CFO Rebeca Sanchez Sarmiento left behind her equity research roots in New York for Los Angeles nearly a decade ago. She has held various corporate strategy and finance roles for private-equity-owned companies since then, landing her first CFO gig at ATTOM Data Solutions in January 2018.
Sanchez Sarmiento is coming up on one year as the first CFO of R&D scientific software company Dotmatics. Dotmatics is a portfolio company of Insight Partners, which has invested over $100 million, the last funding round occurring in the first half of 2021. Through a series of M&A deals, Dotmatics is tying together mission-critical R&D applications with a unified end-to-end integrated data platform to enable collaboration, workflow automation, and analysis across biology, chemistry, formulations, and new treatment methods. It’s technology “built by scientists, for scientists,” said Sanchez Sarmiento.
The University of Chicago MBA has the task of upgrading the accounting, financial reporting, and governance commensurate with standards needed for a publicly held company. She’s also hiring for an FP&A team to add to the roughly 35 members in finance and accounting spread throughout the United States, the United Kingdom, and New Zealand — a 24/7 “almost entirely working from home organization,” Sarmiento said.
In late June, I spoke to Sanchez Sarmiento about the company’s financial goals, the finance department buildout, and her role in M&A due diligence.
This interview has been edited for brevity and clarity.
Rebeca Sanchez Sarmiento: Creating this end-to-end vertical platform introduced a new set of challenges. It has enabled us to start thinking about the next iterations of the organization from a finance perspective. I don’t think public company possibilities were necessarily in the near future. Changes to the business model and the economics have allowed us to start thinking about that.
I’ve focused on my own team’s transformation over the last six to nine months. I have been investing in the team, introducing more technical expertise and subject matter domain within finance and accounting, and doing a lot of work around systems integration. And making sure we have the proper governance and processes and procedures [for being a public company].
Sanchez Sarmiento: We have grown significantly through acquisitions since 2017, but 5 of the 10 acquisitions happened last year. When I started last September, we had six accounting systems. We’re ultimately integrating all those systems and creating the framework for our future-state reporting needs. We’re moving it all to one NetSuite application.
Then the goal is to layer on additional tools and technologies within that solution-set that will speed our [monthly close] and introduce [improved] workflows among a globally distributed team. In addition, [it will] enhance segregation of duties and checks and balances among the management team and the supporting staff.
We have gone through the process of reconfiguring how we want data to flow and what the data needs to look like. We’ve also reviewed our accounting policies to ensure standardization and harmonization across all the acquired business units. It has been a lot of configuration, requirements building, and future-state design.
The rest is scaling the organization to ensure that we don’t just meet today’s needs but eventually continue the M&A ambitions. We want to create processes and structure to bring new acquisitions on board in a more seamless way.
Sanchez Sarmiento: Intellectual curiosity is pretty material for me. Persistence, because you have to start very big and continue peeling the layers of the onion to arrive at the root cause. And more and more technological capabilities are needed — maybe even having some programming background to leverage data and datasets and manipulate them quickly and efficiently. The fourth one is certainly communication skills. They need to be able to collaborate, to work across the organization — ask clear, concise questions, and then turn around and translate the findings in [layman’s terms].
Sanchez Sarmiento: Our objective is to continue doing what we’ve been doing successfully, which is growing at roughly 30% annually on a pro forma organic basis, and continue to ensure that we are resolute in generating cash flow. … We’re currently operating at greater than 120% net retention [the percentage of recurring revenue retained from existing customers over a specific period]. That means we’re delivering to our customers, retaining them, and cross-selling and expanding [their business with us.]
We continue to be a “rule of 70” SaaS company, which means 30% growth and the balance of that [40%] is coming from free cash flow generation.
My team and I are very focused on deriving what we think are the forward-looking prospects of these acquisitions to ensure long-term value creation and the targeted return on investment, as well as stress-testing the assumptions.
We’re very fortunate that we did two early funding rounds in the early stages and can fund our growth internally. Particularly in this [economic] environment of rising interest rates and capital becoming more expensive, that is very important. We are constantly ensuring that we operate efficiently, so we can invest in R&D and scale effectively, and with the balance invest in future M&A.
Sanchez Sarmiento: We have a dedicated team that scouts M&A prospects. Today, we’re looking at more than 1,200 applications in the R&D software space and trying to reach out to at least 30 or so monthly to keep that pipeline warm. And our CEO Thomas Swalla is predominantly focused on M&A and helping drive those prospects [toward a deal]. I see my role as a bit of a check and balance. I am here partly to ensure we use our available capital efficiently and effectively.
I will often debate and press on what valuations we apply to those acquisitions. And certainly, my team and I are very focused on deriving what we think are the forward-looking prospects of these acquisitions to ensure long-term value creation and the targeted return on investment, as well as stress-testing the assumptions.
The other side of M&A is integration. We are very focused on data integration as opposed to technology integration, which is a key differentiator that allows us greater success in M&A. When they merge, most software companies have to re-engineer the technology itself. We create a data layer that ties together the workflow process of the scientist. That’s where our value creation comes from, ensuring that the data fabric supports all these applications and is very connected with scientific research. That allows us to move quickly and create a better end-user experience.
Our M&A playbook [is not about] cost synergies. Instead, we’re acquiring intellectual capabilities and the technology that supports them. So, we treasure the R&D we acquire and try to find every way possible to continue investing in it.
Disclaimer: Oracle NetSuite is a sponsor of CFO but had no input on the contents of this interview.