very low. If they had to pay cash instead then it would be a lot more destructive to shareholder value.

Similarly, if the stock trades at 1x ARR but management believes it should trade at 10x then that SBC is a lot more expensive because a lot more shares had to be given for that $12,500 GAAP expense.

The GAAP expense doesn’t tell us how it impacts FCF/share so comparing it across companies with different revenue multiples is pretty useless.

Shareholder Dilution:

Ultimately, shareholder dilution is what matters. There is no cash impact from SBC but existing shareholders’ slice of the pie shrinks and the FCF/share formula is negatively impacted.

There are a few ways you can look at dilution, but all of them are much more truthful than the GAAP expense.

4. Employee Equity’s Impact on Layoffs

Public companies treat employee equity like cash. It’s part of employee’s total comp. Essentially no different than cash. Employees typically get granted a variable number of RSUs to hit a target cash value on the grant date (e.g. $250k of RSUs).

So if a company’s stock price craters…the company has to incur a lot more dilution to provide the same cash value.

Let’s pretend that Amplitude (public SaaS co) hired 100 engineers when the stock price was $83 (glory days of 2021) and they gave $250K of RSUs that vested over 4 years. That’s $25M of SBC expense over 4 years and 301K shares being issued.

Fast forward to today and the stock price is only $5.90. If they wanted to give refresh grants to all those engineers of $250K, then they would have to issue 4.2M shares…The expense on the P&L would be the exact same for those new grants ($25M over 4 years) but dilution is 14x higher 🤯

Even if the company cuts back a lot on SBC, dilution would still be higher given how much software stock prices have fallen. You will also risk losing your best talent if you don’t pay good equity packages. You don’t want that either.

So what is the solution?

You likely have to do layoffs to help pay for the additional dilution required for competitive equity packages.

This is another reason companies are pushing AI adoption so hard internally. They need to lay off people to make the new math work.

• Revenue multiples have compressed

• A lot more dilution is required to pay same comp packages

• Increased investor focus on near term profitability (FCF/share)

• Terminal values have collapsed

If smaller revenue multiples are permanent (which seems likely…), then dilution from employee equity can quickly become a death spiral because the dilution would be significantly higher to maintain comp packages. Also, a lot of public company employees still have grants from when stock prices were much higher…when they get grant refreshes, promo grants, or company makes new hires then dilution will skyrocket.

Everything points to more layoffs coming….

Final Thoughts

The $250K of RSUs you pay to your engineer isn’t less real than their $250K cash salary. It just impacts a different part of the FCF/share equation.

But the analysis is the same…

Are you creating more long-term shareholder value by spending/diluting more today?

If the answer is yes, then keep spending. If no…then you need to cut back (on all expenses). SBC matters so be efficient where you can, but also…accelerate or die.

Footnotes:

• Check out these offshoring costs by country (both salary and employer burden) so you can decide where to focus global expansion. *from my friends at Deel

• Reply to this email if you want to sponsor OnlyCFO

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📚Things I Found Interesting This Week:

Private Credit

Still looks messy. Not sure what will happen but there are plenty of people panicking

And guess where private credit has the most exposure? The industry that seemed like the ultimate gift to private equity firms, software.

I can’t imagine most places will be increasing their exposure in software….

How Low Can SaaS Go?

I am going to put my own tweet here because I think this is insane. Software can apparently go much lower…Domo trades at half of its contractual future revenue!

There are a number of companies that are barely trading above their contractual remaining revenue. This was unthinkable a few years ago, but investors are now saying the terminal value of some of these businesses is near zero. And future FCF is at risk.

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Suing Your Board of Directors

Common shareholders (current and former employees) are suing their company’s board because of a pushed fire sale that allegedly undervalued the company and screwed common stockholders.

The accusation?

Six out of the seven board members had conflicts of interest and did not act in the best interests of the common stockholders (which is required by law). As such, the board members breached their fiduciary duties and are therefore liable to the common stockholders.

How did they breach their fiduciary duties?

Board members can be conflicted in several distinct ways. Below are the most common groups:

1. The VC Directors:

VCs have a “dual fiduciary” problem. They must wear two hats: 1) GPs of their VC firm (need to maximize returns for their LPs) and 2) Directors of the company (need to maximize the value of common stockholders).

In this example, the company was considered a zombiecorn. Growth was too slow and the VCs stopped believing in it. In 2026, you are either a hot, fast-growing AI company or you are dead. There is little in between. The VC Directors wanted liquidity and to move on from a company they stopped believing in. They just wanted to focus on AI stuff so they pushed a fire sale.

After the first potential acquirer expressed interest, the VC Directors pushed hard for board approval to move forward with the sale. The acquisition price was not great. A fraction of what the company was last valued at, but the VCs (with their preferred shares) would get 90% of their money back while common shareholders got nothing.

See the problem?

The lawsuit alleges that the VC Directors created a fire sale so they could quickly be done with the company. The accusation was that a more thoughtful, planned sale would have resulted in a much more favorable outcome for everyone (particularly common stockholders) but that the VC directors didn’t care given their contractual preferred treatment.

Preferred vs Common Exit Waterfall

In the example below, anything between a $35M and $175M acquisition price doesn’t impact the VCs financially. They get the same amount either way in an exit. But common stockholders start to benefit after $35M. If the VC Director isn’t fully wearing their fiduciary hat they might see a $35M acquisition offer and be quick to accept it because they know there is no way the company is worth more than $175M so they would rather take the guarantee now.

2. CEO and CFO May Not Be Innocent Either

In theory, these individuals represent the interests of common stockholders because that is the equity that they have.

But in this case, both the CEO and CFO also had a conflict. The CEO was tired of the grind and was supportive of the fast sale, with contingencies. He had close previous relationships with the PE firm that they sold to and knew they would give him a very large joining bonus and equity in the new entity. The CFO got a similar deal. So while their equity would be worth nothing, they were guaranteed a large cash bonus because of the transaction.

3. Independent Director

Even the “Independent” Director was conflicted…He was referred by one of the VCs. He sat on two other boards that were the VC’s portfolio companies and he was an LP in one of their funds that invested in the company.

I wonder how he voted?….

There are lots of Independent Directors who are not so “independent”.

So What Happened?

The above scenario came from the facts of two separate lawsuits for a breach of fiduciary duties:

Mindbody (public software company): They were public and taken private by Vista (PE firm). Mindbody’s CEO favored Vista and wanted to exit to them so he deliberately suppressed the stock price to make it more attractive and fed Vista insider info about a formal sales process before it began. He wanted liquidity and thought Vista was the best firm to give him more upside post-merger. He was ordered to pay $48M in damages for a breach of fiduciary duties…

Trados (VC-backed software company): Private company that sold for $60M where preferred stockholders received $52M, management received $8M through a retention incentive plan, and common stockholders got nothing. 6 of 7 Directors were conflicted and were found to not have considered the interests of common stockholders and breached their fiduciary duties. Despite a failure in fiduciary duties, they escaped liability because it was determined that common stock had no value before the merger (so receiving zero was fair).

Understanding Your Fiduciary Duties

Many board members and company executives don’t understand their fiduciary duties. There is no required training once you become a board member that tells you what to do (or not to do). A lot of it is common sense. Don’t do unethical stuff… But some of it is not very intuitive.

Who are the fiduciaries?

All board members and the CFO. Even if the CFO isn’t a board member they are a fiduciary.

What does it mean to be a fiduciary?

A fiduciary is legally required to put someone else’s interests ahead of their own.

The three main “fiduciary duties”:

1. Duty of Loyalty: Don’t use your position for personal gain. No self-dealing. No hiding conflicts. If you’re on both sides of a transaction, the board needs to know.

2. Duty of Care: Make informed decisions. Read the materials. Ask the hard questions. “I didn’t know” is not a defense if you didn’t try to know.

3. Duty of Good Faith: Act honestly, don’t disregard obligations, don’t intentionally violate the law, etc.

Who are fiduciaries supposed to protect?

This can be the tricky part, especially when so many board members can be conflicted.

Fiduciary duties run to the common stockholders (as the residual equity claimants), not to preferred stockholders. Preferred stockholder protections come from contract (their stock purchase agreements), not fiduciary duty.

Lessons for Fiduciaries:

You must explore all possible trajectories the company could travel

This is essential to fulfilling Director fiduciary duties when evaluating strategic options (such as M&A), especially when it’s not a great price.

• What is the potential company value under each path?

• What is the probability of each outcome?

I talked to a public company CEO that was taken private and he said the work they had to do around this was exhausting. They knew that once a deal was announced, the lawsuit trolls would appear because it inevitably wouldn’t be good enough for someone (even though the price seemed great). They needed to fully consider every possible outcome and document everything.

Most VC-backed boards are conflicted

Just because the entire board approves something doesn’t mean they have met their fiduciary duties because most boards (particularly VC-backed boards) are conflicted:

• VC Directors are always conflicted as dual fiduciaries.

• Management Directors may also be conflicted if they receive material benefits not available to the rest of the common stockholders in a transaction.

• Independent Directors may be conflicted based on all their relationships

Get non-conflicted party consensus

The key is that, in an interested party transaction, you need to get a majority of the people who aren’t getting any ‘special benefits’ to approve the deal. If you can’t, then you’re asking for legal pain.

Boards that document their deliberations, get independent fairness opinions on M&A, and create special committees can often escape liability even in messy transactions.

The Rule of Common Maximization

Directors owe their primary duty to common stockholders when the interests of the preferred and common come into conflict.

The logic is that common stockholders are the "residual claimants". They're the ones with locked-in, illiquid equity who can't exit. Preferred stockholders (VCs) have contractual protections (liquidation preferences, anti-dilution rights, etc) that are negotiated and enforceable regardless of what the board does. Common stockholders have none of that. All they have is the board's fiduciary obligation to them.

Directors often must act against their own self-interests.

They must do the right thing for the company, its shareholders, and its stakeholders. There is no wiggle room on this rule. For Directors, this is the golden rule.

Being a fiduciary carries significant potential personal liability

The Mindbody CEO had to personally pay $48M in damages. Board members and CFOs can face personal liability, not just company liability.

Make sure the company has good D&O insurance. While it won’t cover fraud or intentional misconduct (like in Mindbody’s case), it will cover honest mistakes.

Fiduciary Duty Lawsuits are Coming

When companies are highly successful and have good exits, then everyone celebrates. It’s easy for Directors to act in the best interest of everyone because it’s good for them too.

But times are tough for many in 2026…I know several companies being pushed to explore M&A today by their VCs. Most of these companies are likely worth less than (or maybe just above) the pref stack so common would get nothing. And that adds a lot of risk for lawsuits and being found breaching fiduciary duties.

Directors must prioritize their fiduciary hat and make sure they are protecting the interests of the common stockholders. And take these responsibilities seriously…

Footnotes:

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*nothing in this post should be considered investment, tax, or legal advice. Do your own diligence.

📚 This Week’s Interesting Things:

OpenAI CFO’s Fiduciary Duty

OpenAI CFO has reportedly expressed concerns about their massive spending and the IPO timeline being discussed. She is trying to keep her fiduciary duties by communicating concerns about the CEO’s targets. Good for her. Many CFOs just shut up and nod to whatever the CEO says.

But apparently Sam Altman (OpenAI CEO) has been excluding her from financial plan conversations, like a recent meeting with top investors about server spend plans. If true, that would seem pretty bad governance…

Software’s Continued Meltdown

When the stock market is down, SaaS stocks are way down. When the stock market is up, SaaS stocks are still down. Whether SaaS is dead or not….SaaS investors are.

When will SaaS catch a break?!?

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The 8th Wonder of the World Is Crumbling

Einstein allegedly once said that compound interest was the 8th wonder of the world. Einstein was wrong. At least there was something that took its place for the last 20 years…

Annual recurring software revenue was the 8th wonder of the world. But now AI seems to be destroying such a beautiful thing that so many of us were able to witness (and profit from…)

There are two questions that every company needs to answer in 2026:

1. How recurring is your revenue, really? Not based on historical retention metrics. Those aren’t nearly as meaningful right now. But based on AI today and your current products.

2. If it isn’t truly recurring, what does that mean for your company?

To help answer these questions, I went to the person who understands the value of retention and recurring revenue better than anyone else I know…

Nick Mehta (former CEO of Gainsight) is the Godfather of Customer Success, which largely exists because of the concept of recurring revenue. As such, few people understand this topic better.

So you should read what he has to say…

Lies, Damned Lies and Recurring Revenue

-A guest post by Nick Mehta

Games, Golf and Gartner

In 5th grade, I co-founded a tech company, if you use the term “tech” loosely. My co-founder and I would solve PC video games (“King’s Quest”-types, to completely date me) and print up a guide to solving the game. We sold them in the cafeteria at lunchtime for a whopping $5 a pop! Alas, our empire came crashing down whenever Sierra Online issued a new title. All of that work (work being playing video games) had to be done again.

In college, our golf dot com startup had to convince you to misguidedly buy new clubs each season. Beyond demand for golf balls, customers had no need to come back.

And for my first job, we sold backup software that you paid for one time per server, plus a small annual maintenance fee. All that mattered was getting analyst firm Gartner to like your product.

Romancing Recurring Revenue

As such, when I ran my first SaaS company, I had to google this idea of “recurring revenue.” I learned from the master, as I tore through Marc Benioff’s classic, Behind the Cloud.

From my last startup’s launch in 2013 to its sale to private equity firm Vista Equity Partners in 2021, Annual Recurring Revenue (ARR) became Awesomely Reliable Religion.

To state the obvious, the beauty of the SaaS business model was:

• Invest Research & Development (R&D) upfront to build a product

• Deliver it at good Gross Margins at scale (70%)

• Spend one time dollars to acquire customers

• Capture revenue annually with a high rate of retention

• In the mature phase, you can cut Sales and Marketing and R&D and drink from the fountain of ARR

• You could even raise prices, since customers couldn’t leave

In this way, some companies with sticky businesses eventually got to operating margins over 50%. Alternatively, if TAMs were big, companies could defer monetization and keep growing R&D and S&M, with the comfort that the tap of recurring revenue will be there when they need it.

Times were good!

A Tale of Two Cities: AI and SaaS ARR

It certainly is the best of times and the worst of times.

For AI startups, ARR is more of a “concept of a plan.” Don’t be a buzzkill and ask questions!

The A isn’t always really annual (since most revenue is consumption-based). The first R is certainly not contractually recurring. It’s unclear how much will recur but for now, there is so much top down pressure from companies to buy AI technologies that growth is off the charts. And the last R? Let’s just make sure the auditors don’t ask any questions yet.

For SaaS incumbents, to paraphrase another Dickens tale, ARR feels like the ghost of Christmas past. Just 4 years ago, investors drooled over recurring revenue. A few months ago, I was at a charity event with mostly hedge fund types and every time I told them I worked in software, they shouted out “software sucks!” Nice to meet you too?

Death of Terminal Value

On the surface, it looks like investors simply irrationally corrected SaaS stocks. Under the covers, the truth is harsher. If we go back to SaaS playbook from a few sections back:

• Invest Research & Development (R&D) upfront to build a product

• Deliver it at good Gross Margins at scale (70%) => unclear if margins hold given inference costs

• Spend one time dollars to acquire customers

• Capture revenue annually with a high rate of retention => huge concern that customers attrit quickly given ease of competitive offerings being built with agentic coding

• In the mature phase, you can cut Sales and Marketing and R&D and drink from the fountain of ARR => as such, it’s not obvious you can cut ongoing costs and radically increase profits

• You could even raise prices, since customers couldn’t leave => raising prices seems almost impossible in this climate

Welcome to the Annual Recurring Restart

In the most depressing version of this story, SaaS companies now have to have the following strategy:

• Invest significant R&D every year to keep up as the market evolves at light speed

• Accept the risk of lower Gross Margins

• Think of customer acquisition and retention as more similar than not - every “renewal” is a new sale

• Forget about price increases

• As such, if we assume 60% Gross Margins, 15% G&A (better at scale but scale might be tough), 15% R&D and 20% S&M, we might be looking at well-run companies having 10% Operating Margins (and we haven’t even touched Stock-Based Comp yet!)

Think that’s crazy? Most businesses don’t have the historical stickiness and moats of the high-margin software industry:

Unfortunately, if we assume a 4.3% 10-year US Treasury risk-free yield and the current 5% equity risk premium from Kroll (as of March 2026), we get a discount rate of 9.3%.

While SaaS companies can still grow, investors are skeptical. So a 10% operating margin SaaS business with 5% perpetual growth and a 9.3% discount rate (it would probably be higher since there are concerns about SaaS) would be valued at 2.33x revenue.

What are your options beyond that ridiculous plan? I see 2 at this point for SaaS companies.

Option 1: Man of La Mancha

Perhaps the critics are wrong. Maybe the current storm is temporary. Some CEOs are clearly trying to fight the good fight, to badly stretch Cervantes.

They might take growth expectations down and take a big hit. But they use that money to invest in the current R&D, Sales and Customer Success motions. They batten down the hatches during this current craziness. Wow I’m mixing metaphors.

Option 2: Eternal Sunshine of the Spotless Mind

One advantage of terminal values being so low is that many companies have very little to lose. It’s hard because these businesses have been built with a leadership team that was used to the classic model. It’s incredibly difficult to pull off, but the best move for most SaaS companies is to find the Lacuna mind-erasing machine from the Charlie Kaufman classic and wipe out their old way of thinking.

One of the few successful examples of this approach is Intercom. Intercom was able to stare its core business in the face and sacrifice short term results to go all in on agents. Today, Intercom is one of the fastest growing private incumbent SaaS companies around. I’ll let their founder Eoghan McCabe tell the story, because no one else can do it justice:

Tip Your Wait Staff!

I’ll admit this wasn’t the most cheery post. I hope you take away that:

• The concept of ARR was fun while it lasted.

• We no longer can take it for granted.

• One approach is to fight in the old world.

• Another is to “burn the boats,” Intercom-style, and go to the new world.

In short, software isn’t dead. But it’s no longer recurring.

OnlyCFO Final Thoughts

Recurring revenue didn’t just mean that customers stuck around (although that was an important piece!). It also implied that there were only small, incremental costs required to keep them as customers. That’s what enabled software companies to become so profitable (and valuable).

If you have to substantially reinvent each year, then the current model doesn’t work…

That doesn’t mean all hope is lost, but you do have to adapt. It means more refactoring for AI in order to survive and probably leaner teams as well.

Nick’s definition, “Annual Recurring Restart”, might be the most truthful version of ARR for most companies in 2026.

Footnotes:

*Thanks Nick for sharing your insights!

• Want to know the cost of offshoring by country? Check out this International Payroll Guide that breaks down all the costs you should be considering.

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Figma’s Wild Ride

Figma has been on a wild rollercoaster ride since going public just 8 months ago:

• IPO on July 31, 2025

• 250% IPO pop

• AI disruption fears and stock volatility

• Heavily invests in AI

• 80%+ stock decline since

• Shareholder lockup expired on Jan 27th

Figma went from a 50x NTM revenue multiple right after the IPO to just 12x today…Falling from the second highest revenue multiple (2nd only to Palantir) to the 13th highest (out of 75 public software companies).

Did Figma’s Key Metrics Deteriorate Since IPO?

2nd Highest Revenue Growth

Figma’s revenue growth is still the second highest on an LTM and NTM basis. So this isn’t the culprit of the falling stock price. Although growth fell more than some were hoping (more on this below).

Weakening Faith In Revenue Durability

Figma has decent revenue growth endurance (prior year growth rate / current year growth rate), but it is declining faster than others.

Relative to all other public companies with higher revenue growth, Figma has nearly the weakest growth endurance. In Figma’s defense though, they had a higher starting revenue growth rate so higher growth endurance rates are harder.

Revenue durability is the #1 concern I have when investing today. And it’s not just NTM revenue. It’s 2+ years out. Understanding this far out feels like a bit of guesswork in the age of AI (and it is), but there are some early warning signs…like current weak growth endurance.

When Amazing Retention Might Also Signal a Revenue Durability Issue

Figma has crazy good retention numbers. And they have gotten even better! Almost no one else is doing that right now. The increase was driven by the release of new products (particularly the AI features).

The median public company NRR is much lower (just 109%) and Figma has the second highest NRR (again, second only to Palantir).

So why would increasing/strong NRR be a bad thing? It’s always good, right?!?!

Strong NRR isn’t bad in isolation. But it may signal potential issues when evaluated with other metrics….

Figma’s revenue growth rate has weakening growth endurance but their already strong NRR is rising. This means that revenue growth from new customers is slowing even faster and they are relying on expansion revenue to hold up overall growth.

Figma raised prices last year, introduced new products, and pushed AI products hard. All of this is good for NRR in 2025. But most of it will be hard to regularly repeat.

The ratio of new customer growth vs expansion is an important indicator for long-term growth. It’s why I always review the break out of growth rates at my company.

We don’t have this level of detail for Figma, but we know the new business growth is dropping faster than the overall growth rate. And that is a potential problem for long-term growth rates if it continues.

Rapidly Declining Free Cash Flow:

Figma’s decline in FCF margins is obviously a concern…

Looking at FCF on a quarterly basis gives an even clearer view. FCF margins were amazing in the quarter immediately before the IPO (surprise surprise), but it has been on a rapid decline since then and projected to be even lower in FY26 (just 8%)

So what happened? What is the justification for the shrinking FCF margins?

Expenses ran hot in 2025: With slowing revenue growth you generally expect that expenses will not outpace gross profit additions, but that is what happened. Figma increased gross profit by $208M but added $228M of operating expenses (excluding SBC).

Investing in AI: Their main excuse for declining FCF margins is investing in AI. And it’s theoretically a great reason. If Figma doesn’t invest in AI disruption, then their long-term valuation is toast.

• Decreased gross margins because of higher infra and inference spend for AI products. Figma (like many AI companies) is currently subsidizing their AI features to gain adoption.

  

• Increased R&D costs: Need more people and higher infrastructure costs to build out AI stuff.

• Increased S&M costs: More free users playing with AI stuff (drives S&M costs up). And they need more sales and marketing to sell new products and meet growth targets.

Making these hard financial choices is really hard (especially when you are public), but if you mentally accept that your terminal value will be zero if you don’t then it is a bit easier. This is easier for some companies than others. Figma has to move faster than most…

Also, if Figma can’t see a path to beating their 8% FCF expectations (and revenue growth), then they will likely feel pressure to do a layoff. There isn’t much investor appetite for weak FCF margins without extraordinary revenue growth in 2026.

What’s Next For Figma?

Figma needs to adapt faster to AI than most other companies because 1) their products have a higher AI disruption risk and 2) their customers can more easily leave (i.e. churn).

There are a lot of concerns investors can have with Figma, but based on their financial investments they seem to be making the right (albeit hard) decisions to rebuild as a real AI company.

The big question for Figma (and so many others) is if what they are building will add enough incremental value beyond the base models to be worth the extra cost and can their unit economics survive the pricing pressure that is coming.

Figma has customers that love them and a fantastic team (I know many of them) so I definitely wouldn’t bet against them.

Footnotes:

• Download this guide and up-level your payroll for faster, more compliant processing and building a scalable strategy in the age of AI

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*nothing in this post should be considered investment, tax, or legal advice. Do your own diligence.

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Paraglide can automate the majority of this work. It’s high-volume, boring, and repetitive so it’s a great place to leverage AI. Talk to my friends at Paraglide and see what accounts receivable AI agents can do.

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What Paths Remain for Software?

David George (GP at a16z) wrote an article titled “There Are Only Two Paths Left for Software” where he argues that there are only two paths left for durable equity value creation (down from 3 paths):

1. Accelerate revenue by 10+ percentage points YoY (through AI-native products)

2. Messy middle of slower growth and not very profitable

3. Rebuild the company to 40-50% operating margins (including SBC)

I agree that the “messy middle” path leads to certain death (of equity value) in 2026. For the past 10+ years, the messy middle path still often turned into a decent outcome (usually via acquisition by PE). But those days are gone. PE isn’t coming to rescue you.

So that leaves two remaining paths…

However, I take a more aggressive stance. There is really only one path remaining. Any other path will be destructive to long-term equity value.

The Profitability Path Still Ends in Tears

Lots of companies are trying to get on the profitability path. It’s the natural thing to do for companies as their growth has significantly slowed. But there are two potential traps that most folks on this path fail to grasp:

1. They are actually on the messy middle path (which is an even worse fate)

   and/or

2. The path feels good until they realize they are driving off a cliff

Let’s go through both of these traps:

1. Escaping the Messy Middle

I believe low-growth SaaS companies can get to 40%+ profit margins in 12-18 months. If they really want to…

Many companies have already made massive FCF improvements as their revenue growth has slowed. Public company median FCF has exploded from 0% to 22% in just ~3 years.

But…an important point that David makes is that most companies that have shifted to strong FCF margins are still unknowingly in the messy middle after considering the impact of SBC expenses. True high profitability requires you to also consider SBC/dilution.

Most public SaaS companies aren’t growing fast enough (or profitable enough) to outrun their high SBC expense. While the increase in FCF margins is great, it isn’t enough…And shareholder returns will be the casualty.

In addition to SBC expense, most companies won’t get their FCF margins high enough because they will experiment with AI products just enough to burn more money without seeing real long-term ROI.

I am already seeing a lot of this.

Companies have a FCF margin target so they can't spend much on innovation, but they need to spend some so they dip their toes in innovation. FCF margins are ~5%+ lower than what they could be. Problem is that customers don’t care about their AI products because it isn’t nearly as good as the competition. Burning cash with no added value.

👉 The penalty for being mediocre has never been larger…and it’s only going to get worse.

2. The Mirage of Profitability Will Lead You Off a Cliff

Becoming highly profitable can feel really good. “We are in control of our destiny”. “We don’t have to rely on VC money”.

Companies that go down this path may feel pretty good for 6-12 more months, but then, without warning, you will discover that the path led you right off a cliff…

Here is what will happen over the next 1-2 years on the profitability path:

Lots of change will be required to get to 40-50% profitability (including SBC)

• Adopt a ton of AI internally

• Massive layoffs

• Cut lots of legacy software

• Raise prices on products

So what’s the problem with this path? It’s worked for PE firms for decades.

AI has changed things. By the time you get within reach of those juicy 40%+ profit margins, they will start to fade. Below are three major things coming that I don’t believe most people on the profitability path are fully considering. And they will eat away at their profits, pushing them back to the “messy middle”, and ultimately cause equity destruction:

Pricing Power Weakens:

If you are not accelerating product, then customer willingness to pay a premium will drop because you aren’t a top product anymore. Customers also won’t accept your annual price increases.

This has always been true to a degree, but expectations are so much higher now.

Pricing Pressure Grows

The number of competitors in the “good enough” category is skyrocketing. If you are not top ~5% in your space, then AI will birth hundreds of copycats that are also “good enough”.

It’s worth repeating: The penalty for being mediocre is massive today (and growing).

Churn Is Coming

Most company leaders are not concerned enough about churn. They are complacent because the churn hasn’t really shown its full impact yet because of:

• Multi-year contracts delaying churn

• Deeply embedded software is making it hard to churn (yet)

• Companies are slow to adopt AI so they haven’t experienced AI use cases yet

Churn will come slowly and then all at once for companies that choose mediocrity.

The Value of the Profitability Path

If you are admitting defeat that your company can’t compete and innovate with AI, then maybe the profitability path is the optimal outcome.

But is it worth it?

If my earlier scenario holds true, then lifetime future profits are maybe 1.5-2x current annual revenue — 40% FCF margins for the first year but then they get rapidly eaten away until they hit zero and you eventually shut down.

Look where “low growth” public company multiples are at…2.7x. And falling further every day.

EV/FCF margins have been on a rapid decline since 2021. It’s at its lowest level ever at 14.3x. Why? Because investors don’t have faith in revenue durability. These companies are generating a lot more FCF, but how long will it last?

We have already seen what the market does to companies with weak growth endurance (ignore C3 which is benefiting as a perceived AI beneficiary). Their valuation multiples have been crushed.

But the future mediocre companies will get punished even worse because future durability will be even worse and profits will be eaten away even faster.

Mediocrity will create an eventual death spiral…

The Only Path Left: Accelerate

“Accelerate or die” is likely the only path left. Any other path just changes the timing and how you eventually destroy equity value.

I don’t have the answers on how you must accelerate and rebuild to become a true AI company, but you need to figure it out. It’s the only path that creates long-term equity value.

For companies with imagination, you will do more with more. For companies where the leadership is just out of ideas, they have nothing else to do. They have no reason to imagine greater than they are. When they have more capability, they don't do more. — Jensen Huang

Final Thoughts

If you don’t think you can accelerate the top line and build AI-native products that will win in the market, then maybe path #2 is right for you.

The reason I say there is only one path is because path 2 (high profitability) leads to outcomes that are rarely worth the journey. Fire most of the company and drastically cut costs to maybe be worth 1.5-2x ARR (or 4-6x FCF)? Not a terrible outcome if you are bootstrapped, but if you raised any amount of money then your equity is going to be worth close to zero anyway. If you are going down path 2, then get highly profitable asap and sell the company as soon as you can. If you wait, then revenue will struggle and profits will eventually fall. Then there will definitely be no buyers.

Get on path 1. It will be a lot more fun (and hopefully more valuable) than the alternative. You can be both accelerating AND highly profitable (many are), but it still requires you to be focused on path 1.

The #1 question teams should be asking:

What changes do we need to make now to actually get on path 1?

Footnotes:

• Check out Paraglide’s AI agents in accounts receivable (today’s sponsor)

• Check out David George’s article: There Are Only Two Paths Left for Software

• Reply to this email if you want to sponsor OnlyCFO

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📚 This Week’s Interesting Things:

Redpoint’s Market Update

Logan Barlett and Redpoint team always do a great job on their annual market updates. There are lots of good slides, but the two below are interesting:

• Riches in the niches….vertical software has been more resilient than horizontal due to the presumably more durable revenue

• The categories at the most risk for disruption and less durable revenue

Thoma Bravo’s Software Update

Below are a couple of interesting slides from Thoma Bravo. Not all software is created equal, but the big question is how durable any existing software revenue will be. Some is certainly more durable than others, but….like I said in this newsletter, I don’t think it really matters unless companies are truly accelerating and building an AI company.

Paraglide (AI platform handling billing inquiries, collections, and disputes) just raised a round led by Bessemer to enable companies to get paid on time with less manual involvement.

My AR teams have always spent way too much time in their finance inbox: answering billing queries, chasing customers, chasing down PO numbers, and handling disputes…It’s high-volume, boring, and repetitive. Which makes it a perfect place to use AI agents.

Get Billing & Collection AI Agents

2026 State of GTM

Below are my favorite slides from ICONIQ’s recent GTM report (2026 State of GTM), some relevant public company GTM metrics, and some thoughts on how I am thinking about the data.

Revenue Growth

Companies with <$100M ARR are showing an acceleration in revenue growth. I think we can likely attribute this to all the new AI-native hyper-growth companies. The $100M+ category is still being dragged down by “legacy software” companies that are slower growth.

Note: below are ICONIQ’s top-quartile growth rates and ICONIQ is already a top-decile VC firm. So it is the best of the best.

There are A LOT more non-AI-native software companies with much lower growth than this. But if you aren’t near ICONIQ’s top-quartile growth, good luck raising money in 2026.

While at a much larger scale, public company revenue growth is just 16% today. However, it seems like we have bottomed and are even slightly accelerating, so we will take the win!

Retention

NRR seems to be holding steady, but…remember that this is top-quartile NRR. The difference between top-quartile and everyone else is going to grow much larger over the next 12-18 months, especially with NRR.

NRR can be a very lagging metric on the health of a business. Things like long contracts and vendor price increases can maintain NRR temporarily but eventually churn will hit.

Public company NRR is still declining and it lines up with the $100M+ ARR bucket from ICONIQ’s report (both 109% NRR).

The thing I worry most about software company valuations is the durability of revenue. NRR and GRR are already lagging metrics, so if these keep declining then valuation multiples are going to continue to compress…It’s why public software stocks keep falling. No one is confident on revenue durability.

GTM Efficiency

The average dollar costs in ICONIQ’s report don’t mean much, but the trend is interesting. Cost for leads and opportunities dropped significantly over the past year, except in the SMB space.

While still up significantly from 2021, CAC payback period has been fairly steady for several quarters for public companies.

CAC payback period should be a top focus metric for companies in 2026. The durability of revenue is uncertain and that has implications for customer lifetime value. Reducing the risk period by cutting the payback period is important.

Sales Commissions

There is no single right answer on how to set quotas and pay commissions, but the rise of usage-based pricing likely means changes from what you were previously doing.

Commission clawbacks are really hard to perform, so I am not surprised most don’t do them. The ideal process is to only pay commissions when the likelihood of a clawback is small, but sometimes that can be hard to balance in usage-based models and you want to pay the rep upfront. I have seen too many cases where the lack of clawbacks creates bad sales rep behaviors…

Quota Attainment

Great to see attainment is trending higher. All else being equal, higher quota attainment here means higher GTM efficiency.

But…a lot has changed in GTM efficiency. For example, higher attainment on an AI product with 30% gross margins looks very different than lower attainment on 75% gross margins. Make sure you understand true complete GTM efficiency.

Pricing Model

Interesting data points as usage-based pricing becomes more popular.

It’s so much easier to try new AI products when it’s pay-as-you-go. Competitive pressure likely drives more companies to that model.

Contract Lengths

There is a combination of things driving shorter contract lengths in 2026:

• Uncertainty in software. No one wants to get stuck in a multi-year contract with a tool that becomes irrelevant in 12 months.

• Pricing model changes. As more companies shift to usage-based pricing, multi-year deals won’t be as common.

• Competitive spaces with unproven ROI. Companies don’t want to overcommit for the new shiny AI thing until value is proven first.

There are only a handful of vendors that I would consider for 2+ year contract terms…Unless a company is mission-critical, the sales reps should not be pushing multi-year deals hard. Let the customer pull you into the conversation if they want it. I dislike SPIFFs for multi-year contracts, especially for SMB deals.

I worry about the competence of any CFO/leader signing up for long duration contracts of non-critical software right now….

Public companies don’t disclose exact contract lengths but they are required to report RPO (remaining performance obligations), which provides an idea about average contract terms.

• “Current RPO” = contracted revenue to be recognized over the next 12 months.

• “Non-current RPO” = contracted revenue to be recognized after 12 months

Below is a sample of software company RPOs that I put together. Long-term contracts are quite common and a reason many public companies haven’t really felt the full impact of churn due to AI yet.

Footnotes:

• Check out this billing and collection AI agent. If you want to cut costs (everyone needs to) and collect more cash, then you should have an AI agent in accounts receivable. Paraglide is today’s sponsor.

• Reply to this email if you want to sponsor OnlyCFO

Subscribe now

Paraglide (AI platform handling billing inquiries, collections, and disputes) just raised a round led by Bessemer to enable companies to get paid on time with less manual involvement.

My AR teams have always spent way too much time in their finance inbox: answering billing queries, chasing customers, chasing down PO numbers, and handling disputes…It’s high-volume, boring, and repetitive. Which makes it a perfect place to use AI agents.

Get Billing & Collection AI Agents

Revenue Durability

Every VC, PE firm, and public market investor has one question they are struggling to answer in 2026. This question has been crushing valuations, putting M&A on freeze, and making fundraising really hard.

Is the company’s revenue actually durable?

No one really has faith that software (or even AI) revenue is actually durable today. If you want to raise money, get acquired, or one day IPO, then this is the most important question to try to answer.

It’s really hard (near impossible) to honestly answer this question today. Long-term durability is too hard to predict in the age of AI. But below are some of the things I am thinking about as I talk to folks about this topic.

What is Revenue Growth Endurance?

Revenue Growth Endurance = (this year's growth rate) / (last year's growth rate)

It measures how fast a company’s growth rate is falling (or rising). The reason software/AI companies have been able to command such high valuations is because we believed that the revenue and FCF margins were very durable (as if they would be strong for 10+ years). Look at a DCF performed on any software company…90%+ of the valuation comes from 5+ years out.

Revenue durability expectations can cause some wild swings in valuations…

Top 5 Worst Growth Endurance

Let’s look at the companies that had the largest revenue growth rate drops since 2021 (the glory days of SaaS). To measure the impact, I look at the relative “NTM Rev Multiple Rank” change from each period.

For example, Bill.com went from 90% revenue growth in 2021 to just 12% (massive deceleration). So it saw its revenue multiple collapse from the 6th highest to 51st. Investors were clearly expecting Bill.com’s growth to be more durable.

C3, on the other hand, appears to be an outlier. Its revenue growth has gone negative, but it’s relatively more valuable than its peers? C3 actually reinforces the durability point. Whether right or not…some investors are treating C3 as a potential AI winner that will therefore have longer-term durable revenue. So despite short-term growth challenges, some folks believe its long-term durability will be strong.

Many hyper-growth AI companies that are receiving astronomical valuations will see a similar fate. Durability will prove weak, and their valuations will look crazy in retrospect.

Top 5 Best Growth Endurance

The reverse is obviously true as well.

Palantir is the one seemingly real AI story among public software companies. They are massively accelerating revenue growth at scale. They are signing large, multi-year contracts (more on that below) and investors believe in their durability.

And similar to the C3 story, Atlassian is also an outlier here. Short-term revenue growth hasn’t fallen that much, but investors believe longer-term that AI will destroy revenue durability.

Growth Endurance Needs Context

Below is a sample of public companies and their expected growth endurance over the next twelve months. You might see 100% revenue growth and think, “that’s great!” Well, context obviously matters.

Domo at 100% growth endurance is still lame because it’s based on only 1% revenue growth.

How I Provide Growth Context

Aggregated data can hide growth endurance problems.

Below is how I break out my ARR waterfall. If you collapse any of these categories, then you lose a lot of relevant information.

I then take it one step further and show the same waterfall in terms of growth rates. This view is critical to spot growth endurance issues that haven’t really shown up in the aggregated data.

Below are a few common things I dive deeper into when I have the right data:

• Rapidly increasing expansion vs new logo growth: Are you just milking existing customers? If so, growth rates aren’t sustainable.

• New Product Release: Going multi-product is so important in 2026, but it’s REALLY tough to get the same jump in revenue growth after each additional product release. Are you just selling more to existing customers or are you closing new logos as well?

• Product M&A: Similar to the above point on new product releases.

• Price Increases: Big price increases are almost never durable. Software is becoming hyper-competitive and you think you can raise prices annually by 10%?

  

Revenue Retention

You can’t have durable revenue without strong customer retention.

What Gokul says below is so true, but also really hard to figure out in practice…so most VCs default to just investing in the highest growth.

Customer retention and net revenue retention are the two fundamental indicators of business quality. I would take a company doing strong growth with excellent net revenue retention over one growing 10x with poor retention. — Gokul Rajaram

My one caveat is that companies should be willing to sacrifice short-term customer retention if it means longer-term revenue growth and customer retention. When does this make sense? An example is when you need to disrupt yourself because of something like…AI. See my prior post (Go Disrupt Yourself)

Final Thoughts

Too many folks are still too complacent about their revenue durability. AI is blowing up durability but it is being temporarily hidden.

It’s almost impossible to truly understand long-term revenue durability based on current finance data. AI is moving too fast and it can change things too quickly.

But my 2 cents:

1. Having the right data and actually understanding revenue durability are critical to making the right decisions.

2. Hard financial decisions might need to be made today to ensure long-term revenue durability.

Footnotes:

• Check out this billing and collection AI agent. If you want to cut costs (everyone needs to) and collect more cash, then you should have an AI agent in accounts receivable. Paraglide is today’s sponsor.

• Reply to this email if you want to sponsor OnlyCFO.

Subscribe now

📚 Interesting Things:

Jensen’s Take on Layoffs from AI

For companies with imagination, you will do more with more. For companies where the leadership is just out of ideas, they have nothing else to do. They have no reason to imagine greater than they are. When they have more capability, they don't do more. — Jensen Huang

The bar is raised for every company to build more product surface area. We expect more out of tools today. But also remember that more engineering headcount is good for Nvidia….more shovels are needed.

Fire CFOs Not Using AI?

Your VCs think that if your exec team isn’t using AI then you need new execs. I agree.

But…I’d be even more concerned if the rest of the finance/accounting team wasn’t using AI in Excel…Make sure you have an exec that is pounding the table on AI usage across their teams.

New York Proposes To Eliminate State QSBS Tax Benefit

New York is advancing a proposal to decouple from federal QSBS, which is the tax provision that lets startup founders exclude gains on qualifying exits. It’s can be a fantastic tax benefit.

Dave Kellogg makes some great points. I agree with all of them…

My teams have always spent way too much time on billing and collections...chasing customers, sending reminders, providing additional detail, etc. It’s high-volume, boring, and repetitive. Which makes it a perfect place to use AI agents.

Have my friends at Paraglide show you what AI agents can do in accounts receivable.

Paraglide helps businesses get paid on time with AI agents that automate billing and collections conversations in the finance inbox. AI agents respond to billing queries, send personalized payment reminders, track commitments, and manage disputes, removing the bottlenecks that delay payment.

Get Billing & Collection AI Agents

How to Win Through Disruption

We knew that in the face of disruption, a force not new to tech in any way, the only way to have a place in the future is to destroy your past. — Eoghan McCabe (Intercom CEO)

Whatever your stance on the “SaaSocalypse”, we can all agree that AI is disrupting software companies. The level and speed of that disruption can vary a lot. But every single software company needs to disrupt themselves before they let someone else do it for them.

There will be a lot of SaaS casualties from moving too slowly…

There are two great recent examples of legacy software companies that disrupted themselves and are winning as a result:

1. Intercom - built an AI product

2. Wix - bought an AI startup

Intercom - Rising From The Dead

The CEO of Intercom ($400M ARR customer support software) recently wrote a post about their journey of disruption and how they went from near zero revenue growth (a SaaS death sentence) to being one of the fastest growing software companies at their scale.

He said that two things made the disruption decision a bit easier:

1. They were losing fast. “We were performing far worse than average, we had less to lose. That makes hard decisions less scary.”

2. Their category was a clear AI loser. Customer support was clearly going to be disrupted by AI so they needed to do something.

While an “easier decision” in many ways, disruption at Intercom was still hard:

• Killed $60M ARR by reducing pricing on existing product

• “Switched up our board, removing “mature and experienced” leaders for startup founders”

• Immediately moved R&D focus to be nearly 80% on Fin (their new AI product)

• Bought $1M domain (Fin.ai)

• Moved all of marketing to their new AI product

• Created a risky pricing model (outcome-based pricing)

This is a success story so it obviously worked out for Intercom. It completely changed Intercom’s growth trajectory…

If Intercom had the wrong leaders (specifically the CEO and CFO) then this would never have happened. It was incredibly risky. And it’s hard to justify it on an Excel spreadsheet…

Below is a typical response from a company that is in a position similar to Intercom:

Revenue growth is only 4% so we need to aggressively cut costs and focus on what’s working to get to cash flow breakeven!

I see a lot of companies choosing this path. It might feel better for a few quarters, but they will just be creating a zombie that quickly gets axed.

Wix - Acquiring Disruption

Instead of building disruption internally, Wix bought disruption. Wix acquired a small startup (Base44) in June of last year for $80M.

Wix is a large company with over $1B in ARR, but revenue growth has been slow for several years and AI was clearly going to come after their revenue. Below is their ARR growth, excluding Base44…

Wix had the distribution (~6M paying customers), but they needed disruption/innovation. As a public company with investors constantly watching, it can be a bit harder to do what Intercom did. It’s also much harder for a large company like Wix to build disruption (things move too slowly). So Wix took a bet and bought the disruption so they could move fast.

Did Wix overpay at $80M for Base44 when it just had ~$3.5M ARR?

In addition to the $80M upfront price, we now know that there was at least an additional ~$90M in earn-out consideration attached to the acquisition because Wix expensed an additional $90M in acquisition expenses in Q4 related to Base44 revenue milestones already being hit.

Base44 went from $3.5M ARR at acquisition to $100M ARR in ~9 months! 🤯

Base44 is growing similarly to other vibe coding platforms like Lovable and Replit. And it continues to have a distribution advantage because of Wix’s existing customers.

Below are the ARR estimates of similar platforms and their latest valuations. If we take the median ARR multiple of 26x from the companies below and apply that to Base44 then it would be at nearly a $2.6B valuation as a standalone company. Wix’s current enterprise value is just $5B…so that would mean Base44 accounts for nearly half of it! Not sure how true that is though. There are some weird things happening between private and public market valuations, but either way, Base44 is clearly a home run acquisition for Wix.

Paying $170M ($80M cash + $90M earn-out) for a 15x paper return in 9 months seems pretty good to me…

Wix’s recent acceleration in revenue growth is driven by Base44. This acquisition may be what allows Wix to continue to accelerate growth and become an even more valuable company in the future.

💡Fun fact: Base44 was bootstrapped and the founder was the sole shareholder. He built and sold his business in <6 months…

You Need The Right People To Disrupt

Below are a few things I have been thinking about as companies disrupt themselves and try to thrive in the new AI world. It’s mostly people related…

1. Fire The Wrong Leaders (and hire the right ones):

More companies will/should replace existing leaders (and this includes the CEO in many cases). The proven, experienced exec may not be the right person to move fast and disrupt in the new environment. Also, many leaders will be too anchored to their past decisions/bets to make the hard calls to change course.

You need leaders who understand AI and how the company should be building for an AI world.

If you are a leader, then make sure you become the right leader for this change before it’s too late…

2. Need A “Good” CFO:

Disrupting yourself often comes with really hard financial decisions.

So you want to destroy $50M of revenue on the hope this AI product takes off? And we will burn 2x the amount of cash we had planned?

You need a CFO who is growth-oriented, understands the impact of AI on your business, and can support the business through a period of massive disruption (which includes really hard short-term financial decisions).

Now more than ever, CFOs must truly understand the business. I have met many CFOs in the past who couldn’t even explain what their business did. They just knew the numbers….That’s not enough today.

3. More Layoffs Are Likely:

Similar to firing leaders, we built our teams in a very different environment. A lot has changed so people needs have likely changed as well.

There are a lot of potential reasons: 1) you need different skill sets, 2) need fewer people so you can move faster (bloated headcount slows things down), 3) you need to cut some costs to give you more runway/time to disrupt, or 4) AI efficiency means you need fewer people.

It’s not a fun topic, but I promise you that every board and management team is discussing layoffs right now.

4. Don’t Get Complacent Because Things Haven’t Broken Yet:

Many companies (public and private) are not disrupting themselves fast enough because they aren’t scared yet. They still haven’t really felt the pain of outside disruption. They have customers locked into long contracts or it’s currently difficult for customers to churn.

Remaining performance obligations (RPO) measures how much remaining revenue will be recognized under committed contracts. In other words, how much guaranteed revenue/cash do companies have contractually locked up.

A high “non-current RPO” means you have a lot of multi-year contracts (your customers are stuck with you). A company like Workday might be feeling pretty good still because of high RPO. A company like Wix, on the other hand, has more immediate pressure to adapt faster.

Regardless of your customer lock-in….if you don’t start disrupting now then churn is eventually going to hit you hard.

Final Thoughts

Disrupt yourself now. Act with urgency.

A lot of companies (and leaders) still haven’t really felt the urgency yet because: 1) their sector wasn’t as clearly impacted early on, 2) they benefit from multi-year contracts, 3) their software is complex and harder to move off, etc….

But someone else will disrupt you if you don’t do it first. You might get an extra ~12 months before really feeling the disruption pain, but if you are not prepared, then your business won’t be worth much in a couple of years when customers have the ability to churn and the competition disrupts you.

• Revenue growth will halt (turn negative)

• Margins will get compressed

• Terminal value will vanish because you have been disrupted

The above scenario is happening to a lot of companies right now. Make everyone at your company understand that your company may not exist in 12 - 18 months if you fail to adapt.

Footnotes:

• Check out this billing and collection AI agent. If you want to cut costs (everyone needs to) and collect more cash, then you should have an AI agent in accounts receivable. Paraglide is today’s sponsor.

• Reply to this email if you want to sponsor OnlyCFO.

Subscribe now

Interesting Things I Read:

Semi-Annual Public Company Reporting?

I can see the pros and cons, but generally I don’t like this. But most companies will likely just continue to operate on a quarterly cadence and if a company doesn’t then investors will trust them less…

The 8 Moats in 2026

Gokul is a smart guy…and I agree with his list of moats that you need to survive in the world of AI. One moat that is noticeably missing in brand. Gokul responded to the uproar of brand not being on the list and one of his points resonated:

A strong brand is often the symptom of a real moat, not the moat itself. — Gokul Rajaram

I agree that you can’t build a brand moat without having another moat. But once a trusted brand is established (from another moat), then brand can become a moat itself.

PE Holding Periods are Rising

Lots of acquisitions 5-7 years ago and a lot of those are going to have a tough time selling in 2026…

*Nothing in this post should be considered investment, tax, or legal advice. Educational purposes only.

My teams have always spent way too much time on billing and collections...chasing customers, sending reminders, providing additional detail, etc. It’s high-volume, boring, and repetitive. Which makes it a perfect place to use AI agents.

Have my friends at Paraglide show you what AI agents can do in accounts receivable.

Paraglide helps businesses get paid on time with AI agents that automate billing and collections conversations in the finance inbox. AI agents respond to billing queries, send personalized payment reminders, track commitments, and manage disputes, removing the bottlenecks that delay payment.

Get Billing & Collection AI Agents

The “Maturity Wall”

There is a massive debt “maturity wall” of $40B (largely B- paper) looming for software companies. And we are going to hit the wall at the worst possible time:

• Interest rates are significantly higher than when these loans were originally taken

• AI-driven disruption is creating high uncertainty, which is lowering valuations and reducing debt downside protection.

• Weakening software growth and fundamentals hurt the ability to pay debt while valuations simultaneously fall

My PE-backed / leveraged company friends are nervous because they know what comes next…

My company doesn’t have debt so this doesn’t apply to us, right?

Wrong.

1st order impact: It will be much harder for you to raise any kind of debt instrument.

2nd order impact: Software exits (at good revenue multiples) will start to fall, which also negatively impacts the VC fundraising environment. M&A (particularly from PE) has been responsible for the vast majority of software company exits. If private credit sentiment drops, which is led by the overall software sector sentiment, then both M&A exits and fundraising will fall as well.

The chart below will look very different in a few years…especially when evaluating PE returns on these M&A deals.

Understanding the “Maturity Wall” and Private Credit

• Debt “maturity wall”: Large amount of debt comes due at roughly the same time. Companies with debt have a few options:

  • Repay loan: lol…yeah, right. SaaS companies aren’t doing that

  • Refinance: unlikely for most companies given the conditions today

  • “Amend and extend”: kick the can down the road with existing lenders

  • Sell the company: This is the PE goal. Sell before maturity to 3-5x their money after a few years. But this is not happening for almost anyone right now.

  • Distressed options: Equity value likely getting wiped and debt taking a discount (fire sale, lender swap debt for equity, default and bankruptcy, etc)

• The software debt coming due is from loans made when Fed rates were near zero, tech valuation multiples were at their peak, and lenders believed the SaaS gravy train would run forever.

• Companies trying to refinance today may see their debt interest rates increase by as much as 2x (or more) based on higher Fed rates and increased AI risk

• Slightly more than half of software debt is rated at B- or lower (not good)

• $25 billion of US software loans slid into distress in January

• Typically, borrowers will handle maturing debt 6+ months before maturity.

• A UBS strategist said we could see default rates in software heavy portfolios increase to 15% (up from the historic ~1-2% over the past decade). The baseline default rate for private credit has already climbed and the use of paid-in-kind (PIK) interest is at an all-time high. Both factors indicate trouble is brewing…

Software companies previously looked like the perfect LBO (leveraged buyout) candidate for PE firms, which is why private credit had the most exposure in software (software M&A by PE has been hot for many years). Software companies had recurring revenue with high net retention, highly profitable at scale, and software companies could also be sold for at least 2-3x ARR (in a downside scenario to recoup the loan). As a result of all of this, software companies account for ~25% of all private credit.

But this is no longer true in 2026. Almost everything that made software a strong LBO candidate is showing cracks (and big ones).

A lot of these companies will need to refinance when their valuations have tanked, growth has slowed, uncertainty has risen, and interest rates are higher. And many companies will be trying to do it at the exact same time.

There are ~2,000 PE-backed software companies that will need to figure out how to service their debt load in a disruptive AI world where refinancing may not be an option or the terms might be crippling. And ~20% of those companies will need to refinance in just a couple years (at most).

The Leveraged Company Playbook

The reality is a lot of these highly leveraged companies won’t survive. Or at least the equity will be worth zero and the business will be sold for parts to recoup the debt. It’s hard enough just being a legacy (non-AI) software company in 2026. And then throw debt into the mix and you have a ticking time bomb that is growing bigger every day.

If these companies are too slow to act, then they will enter a death spiral that quickly swallows them (if it hasn’t already).

1. Start Cutting Costs Now

This is why my PE-backed company friends are nervous…

PE-backed companies are going to do this faster and cut deeper than anyone else over the next 12 months. PE firms have IRR targets and a ticking time bomb in the form of debt. So they MUST cut costs:

• To fund higher debt payments when they amend and extend

• Lower leverage ratios so they actually can amend or refinance (and hopefully get lower rates)

• Become a more attractive acquisition target

In order to accomplish the size of cuts that are probably needed at most PE-backed companies, they will need to aggressively adopt AI internally.

And it’s already happening. They are going to use Claude to cut headcount and likely rip out a lot of software as well (at least the non port co software :).

2. You Can’t Fall Behind in AI

Customers are moving fast in 2026. Cutting everything to the bone to juice EBITDA used to be a good strategy because of how sticky software was. The PE folks could raise prices by 10% every year and customers had vendor lock-in for several years.

Much less true today.

Make sure R&D still can compete on the AI front. Extending your debt a couple of years won’t help you if all your customers churn next year…

3. Start Refinance Conversations Early

Don’t wait until just 6 months before it matures….because based on the “maturity wall” there will be A LOT of other folks trying at that same time.

The AI risk premium might only increase and/or your situation may deteriorate to a point where you are forced into default or the terms are so bad it will cripple the company.

The “Amend & Extend”

The vast majority of these companies will “amend and extend” their debt with their lenders. It’s beneficial for both sides:

• Company: Gets more breathing room and time

• Lender: Doesn’t have to mark down their loans

This is often referred to as “extend and pretend” in private credit because you are just delaying the problem and pretending that everything is fine.

There are two pieces to this strategy, but both have the same goal of delaying any cash payments by the company:

1. Extend the maturity of the loan

2. If paying interest in cash each year, amend it to paid-in-kind (PIK)

Extending the maturity delays the big loan principal payment while amending to PIK delays the interest payments until the end as well. The problem is that PIK is basically an interest IOU. Instead of making interest payments every quarter, it gets stacked on top of your principal and your debt problem compounds. And it compounds at an even higher interest rate because your lenders don’t “amend and extend” for free…

Lenders get:

• An upfront fee to amend

• A spread bump (higher interest on the debt)

• And often some incremental covenant protections

Company gets:

• 1-3 more years of runway

• No default

• No restructuring

In other words, everyone kicks the can down the road while the problem grows…

The Losers?

Here is the order of who loses in all of this craziness.

1. Employees at leveraged companies. PE-backed (and other companies with debt) are going to feel the pain/pressure first and be quicker to act. Layoffs are coming.

2. Legacy software companies whose tools are getting ripped out at these companies as they cut costs with true AI efficiencies.

3. Private Equity: Everyone has been talking about private credit, but remember they sit at the top of the capital stack. Meaning private credit lenders get paid before the PE firms. Whatever is left goes to the equity holders. Many PE firms with high software exposure will see massive losses on those deals.

4. Private Credit: The negative sentiment here seems a bit overblown to me. Since private credit sits at the top of the capital stack, they are much better positioned than private equity in downside scenarios. The original deals were done several years ago at ~5-7x EBITDA (or maybe 2-3x ARR on the very high side). Assuming they have grown a bit over the past several years, then selling the company to at least cover the debt seems likely in most cases. But some private credit will certainly take a hit from software names that are struggling that no one wants to touch in the age of AI.

5. The entire software ecosystem: All this means fewer exits for software, which then means less fundraising. Bad for everyone

Final Thoughts

Exits are going to decrease significantly (at least ones where equity holders have much value) as we go through this cycle.

If you have debt, the key takeaways are: 1) cut costs (increase EBITDA) and 2) start the refi/extension conversations early.

And whether you have debt or not, your chances of a decent exit are 100x greater if you show strong EBITDA margins than you have today.

Footnotes:

• Check out this billing and collection AI agent. If you want to cut costs (everyone needs to) and collect more cash, then you should have an AI agent in accounts receivable. Paraglide is today’s sponsor.

• Reply to this email if you want to sponsor OnlyCFO. I will make your wildest marketing dreams come true.

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Interesting Things I Read:

Private Credit Redemption

Redemption requests (investors asking to get their money out) have reached historic highs. There is typically a 5% quarterly redemption cap to ensure new investor money can meet the demand. But redemption requests are now surging above these caps and the replacement investor capital is collapsing…

• Blue Owl: Redeemed 15% of NAV

• BlackRock: Gated redemptions and held the 5% cap

• BlackStone: Execs injected $400M into the fund for 7% redemption requests

The private credit concerns seem a bit overblown, but it is impacting private credit and its availability.

Where Are 2026 Budgets Going??

Yes, IT budgets haven’t shrunk but it’s being reallocated to AI…

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The ARR → Cash Bridge

You are missing out on critical information if you are not bridging ARR to cash based on actuals. Every finance team should be doing it. Many are not…

Few things make a CFO (or CEO with their board) lose credibility quicker than not being able to truly explain the movements between:

1. ARR (or revenue run rate)

2. GAAP revenue

3. Cash collected

A couple of months ago I asked a CEO why their GAAP revenue as a % of ARR had decreased so much over the past 2 years. It was pretty gradual so I don’t think they noticed. It was a 3 percentage point drop, which was $1.5M in revenue that disappeared….What caused it? They dug in and created a bridge and realized they were gradually giving away a lot more free months at the beginning of the contracts. These free months weren’t counted against ARR but must count against revenue.

A few reasons to create an ARR → Cash Bridge:

• Discover leaky ARR that doesn’t turn into cash

• Help fine tune forecasting assumptions

• Understand if any policy changes need to be made (too many credits, bad debt, free months, etc)

• If you want to get acquired, diligence will be MUCH easier if you have this ready. Conversely, if you are acquiring a company then make sure to get this.

• Helps significantly with your financial audit

The goal of this bridge is to see how ARR turns into cash. I break the analysis into two separate models:

1. ARR → GAAP Revenue

2. GAAP Revenue → Cash

The first one is usually more art than science. It’s OK if it doesn’t reconcile exactly because you are usually using high-level assumptions.

GAAP revenue to cash is more of a data exercise where you should be able to get pretty exact. My accounting team always puts this together for our auditors and it makes the audit so much easier. And it also significantly helps my FP&A team with their forecasting.

1. ARR → Revenue

Your FP&A team should be factoring all of these things into their forecasts, but not enough companies actually calculate it retrospectively:

• The adjustment section (highlighted in red) is the hard/important part

• Breaking out the adjustment detail helps find process/policy issues

• Updating this analysis regularly highlights changes that might get hidden in FP&A’s forecast vs actual review

• Makes the CFO’s job explaining the movement a lot easier (builds confidence)

Because of the seasonality of ARR (when new ARR gets booked) and that ARR is usually defined as the most generous topline number, GAAP revenue is almost always lower than ARR.

2. Revenue to Cash Bridge

Below is a high-level summary of a Cash Proof (revenue to cash bridge). I will explain each of the components further below.

• Calculated Billings: The first two adjustments of the Cash Proof are “calculated billings”. It’s a common software metric for public companies so investors can estimate how much was billed to customers in the period based on the information they have. Private companies should also track this metric because it’s a good sanity check on your actual billing data. I prefer to just report calculated billings at private companies if they are close.

  

  • Deferred Revenue: When you bill your customer upfront it gets added to deferred revenue. If deferred revenue is increasing, then you are billing faster than you are recognizing revenue. Which means more cash to collect.

  • Contract Assets: This is where the company has the right to invoice (revenue has been recognized), but they haven’t invoiced yet. This is subtracted because it’s the opposite of deferred revenue….revenue is recognized but we haven’t billed for it so we can’t collect cash yet.

• Accounts Receivable (AR): Next you have to subtract the change in AR. Just because you billed it doesn’t mean you collected it. So by subtracting the change in AR you are reducing the amount you added for billing above by how much of that increased billing wasn’t collected.

• Other Adjustments: This is where you find the surprises and where you want to pay attention. The biggest one is typically bad debt expense. Bad debt means you recognized the revenue, billed it, and it’s not in AR…but you didn’t collect any cash because it was written off from AR to bad debt expense.

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Here are a few other common things to watch out for when building this bridge:

• Sales Tax: You need to remove sales tax collected from your total billings number and your customer collections per the bank. It’s not your money…

• Gross vs. net presentation mismatches: An example of this is when a payment processor like Stripe nets fees before remitting. Your bank shows net cash but your revenue was gross.

• Foreign currency translation adjustments: When multi-currency lines are converted at different rates than what was booked you will have a difference if there are material changes.

Bridges Create Understanding

Your team should be building these two bridges. If they are not, start today.

• Revenue → Cash Bridge: Accounting team owns

• ARR → Revenue Bridge: FP&A owns, but needs help from accounting

Once you put it together, it is pretty easy to maintain. It’s important to understand all the leaky bucket items that prevent ARR from dropping to cash collected. I promise you will build more trust with all stakeholders if you do…

3 Things From The Week…

YoY change in tech employment is down A LOT. We had a big hiring pull-forward, but it has now fallen beyond that and is getting worse.

Chamath told one Twitter user (who was complaining about his losses from Chamath’s SPACs) to post their tax return of capital losses and he will reimburse the losses. So is anyone who invested in them getting free money? ha

In the second image below you can see how 8 of Chamath’s SPACs have performed. There are plenty of people who lost money…

Chamath also told another Twitter user to thank him for generating capital losses that he can use to offset future capital gains 🤣

Anthropic put out data around what they believe is the theoretical capability vs observed exposure of AI by occupation. There are more AI use cases finance teams (and everyone else) should be implementing!

Footnotes:

• Want to learn how AI agents can transform the finance department? Make folks like Paraglide teach you.

• Want my 1) revenue to cash and 2) ARR to revenue bridge templates? Shoot me an email at onlycfo@onlycfo.io.

• Want to sponsor this newsletter? Send me an email

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Layoffs Are Coming…

I hate to be a doomer, but tech layoffs are going to be brutal in 2026. Block’s massive 40% layoff announcement last week will trigger LOTS of conversations among execs and their boards. And there is a strong reason for layoffs at most tech companies: 1) inflated headcount relative to the recent massive deceleration in revenue growth and 2) huge efficiencies coming from AI.

To put Block’s 40% layoff number in perspective, below are the largest percentage layoffs by tech companies. Block stands out…

There are two camps of thought regarding Block’s layoffs:

1. This wasn’t really about AI efficiency. Block was extremely bloated and they over-hired during the ZIRP days. Remember that Jack Dorsey built an extremely bloated Twitter and Elon slashed headcount at Twitter by 80%+ when he took over. Don’t take Block’s layoff as a sign of large-scale layoffs because of efficiencies from AI.

2. Block just said the quiet part out loud…Lots of layoffs are coming due to AI. Jack was just early to do it and bold to fully right-size the company with a massive layoff.

#1 makes us white-collar workers feel better because maybe AI isn’t going to take our jobs this year. But just because #1 is partly true, doesn’t mean #2 isn’t also true…

Jack clearly described this layoff as being AI-related in his announcement. And that the business is not in trouble. He even responded to one user who claimed that Block was just bloated by saying that they did indeed over-hire during covid but their gross profit per employee and efficiency is better than most in their industry.

What’s true? What should we take away from the Block layoff?

• Both of the following can be true: 1) Block was bloated AND 2) they had decent financial metrics. AI is just making that bloat even more extreme.

• If Block was bloated and they had better financial metrics than many others….what does that say about other companies’ bloat?

• “AI efficiency” is easy air cover for a layoff. “Our business is strong, but AI means we need fewer people” feels like a much better story than “growth has slowed, so we need fewer people”.

• Tech companies love to copy other tech companies. Large layoffs by a few peers provide acceptance/pressure for many more to consider similar layoffs in 2026.

• Investor/board pressure to do layoffs is going to increase. Block’s stock jumped 25% on the layoff news…

• It doesn’t matter if Block’s layoffs are actually AI-related…It’s kicking off conversations across the tech ecosystem.

How To Do Layoffs

1. How much severance should we pay?

I have a few general beliefs here and then I will get to the specifics:

• Good severance is just as much for those that stay as it is for those that leave. If you pay good severance then you should tell everyone about it. Why? Because you want the people that stay to know that you took good care of their former teammates and that they will be treated really well if there are future layoffs.

• If you want to say that “business is good but AI efficiencies mean we need fewer people” then you have to pay great severance packages. There is a price to pay if you use “AI efficiency” as your layoff excuse (whether true or not).

• Most private company employees don’t care that much about generous equity severance…they care about cash. It’s nice, but don’t overplay it. For public companies, it’s as good as cash so they do care.

Below are some interesting benchmarks of severance packages from recent layoffs:

Caveat to above data: Companies are only telling everyone what the severance packages are if they are good. If they are bad (below average), then most companies are silent on it so it won’t be on my list above. So the above data is going to lean generous. Smaller companies with less cash/runway will need to do less, but unless you will be going out of business soon then I’d generally recommend a minimum of 5 weeks of severance.

Some other severance package things to consider:

• Paying for COBRA for some extended time period is fairly standard. Smaller private companies may do 1-2 months while larger companies may do 4-6 months.

• Some equity stuff:

  • Accelerated vesting for public companies is great because it’s basically cash. Not so much for private companies…

  • For private companies, rather than acceleration of vesting (or in addition to), consider an extended post-termination exercise period.

  • Dropping the 1-year cliff for those impacted is pretty standard these days

• Other common benefits: Laptops can be kept, career services, and immigration support

• Some companies offer severance packages to folks not being laid off (usually must decide in <30 days). The idea is to not keep people who will just “quiet quit” while they look for something else.

2. How much do we cut?

If the layoff is related to financial trouble, then the CFO is backing into a total payroll dollars that need to be cut. If AI-related, then the question turns to “how much do we think we can cut?” and then the model is run to see how much more profitable you will become.

There are usually two options for layoffs:

1. Gradual over time - helps control cutting the wrong people or too much, but terrible for company morale, focus, and trust from customers and shareholders.

2. One big cut now - takes more time to plan to get right and higher risk, but better for those that stay so you can confidently tell them nothing else is planned.

I will choose the one big cut option 100% of the time if it’s possible.

Some questions to consider when sizing the layoff:

• How will projected AI efficiencies impact headcount needs in 6-12 months?

• How many people will voluntarily leave because of this layoff?

• How will sales be impacted? Cut more people and sales forecasts will decline

• What will break if we cut too many? You have to balance informing some leaders to get their feedback and the chance of it leaking.

Who are executive teams looking at to cut?

• Poor performers are first on the list.

• If execs are pushing more in-office work (many are), then remote folks will be in trouble

• Expensive management layers. Everyone is talking about reducing layers. These folks are high on the list when there is financial trouble

• Departments most impacted by AI. Such as support and engineering (definitely not CFOs…right? 😬)

A lot will depend on your circumstances, but I will refer to my favorite quote when doing any house projects: “Measure twice and cut once”. Or in this case, measure 10 times and cut once.

3. Layoff Communications

I am not a corporate messaging expert, but layoff communications must feel authentic and honest. If it sounds like AI or not authentic, then you will lose the trust of the employees that stay. The messaging is critical to helping the business move forward as best as possible.

Below are some recent well written layoff announcements that you can reference:

• The AI Layoff Announcement: Block’s layoff provides the best example of this so far as he squarely blames AI. Some commented on his lack of capitalizing anything in the message, but one thing was clear from his message…it wasn’t written by AI. It felt very much directly from Jack. That matters.

• Below are a few other good layoff templates:

  • Stripe

  • Plaid

  • Airbnb

  • Coinbase

Final Words

Layoffs suck. If you take away nothing else from this post…treat everyone like humans. Be authentic and honest. People will see through it if you don’t.

The tech job market is rough right now and it is going to get much worse before it potentially gets better.

Be generous, if you can, with your severance. It will also help those who stay to get back to full productivity faster.

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Footnotes:

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“Insider” Bullish Signals

If software stocks are cheap because of the recent SaaSocalypse then lots of “insiders” are probably buying, right?

Wrong. But buying isn’t the only potential positive signal from insiders. Simply not selling (or stopping any selling) can also be a positive indicator.

Executive insider buying is actually pretty rare since a significant amount of their net worth is tied to their equity in the company and they are also regularly granted more equity. So executive insiders buying their stock is kind of like tripling down on your own company.

Insiders might sell their shares for any number of reasons but they buy them for only one: they think the price will rise. — Peter Lynch

I think Peter missed one other important reason why insiders might buy their own shares though: Display confidence in their company.

Below are all the executive insiders that have purchased their own stock (out of the 75 software companies that I track):

*ServiceNow CEO announced he is buying $3M of shares, but it hasn’t been disclosed via Form 4 yet.

Here are a few thoughts on these insider buys:

1. Asana CEO made billions of dollars from Facebook (Meta). He has been selling Meta (a stock price that has been soaring over the past few years) to buy Asana (a stock down 80%+ over the same period). He is one of the most aggressive corporate insider buyers in history (buying $1B+ of Asana stock)….and it has cost him billions of dollars.

2. Most of this list (like almost all of SaaS) have also seen their stock prices continue to fall after these purchases. Insider buys don’t always equate to better stock performance.

3. The vast majority of executives are not buying their stock (and actually are selling) and that’s OK. It’s not necessarily a bearish signal.

4. Very small purchases usually just feel performative (faking confidence).

Insider Stock Reporting

“Insiders” must disclose their equity activity (buys, sells, grants, exercises, etc). Below are considered “insiders”:

• Officers (CEO, CFO, COO, etc.)

• Board members

• 10%+ beneficial owners

Insider activity must be reported on Form 4, which must be filed within 2 business days.

Below are some recent examples of insider activity, the rules, and what it may imply about the insider’s thoughts on the company.

Figma Director Buys $36.5M Shares. Stock Soars

Andrew Reed is a board member of Figma so he is required to disclose all direct and indirect Figma stock activity. Indirect activity would be purchases/sales through his VC firm, Sequoia.

Between February 20th and 23rd, Andrew bought $36.5M stock (through Sequoia). These purchases were reported on Form 4 on February 24th (2 business days later). This was by far Figma’s largest insider purchase. The stock jumped 11% the next day…

10b5-1 Plans: Marc Benioff Sells $1M+ of Stock Every Week

Many retail investors see executive stock sales and think, “Look, even executives are selling after that terrible earnings report”. But often those stock sales are part of scheduled selling from a trading plan set up over a year ago…

A 10b5‑1 plan allows company insiders (executives and directors) to pre-arrange the sale or purchase of their company’s stock on a set schedule. It is commonly used by insiders because it provides them defense against insider trading. For executive insiders, the mandatory waiting period before any trades can execute is the longer of 90 days or the end of the next fiscal quarter (capped at 120 days). For directors who are not officers, the waiting period is 30 days.

While exact details of the 10b5-1 plan aren’t disclosed, companies must file an 8-K when insiders adopt, modify, or terminate a 10b5-1 plan.

Benioff (Salesforce CEO) has been consistently selling stock for $1M+ per week for the past decade…

ServiceNow Execs Terminate 10b5-1 Plans

Insider purchases aren’t the only potential bullish signal. Executives canceling future selling under their 10b5-1 plan can be just as meaningful. Terminations must also be disclosed via an 8-K.

For most executives, a significant amount of their net worth is in their stock. Selling under a trading plan is not necessarily a bearish signal. It’s often just executives diversifying and getting some liquidity.

Canceling future selling may be a positive signal though…Why is terminating a selling plan potentially bullish? Because the executive is giving up guaranteed, pre-scheduled liquidity. It’s not easy (or quick) to then resume selling under a 10b5-1 plan because of the cooling-off period and the optics.

On February 17th executives at ServiceNow (CEO, CFO, CPO, AI Officer) all disclosed the cancellation of future selling under their 10b5-1 plans. McDermott (CEO) also announced that he would be buying $3M of stock on February 27th (today).

Why didn’t McDermott buy shares earlier? The stock has fallen a lot in the past several months. Why wait until today?

Because of the “short-swing profit liability” SEC rule.

Because of this rule, companies prohibit executive insiders from taking opposite positions in their company’s stock within a six-month period. i.e. they can’t buy and then sell, or sell and then buy within six months.

McDermott’s last sale was on August 28th (exactly 6 months ago) so February 27th is the earliest he could buy without tripping the rule.

Being forced to wait 6 months from his last sale may work out nicely in his favor though because ServiceNow is down a lot in the past 6 months…

So if executives have a 10b5-1 plan and are regularly selling (many do) then it can take 6+ months for them to actually start buying shares in their company from when they think their stock is cheap and want to buy.

What About Private Company Insiders?

Private company insider buying is even rarer than in public companies. Since there hasn’t been a major liquidity event, most insiders don’t have the cash to do it even if they wanted.

Selling is also less frequent since there’s no active secondary market. In general, the later the company stage, the more comfortable I am with insider selling. Early-stage founder selling at companies with little traction seems like a red flag though, especially when the dollar amounts are large. A few million dollars (<10% stake) for an early-stage founder feels reasonable…gives founders some liquidity so they can focus on building a huge company rather than focusing on more short-term liquidity.

One of the worst examples: the founder of Hopin sold 17% of his stake for $135M+ just two years after launching. Hopin was essentially worthless a few years later…

Final Thoughts

It is important for both employees and investors to understand these rules because it may change what you infer about “insider” intent.

Stronger signals:

• Executive buying stock in the open market (especially relatively large)

• Executives terminating their 10b5-1 plans, as happened at ServiceNow.

Weaker or noise signals:

• Routine sales under a 10b5-1 plan. These were decided at least several months ago for liquidity and say nothing about current sentiment.

• Very small open-market buys. These are often performative to signal confidence.

Private Companies:

• Large secondary sales at early stage companies can be a negative signal

Footnotes:

• Check out this International Hiring Guide. Everything you need to know when building out an international team from my friends at Deel.

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Bonus Content:

Looking at all other insider buys (Directors and 10%+ owners), they also haven’t been buying much over the last 2 years….Only a few software companies on the list and most are relatively small buys. The bigger buys are because the Directors are buying for their investment firm.

*Disclaimer: This article is for informational purposes only and does not constitute investment, legal, or financial advice.

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The Year is 2028…

The year is 2028. AI has taken over 90% of white-collar jobs and there is mass unemployment among tech workers whose skills are no longer valuable in the Age of AGI. Technology stocks have crashed 90%+ as AI disruption hits hard and companies have zero pricing power. White-collar workers’ net worths are decimated, and they are desperately searching for employment.

You wake up. The year is 2026. You still have a job that pays very well. Your investment portfolio is beaten up a little but still only 10% off the highs. However, you have wasted 6 hours of your day doom scrolling instead of doing something productive.

The Anxious Workforce

The constant threat of the “end of white-collar jobs” and the incredible pace of AI has created the most anxious workforce in history.

There are three deep fears that everyone in tech is facing:

1. Loss of relevance – “Will my skills I have worked so hard to develop matter?”

2. Loss of income – “Will my high income potential shrink?”

3. Loss of identity – “Is my profession vanishing? If so, then who am I?”

I can only imagine the anxiety and fear felt during times like The Great Depression in the 1930s. There was massive unemployment, the stock market tanked, and there was uncertainty about the future (it lasted ~10 years). As bad as that period was, there was something very different with today’s workforce. Social media.

We have all done it. You can’t read an article title that says, “Your job is going to disappear in 12 months” and not be pulled into reading it.

• Is the industry I built my career around dead?

• Will AI replace all white-collar jobs?

• Is my company going to have layoffs?

• Do I need to learn every new AI thing that comes out?

• What do I need to do to keep my job?

Everyone I talk with in tech has some elevated anxiety. It would be weird if you didn’t…But it is consuming some people much more than others. The social media loop of constant doom scrolling and distractions. There is a new article every day predicting the collapse of society, some AI announcement that may destroy a certain industry, or some AI influencer feeding everyone’s fears for attention.

AI is extremely disruptive and social media is the drug fueling everyone’s anxiety.

AI Anxiety Isn’t Helpful

I am not smart enough to know how all this will play out. Maybe 90% of white-collar jobs will be wiped out in a couple of years….or maybe the economy will adapt and everything will be just fine.

But here are a few things I am thinking about:

Anxiety is killing productivity

Anxiety is like a rocking chair. It gives you something to do, but it doesn’t get you very far. — Jodi Picoult

Doom scrolling and worrying about AI taking over your job is not helpful. This AI anxiety is magnifying the difference between great employees and everyone else. The anxiety is crippling many employees and is a massive distraction from work.

I want to hire people who are excited

It shouldn’t come as a surprise, but I want to hire the folks that can stay excited and focused. And get rid of the people who are not….

This is hard to interview for, but you need to try because it makes a massive difference in employee productivity. Not only are they better at finding AI use cases to already be much more efficient, but simply not letting anxiety overwhelm them will make them much more productive.

Hire people who are excited about AI and adapting to the new environment.

Learning everything about AI won’t save your job

AI won’t take your job, but someone using AI might.

I hate how popular this quote has gotten, but it is true to a degree. If you are an engineer that refuses to use AI, then want you gone immediately.

But 95%+ of the AI content out there won’t help you. Focus on the <5% that might help you with your job:

• How AI applies to your specific job

• How to use it to increase your output

• How to reduce your dependency on manual work

Don’t let the constant AI stuff distract you from doing good work.

AI will just elevate people to do more valuable work

This is corporate messaging to just make people feel better. They don’t want to say “AI is coming for your jobs”.

Let’s be a bit more honest. Maybe AI is coming for some people’s jobs but you hope that if they learn how to leverage AI then there may still be a role for them at the company.

The productivity arbitrage window

AI tools are powerful. But they’re still underutilized inside most organizations. There is a short productivity arbitrage window companies have to leverage AI and beat the competition (or at least not get beat by them).

Don’t let a good crisis go to waste. Use it to rally the troops and get them excited about the mission and possibilities. You will be out of a job faster if your company loses…might as well do everything you can do to win the AI battle.

Build an emergency fund

On the personal advice side….build a larger emergency fund. It’s much easier to stay positive (and not doom scroll too much) when you have some savings to help you weather a storm. I’d recommend at least 6 months of runway. It’s taking folks a lot longer to find a new job today…

I am hopeful that society won’t collapse, but there will probably be a transition period where you may need an emergency fund as a bridge. Save more money while you can.

Build Your Network…Now

I have not hired anyone in the past 12 months that didn’t somehow come from my network. I have always used my network to hire (or to find new jobs), but when the job market is tougher your network matters 100x more.

It’s difficult to overstate how much harder it will be for you to find another job in this market without a strong network.

What Leaders Can Do

You can’t force someone to work hard. Regardless of how much you pay them or how much you micromanage them. Anxiety and uncertainty are a perfect recipe for unproductive employees.

If you are at a zombiecorn that is being disrupted by AI and leadership isn’t steering the ship in the right direction, do you think you are going to work hard? Nope…you are building your network, worrying about losing your job, etc.

Leaders must build confidence. If they can’t, then you need new leaders. You will get a death spiral of weak productivity if you don’t…

Pessimism spreads like a weed. Pull out the weeds (fire the pessimists who don’t believe in the company) before your garden is overtaken by weeds.

Footnotes:

• Download this payroll compliance guide from Deel. Forward to your payroll team to make sure you are compliant.

• Want to Sponsor? I am opening up the rest of the year now so email me at onlycfo@onlycfo.io to secure a spot.

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Distribution > Product

Founders embark on a journey to change the world with their amazing new software/AI tool only to realize that their job is actually to build a distribution engine.

The best product doesn’t always win. Yes, the product needs to be good, but a great product is table stakes in 2026. It’s all about distribution.

Where Distribution May Live on the P&L

There are four places on a P&L where companies can spend their money. Three of them (not G&A) are areas where distribution spend may actually live. Distribution doesn’t just live in sales & marketing anymore…

There isn’t one right answer, but companies have to find their distribution/product fit - where distribution spend is most valuable for their product. You can’t do all of them. Well, you can try but unit economics will be broken and you will run out of cash real quick.

1. COGS: Inference as Distribution

COGS is the new CAC for many AI companies.

Inference costs are so high for many AI products that they eat a significant amount of gross margins. Companies like Cursor, Lovable, Replit, etc are treating inference costs as the new marketing budget.

The long-standing advice has been that lower gross margins means a smaller revenue multiple. Why? Because gross margins represent the “ceiling on profitability”. If your ceiling is lower, it will be harder to create a cash cow at scale.

This is true if nothing else changes, but what if S&M decreases by the same amount that COGS increases? In other words, what if your inference costs are your distribution? Companies like Cursor have zero S&M team and very little spend.

Where companies get in trouble is spending high in both places (high inference + high S&M). Your unit economics won’t work if both are high. You must choose your distribution. High S&M costs only work if gross margins are 75%+.

2. R&D: The Product Flywheel

Some companies focus on using R&D as a distribution engine through creating a product that “sells itself”. R&D has to build a flywheel into the product to enable self-serve and bottoms-up adoptions.

Atlassian is a classic PLG company. It spends 2.3x more on R&D than S&M (52% on R&D and just 23% on S&M).

Many PLG companies don’t manage total distribution spend very well though. They end up spending more across the sum of R&D and S&M than their SLG (sales-led growth) friends. The “more efficient” PLG selling motion is not real….they just sneak distribution expenses into R&D.

CFOs (with their CMO) need to watch the total spend and not just focus on S&M since distribution spend can show up in other places.

3. S&M: The Traditional GTM Model

A lot of companies are keeping distribution in the traditional place (S&M), but there are certainly shifts in where budget dollars are being spent in 2026.

A lot of marketing experiments are happening to capture eyeballs in 2026 and I think a lot of it has pretty bad ROI…CFOs need to pay close attention and force CMO to somehow measure distribution success.

Distribution > Product Benchmarks

Below are the top 10 fastest growing public software companies. On average, they spend 1.6x more on S&M than they do R&D.

And you thought you were building a company to make cool tech?

Most exec team time and board discussions are about distribution. Product is <20% of our time.

While none of these public companies are really using COGS as distribution (that’s a new AI startup thing), many of them have a PLG (or hybrid) selling motion so a portion of their R&D spend effectively functions as distribution. This means that even more than 1.6x is actually being spent on distribution than innovation.

Acquisition Costs Are Rising

Look back at the “remaining companies” line from the above chart. This is the average of all public software companies not including the top 10 fastest growing companies. This group is only growing 11%, but has basically the same spend ratios. They are spending the same amount to get 40% of the revenue growth…significantly less efficient.

S&M spend can be sticky even as revenue growth falls.

CAC payback periods are near the highest level they have ever been with a 20-month median payback period.

CAC payback period: (LTM S&M) / (LTM Net New ARR x Gross Margin) x 12

These rising CAC payback periods are adding fuel to the fire for lower software multiples. Software has an increasingly uncertain future so investors are discounting future free cash flow more. If it now takes 20 months just to payback acquisition costs (versus 11 months a few years ago) then those future cash flows are being punished.

CFOs must focus on reducing CAC payback periods in 2026. It should be one of the top goals.

NRR is Falling

One of the main culprits behind rising acquisition costs is the drop in NRR. While a bottom may be forming, NRR has decreased a lot over the same time period. Expansion revenue is usually ~1/3 of the cost of new customer revenue. So companies lost 10% of revenue growth (the drop in NRR) from a significantly cheaper revenue source. That hurts GTM efficiency.

Final Thoughts

The cost of building a product might be falling because of AI, but the cost of distribution is rising because attention is harder to get.

The role of the CMO (in partnership with the CFO) has never been more important because getting distribution right has never been more critical.

Pro Tip for 2026: Lower your CAC payback period today. Whatever it is now, it needs to be lower.

Footnotes:

• Download this EOR guide from Deel. It’s a great guide that every company looking to expand internationally should read.

• Want to Sponsor? I am opening up the rest of the year now so email me at onlycfo@onlycfo.io to secure a spot.

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The SBC Trojan Horse

Stock-based compensation (SBC) is a sneaky destroyer of shareholder returns and it is going to punch a lot of tech companies in the face as growth slows.

We see this destruction show up in shareholder dilution. Tech companies have typically had high relative dilution. Investors accepted that high dilution though because of the promise of exponential valuation growth. But those expectations and the math have changed in 2026…

How do you increase company valuation?

While valuations can be volatile (as we are seeing today in the SaaS market), long-term valuations are determined by a company’s ability to improve free cash flow per share. In the short term, they are volatile as investors digest how events (disruption from AI) may impact long-term FCF/share potential.

There are two primary ways to improve FCF/share.

1. Increase FCF

   1. Grow revenue

   2. Cut costs

2. Reduce dilution (fewer shares in the denominator)

Today’s post is focused on the harsh reality of dilution that many software companies are facing in 2026.

What is the right level of dilution?

Many people default to “What is the standard dilution for our company size or industry?” Below is a great breakdown of high dilution (red), average dilution (white), and good dilution (green) segmented by company type. It’s really interesting to see how different dilution rates can be across these segments.

Notice I don’t say “bad”, “good”, or “best” dilution…more on this below.

The above data is an interesting starting point, but it doesn’t answer the question of how much dilution is acceptable. Like all benchmarking…context is important.

All else being equal, we obviously want lower dilution. But investors accept higher dilution if it creates an even more valuable company. Remember, valuations increase when FCF per share increases. If we are increasing the “share” by adding dilution, then we must justify it with an even higher company lifetime FCF creation.

Thomas Reiner’s chart below is the clearest illustration I have seen to show this point.

Snap (social media app) would have to grow FCF/share by ~42% over 5 years to simply offset their massive shareholder dilution. And software companies would have to grow FCF/share by 13% to offset their average 2.4% dilution.

This is why high-growth companies can justify high dilution rates. They are compensating employees and getting the top talent needed to grow the company’s valuation even faster (hopefully much faster).

As revenue growth falls, companies are slow to adjust dilution rates. The acceptable dilution rate while you are growing 75%+ is going to look very different than when you are only growing <25%. Everyone talks about improving FCF margins when revenue growth slows (Rule of 40 Score), but dilution is rarely discussed (especially private companies).

How to Fix Your Dilution Problem

While every company’s dream is to fix the dilution problem through even higher revenue growth, that is much harder for most companies today. So it needs to come from the other two options: 1) cutting costs to improve FCF and/or 2) less dilution.

Unfortunately, both of these are probably going to be solved by the same thing: Layoffs.

Layoffs hit two birds with one stone: 1) FCF is higher because you cut payroll costs and 2) dilution is lower because there is less employee stock-based comp.

If you look at the headcount of some of these software companies, you can quickly see the potential impact layoffs could have. In an AI world, many of these companies could probably operate at close to 50% of current headcount levels…

Ideally, companies just freeze hiring and then revenue growth will work its way through so layoffs aren’t necessary. But if revenue growth is slow and AI can make things much more efficient, then companies can’t afford to wait.

Here is what exec teams are actively discussing in 2026 to fix their dilution problem:

1. Hiring freeze - no new hires and all backfills must be justified

2. Offshoring - cost of offshoring by country

   1. Most folks think about the lower cash comp when offshoring, but equity expectations are typically much lower in other countries, so dilution decreases even more relative to cash comp.

3. Layoffs

4. Reduce equity grants - below are a few things folks are doing:

   1. I am seeing a lot of companies move from 75th percentile to 50th (or below) for equity grants

   2. Reduce/eliminate annual performance grants (Zoom recently did this)

   3. Hire less senior folks. Cash comp may go up ~5x from entry level to executive, but equity comp increases 1,000x+

Final Thoughts

Stock-based comp (and the dilution from it) is a necessary tool to build the right team in order to expand the value of the company. If you manage it poorly, then you will lose more company value than you gain from lower dilution. Be careful…

Many of you have experienced a sudden change in revenue growth rates. Don’t just focus on your Rule of 40 Score and manage FCF. You must think about how you will adjust dilution as well.

Footnotes:

• Great read: Payroll Strategy Toolkit. My friends (and today’s sponsor :) at Deel wrote the playbook for how payroll should work in 2026.

• Want to Sponsor? I am opening up the rest of the year now so email me at onlycfo@onlycfo.io to have your wildest marketing dreams come true.

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Bonus Content: Explaining Dilution To Your Grandma

Who Stole My Pizza?

Think of a company’s valuation as a pizza cut into 8 slices.

• Founders: 2 slices

• VCs: 5 slices

• Employees: 1 slice

Now you hire a big executive and grant them equity equal to 1 slice of pizza. If the pizza stays the same size, everyone’s slice gets slightly smaller. You can’t magically create a ninth slice without shrinking everyone else’s.

That’s dilution’s ugly impact.

I do this all the time to my kids when their friends come over. “Sorry, but you have to share pizza with all your friends”. Everyone gets less pizza.

But companies are not “giving away” pizza. It’s compensation to help bake a bigger pizza (hopefully a lot bigger). So even if we cut more slices, the entire pizza is bigger. Even though your slice is smaller, you still get more pizza.

The bigger the slice you give employees, the higher the expectation that they’ll bake a much bigger pizza.

*May all your employees bake you lots of pizza

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KPMG Inadvertently Tells Audit Clients They Are Being Overcharged

Oh, the irony….KPMG reportedly negotiated lower fees from their auditor, Grant Thornton, by arguing that AI should be making them more efficient. I am imagining it went something like, “If you are more efficient because of AI, then you need to pass on some cost savings to us!”

KPMG reportedly threatened to change auditors if they didn’t reduce their fees. And it looks like KPMG’s tactics worked. Fees paid for KPMG’s 2025 audit decreased by 14% from the prior year ($416K to $357K).

But their hard negotiations may backfire in a major way. KPMG just gave every single audit client the playbook for re-negotiating audit fees in 2026.

I started my career working in audit at the Big 4 firm in the Bay Area. And now I am on the other side (at companies being audited by Big 4). So I am familiar with how they price, their economics, how inefficient they can be, and how disruptive AI can be to their current business model.

Are the Big 4 accounting firms dead?

Nope. Big 4 firms have one of the strongest moats possible in an AI world. But their economics will definitely change as a result of AI.

Matt Levine explained the irony of KPMG’s negotiations nicely:

“Ehh auditing can basically be done by AI so why should we pay for it” is not a crazy thing for most companies to think, or to say to their auditors, but it is a crazy thing for an auditing firm to say to its auditor.

So did KPMG admit that their business model is being disrupted?

Of course audit firms know that AI is disruptive. All of them are working internally to adopt it. But like all professional service industries, no one wants to cannibalize their revenue by passing on cost savings from AI. Until they have to.

The professional services industry is a market that is ripe for disruption by AI agents. Accounting firms are no exception. I thought the below comparison was interesting.

The accounting firm market is huge…Massive AI-native companies are being built by attacking the accounting firm markets.

Even if we didn’t have AI, I think most of these firms could have 20%+ less headcount and get the same job done. And if they fully implemented the AI that we already have today? Significantly smaller headcounts…

Accounting firms generate ~50% of their revenue from audit and tax, which are both easy targets for AI. The business breakout below is from 2023 (similar breakouts today as well).

With current AI tools and processes, I could easily see 60%+ of audit work being automated that is currently done by humans. Why do I think that? Well, 60% of the work is done by Associates and Senior Associates (0-4 years of experience) and the work they do could easily be done by a monkey…

Having worked on both sides of financial audits for many years, I can tell you one thing — the inefficiency of some audits is incredibly painful to watch. AI should be able to do soooo much.

But just because audit firms can be inefficient and may charge too much, doesn’t mean their clients are going anywhere…Big 4 audit firms have a beautiful moat. A trusted brand.

Big 4 Pricing Power:

The Big 4 firms have a trust monopoly. So if you want to go public, then there is a lot of pressure to choose them (and most do). A new AI-first audit firm isn’t going to topple the Big 4.

No one got fired for buying IBM” (or Big 4 in this case).

But there is a big difference between a 2nd tier audit firm and the auditors that FTX chose…FTX’s auditor prided themselves on being the first audit firm to open a HQ in the metaverse lol. How auditors miss billions of dollars in an audit is beyond me…

While Big 4 firms have a strong trust moat, I do expect to start seeing interesting competition amongst the top 10 firms. A couple of these firms will adopt AI in a big way and significantly cut fees while also performing better audits. I think we could see some shuffle in the biggest firms…

The big question is how much of their cost savings will be passed on to clients. They are all investing a lot in their AI systems and that took upfront investments.

Should you pressure your auditors on fees?

Of course you should. Especially if KPMG is your auditor 🤣. Just send them the article and say “You guys bring up an excellent point. Will you also be passing on your cost savings from AI as well?”

But seriously…talk to them about their fees. Audit firms (and most professional services firms) are slow to change how they price. They live off increasingly higher billable hours and higher fees. But the IPO market is slow, their consulting/advisory practice is hurting, competition for audit clients is high, and AI should be making them more efficient.

If you are stuck with high fees from a Big 4 auditor and you have no IPO in sight (at least in the near term), then threaten to switch to a tier 2nd firm. Get some bids to negotiate.

Audit Fee Benchmarking

Public company audit fee benchmarking is easy because it’s a required disclosure. Benchmarking for private companies is obviously harder, but I talk to a lot of CFOs and audit folks so I have some general benchmarks.

There is a lot that goes into audit pricing, but I am simplifying it and making some general guesses based on what I know about these companies.

Expensify - public company with $140M 2024 revenue

It’s actually insane that a $140M revenue company that is as simple as Expensify is paying $3M in audit fees. If they were private, I would guess that Expensify would be paying ~$250-300K for a Big 4 audit. I can’t understand what their auditors are spending $3M of billable hours on…

Domo - public company with $317M 2025 revenue

Domo, also a small public company, is paying $0.8M less than Expensify at 2.6x the revenue scale (and I think a little bit more complex than Expensify). Seems like a really high variance in pricing…

When you get bids from different firms you will often see a pretty large variance in their pricing as well.

Zscaler - public company at a $3B revenue run rate

Zscaler is significantly more complex than both companies above and pays $4M. Obviously, audits don’t scale linearly with revenue scale.

Private Companies

Back in the good old days, Big 4 auditors could actually be cheaper than tier 2/3 firms for early-stage companies if they were hot companies that they thought had a strong chance of eventually IPO’ing. They would set the price low for several years and then slowly raise the prices to market and then get the REALLY big audit fees that went with an IPO and being public.

Most don’t do that today. Too few IPOs and too much money was likely lost on audit clients that never really went anywhere.

For a Big 4 audit, the starting price seems like it’s $100K+ even for small, simple companies. While midsize software companies in the $150M - $250M revenue range, will be $250K - $500K+ depending on complexities.

2nd/3rd tier firms are often be ~15%+ cheaper than Big 4.

Always get a few bids and include a couple non-Big 4 firms.

Startup Audits

• If you are <$25M of ARR then audits are almost always a glorious waste of money and time. Just send your board the bank statements.

• When you raise VC money the agreements often state you must do an audit by a certain date. You can/should ask to push that out. Then if revenue growth ends up being slower than expected, you should ask your board to delay the audit requirement.

• You do NOT need to be audited by Big 4. It’s often not the right choice. They are more expensive and usually take more time/resources. If things really work out and it looks like you are ~3 years from an IPO then you can switch to the Big 4 if you want.

Footnotes:

• Want to know the cost of offshoring? Check out this International Payroll Guide that breaks down all the costs you should be considering.

• Maybe all of the above won’t even matter if what Microsoft’s AI CEO recently said is right :)

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*Nothing above is legal, tax, investment or any other kind of advice. Educational only.