Financial Management for Technology Start-Ups

Third, you’ll also want to gauge whether you’re working smart. That’s really asking: are you using the fewest resources you can to generate the most value possible?

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.

This means that there might be pressure to achieve break-even quickly, but this needs to be balanced with the pursuit of market share.

Unlike traditional businesses, tech start-ups operate within continuous feedback loops where control, action and decision become woven together. Ongoing experimentation becomes vital to move a start-up forward. You need mechanisms for reacting to new information to keep the start-up on a positive course. This

Today, 8 of the globe’s 10 most valuable businesses are tech companies (FXSSI, 2021). Financial

properly. Suppose you launched a business six months ago. Your business now needs €600,000 from a venture capital investor who wants 25 per cent ownership. We will call this scenario Series A. If an amount of €600,000 buys 25 per cent of the business, the post-money valuation is: € 600,000/0.25 = €2,400,000

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.

Early-stage investors will usually want to claim a high stake of your business, because of the risk they are taking. This is why at the seed stage, you could be giving up 10–25 per cent of your company. Now the venture capitalist will fund Series A, where you might give up 25– 50 per cent.

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

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.