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Young Company Showcase 2017 - Fourteen emerging businesses took exhibitor places at the YCF Annual Conference in September - read more about them in the Showcase brochure (24/10/17) ...more
Role Models - The first of YCF's monthly series featuring entrepreneurs still growing their companies, who are role models for those just starting out, and willing to give information and advice, have been compiled into a document which can be downloaded here. (07/06/17) ...more
Book review: Financial Management for Technology Start-ups - YCF readers save 20% when ordering this new book online - details at the end of the review (18/08/17) ...more
Getting to exit: trade sales - The speaker's slides from the YCF Annual Conference on 15th September 2017 are now available (24/10/17) ...more
Getting to exit: trade sales - YCF 15th annual conference
Friday 15th September 2017, 09:00 to 16:30
Sheraton Grand Hotel, Edinburgh
(30/01/17) ...more
Sample copy of YCF - For further information about taking out a subscription to YCF, please email sales@ycf.co.uk (20/03/15) ...more
YCF Guide to Finance for Young Companies 2nd Edition - Find the updated and improved version of the Guide with listings of potential investors in Scottish enterprises and other bodies that will help in your young business growth. (21/09/15) ...more
Young Company Showcase 2016 - Ten emerging businesses with high growth prospects were featured at YCF's annual conference in September. The Showcase brochure can be downloaded here. (25/10/16) ...more
Guide to Networking for Entrepreneurs - Not just some advice and guidance, but also listings of 50 organisations with networks which could help early stage entrepreneurs! (06/08/15) ...more
Young Company Showcase 2014 - At the Young Company Finance conference last September, 18 early stage ventures participated in the Young Company Showcase 2014, taking exhibitor stands to engage with the delegates at the conference and explain their business propositions. (16/10/14) ...more
YCF Guide to Finance for Young Companies - The website version of YCF’s Guide to Finance for Young Companies is available at www.ycfguide.co.uk (24/09/13) ...more
New Start Scotland - YCF was an exhibitor at New Start Scotland on 13/14 November in Glasgow. The slides from our presentation at this event can be downloaded here. (15/11/14) ...more
Horizon 2020's SME Instrument - The European Commission has prepared an infographic which explains its programme for selecting potentially disruptive businesses to invest in and support (16/10/14) ...more
Increasing Innovation-driven Entrepreneurship in Scotland - YCF's editor has been part of a Scottish team participating in the MIT Regional Entrepreneurship Acceleration Programme over the past two years. Download the team's Report here.
(30/06/14) ...more
Download a sample copy of YCF! - This illustrates the typical coverage and style of our monthly publication tracking early stage companies in Scotland. (18/12/12) ...more
Young Company Showcase 2013 - Eight young companies were exhibitors at the YCF Annual Conference this year, and the Showcase publication describing their businesses can be downloaded here. (24/09/13) ...more
YCF Annual Conference 2013 - speakers' slides - The slides from the presentations at this year's conference 'Starting and growing innovation-based businesses' are now available for download. (24/09/13) ...more
The Risk Capital Market in Scotland 2009-2011 - This study into the Scottish risk capital market was carried out by Jonathan Harris of Young Company Finance and Professor Colin Mason of the University of Glasgow and is the fourth such report in a series dating back to 2001. Download the full report here. (18/12/12) ...more
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Book review: Financial Management for Technology Start-ups
18 August 2017
YCF readers save 20% when ordering this new book online - details at the end of the review
by Alnoor Bhimani, Founding Director of LSE Entrepreneurship and Professor of Management 
Accounting at the London School of Economics. 

In this new book, published at the beginning of this month, Professor Bhimani makes the case that technology companies are different from traditional manufacturing or services companies, and should approach financial management in a different way.
In this context, ‘technology’ means IT (information technology), or even more specifically software, although there are examples in the book from other sectors – one is a manufacturer of iPhone plugs.  Throughout the book the author gives detailed worked examples from well known companies, mainly well established US companies such as Microsoft, Facebook, and Apple, but including others such as (nearer home) Iomart, and companies in Denmark and Australia.

Observing that technology is enabling new business models, the book begins with an analysis of why technology companies are different.  Traditional industries tend to have a linear progression, turning materials into products sold to customers.  Customers for technology companies are often not the same as consumers.  There are many business models where the consumer pays little or nothing, and the paying customer is the organisation which needs to reach these consumers – Google is one example.  This leads to networks and what the author calls “channels of exchange” being at the root of value creation for these companies.  This ultimately leads to markets where “winner takes all”, and this theme is developed throughout the book, for example when discussing with calculated examples how two competitors in a software market can have extremely different revenue growth despite similar fixed and variable costs at the outset.  

This means that it is vital for technology companies to decide on an appropriate business model, which enables the business to ”differ across costs, volume, and value creation dimensions”, and there is a helpful chapter setting out the issues involved with plenty of real world instances.  The necessity of learning from the market and being prepared to pivot the business model is emphasised here and elsewhere in the book.

In chapters discussing the ‘financial control loop’ for technology companies, the book covers the usual accounting and reporting concepts.  The first of these chapters, on ‘contribution analysis’, describes fixed and variable costs, and achieving breakeven.  The second, ‘financial analysis’, covers the usual financial statements (balance sheet, P&L, cash flow), and the third, ‘progress analysis’, sets out the metrics which companies use to measure progress, including ratio analysis. 

Against this background, the book goes on to discuss many aspects of financial management, including pricing in a market where there may be high development costs (often sunk fixed costs) but low variable costs, and what strategic options this might open up.  It also focuses on the importance of cash control, quoting CB Insights research which states that shortage of funds is the second most important reason for company failure in the technology sector.

Although many of the worked examples, eg of ratio analysis, are based on established companies, the author is well aware that start-ups have their own issues, in particular when they are pre-revenue.  A series of chapters proceeds from setting out a cash budget, to discussing the various ways of securing funding.  After discussing options such as boot-strapping, grants, business awards, and debt finance (and their pros and cons), a major section of the book covers equity investment.
  
This section describes the different types of equity investor, why they invest and the vehicles they use, and gives advice on interpreting term sheets (including a complete example).  It also addresses the question of deep interest to company founders – how much equity should be released to investors, for what valuation?  The section (and the book) close with a consideration of returns from the business, and exit strategies.

The book covers a wide range of situations in great detail, but some ‘local difficulties’ in the UK are not covered.  For example, there is an excellent description of how business angels use convertible debt to finance early stage companies, with the conversion triggered when a VC or other institutional investor completes a series A investment round; this is less usual in the UK, where angel investors typically use ordinary shares in order to qualify for EIS relief.  Also, although the book rightly points out the traditional trap of overtrading, where a business looks profitable but is unable to manage the cash to sustain growth, companies which can achieve early payment on long term contracts (which is true for many technology companies) have the opposite problem – they are cash rich, but because the profits from the contract must be spread over the period of delivery, they can have trouble explaining their profitability to investors unfamiliar with the accounting requirements.

That said, the book gives a thorough insight into the financial management practices which technology company founders need to know about, and gives examples which will be encouragingly familiar to those with little previous financial experience.

 -  Jonathan Harris

YCF readers can save 20% and learn more about financial management and entrepreneurship by visiting 

and using code PBLSTARTUP20 at check-out.

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