Financial Management for Technology Start-Ups

Sometimes, angel investors agree to a valuation cap as a way to reward them for the risk they have taken. In our example, a cap was set at €1,000,000. With the pre-money valuation of €1,800,000 calculated above, the angel would get the shares at a price of: €1,000,000 / €1,800,000 = 0.56 × €4.00 = €2.22 That’s quite a discount! And from the money l

Second, if you know you’re creating value, you’ll then also need to work out if you’re where you should be. And knowing where you should be means having some forecasts and predictions that crystallize your aims.

We will learn: about the start-up financial control loop; how we work out financial contribution and track its impact on the start-up; why it is crucial to know what your variable and fixed costs are; how to achieve break-even points; ways to use financial intelligence to guide operational and strategic action.

We can simplify how we think about cost behaviour by categorizing patterns into two types: fixed and variable. We will start with variable costs.

The question will be: are you creating as much value as you set out to?

If the angel plans from the start to convert their loan to equity, then you do not have to set it up as a traditional loan with a maturity date and interest payments. Instead, you can put together a Simple Agreement for Future Equity (SAFE). This is not that different from a convertible debt – except that it is not a debt! Instead, the angel expect

With many tech firms, the focus has moved to the demand side. They use technological innovations to create and expand networks. The growth of networks becomes self-reinforcing, because users get value out of connections and so connections grow.

Again, what’s essential is that your accounting intelligence must help you manoeuvre your start-up in a very specific way, through close tracking and monitoring of your experimental activities.

The key things to think about when it comes to incremental costs are (a) whether costs differ between the alternative courses of action you have and (b) whether these costs imply future incursions. These are the only costs that are relevant for doing this kind of analysis.

The break-even point is the point in the operations of an enterprise when its revenues and expired costs are exactly equal. If an enterprise keeps running at this level of operations, it will make neither a profit nor a loss. We can use break-even analysis as a useful tool for visualizing future performance scenarios for a business, and this can fe