Archive 19.6.13

The Daily Telegraph: Magic ingredient for tech firms? An accountant; 3 June 2013

Archived Post
Archived Post
Archive 19.06.2013

Business angels and other sources of private equity funding provide technology based businesses with a better chance of success than bank borrowing, a wide ranging study has shown. They offered founders the financial headroom they needed to bring in outsideinvestors to fund expansion as well as opening the way for selling the business. The findings emerge from a study by accountants CBW aimed at identifying the reasons for success and failure among technology, media and telecommunications (TMT) businesses. Researchers examined the performance and track records of 150 TMT businesses that started up six years ago, 100 of them successful and 50 that failed to make the grade. Other key findings showed a small team of founders, rather than the lone entrepreneur, were more likely to succeed because they shared the workload. Half the failures were dominated by individuals. Appointment of a finance director from the outset was seen as crucial by the research team. They helped start-ups “push their foot hard on the growth accelerator” to increase sales while using less cash and making the investment funding work harder. Nyall Jacobs, a CBW partner who launched the study, said: “I wanted to understand what the magic ingredient that separated the successes from the failures. Surprisingly, perhaps, the magic ingredient was often the presence of an accountant on the board.” Founders of the best-performing TMTs extensively diluted holdings to raise more funding to generate growth. Unsuccessful businesses tended to hold on to equity. Almost 80pc of successful start-ups had an outside investor at the outset, against 60pc of failed companies. Only 7pc secured bank loans to get off the ground. Timing of disposals was important. Half the successful companies sold more than half their equity, effectively surrendering control within six years Thriving start-ups often had six or seven directors within six years. Eight out of 10 of them replaced at least one of the original founders in the period. The researchers felt that founders should hold on to at least 40pc of the equity to retain a “significant skin in the game” and keep them motivated. They attributed the shake-out among founders to a mismatch of skills and personalities. Successful businesses had no qualms about introducing new blood when needed. Read the article in The Daily Telegraph here

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