Starting and scaling-up new ventures is vital for innovation and economic growth. New ventures turn good ideas and problem solving into new products, services and jobs; they can exert competitive pressure on existing businesses and sectors; and they lead to productivity improvements in their sector and their supply chains. “They are really important to the ongoing prosperity of this country and chartered accountants can be key to their success,” says Iain Wright, director for business and industrial strategy, ICAEW.
There are many ways in which accountants can provide valuable support, inside and outside startups and scale-ups. Accountants may bring expertise and insights on matters such as establishing financial processes and controls. They can advise on sources of funding and strategies for exit, or identify other experts who can do this. The role of each accountant will influence the skills that are required, as will the skills and specialisms of the people they work with, the needs of each venture, the sector it is in, and where it is on its business journey. Accountants who work in or advise such ventures may need a broader range of technical finance knowledge – and many softer interpersonal and management skills. “There’s a lot of problem solving. You need to be creative and innovative,” says Esther Leung, who has been in an interim finance project role for a few months, with fast-growing scale-up Verve. “The learning process is ongoing for everybody in this sort of environment.”
Lisa Doole left PwC to co-found her own tech start-up, a mobile ordering and payment app for the hospitality sector (which began as Tap and rebranded at the end of 2018 as Hopt). During 2018, Doole also started working as the in-house financial controller for Boom Cycle, a scale-up venture in the fitness sector. She says: “It’s valuable to realise how malleable you are, how much you can apply what you have learned to something else. That’s how my career ended up where it is today.”
In fast-growing ventures, a disconnect can emerge between finance and operations. “Boom Cycle wanted somebody inside the business to partner with finance and be a cohesive bind between what’s happening day-to-day in their fitness studios, cost management, the CEO and further up to the board,” says Doole. “They wanted somebody who could figure things out quickly in terms of building those relationships.” Leung also found a flat hierarchy looking for a collaborative approach from finance: “It’s about people and company culture,” she adds. In different ways, Doole and Leung have found that start-ups and scale-ups require a broader range of technical skills than their previous roles – and the ability to adapt quickly. Acquisitions and rapid growth at Verve make the scale-up environment much more fast-paced than the listed companies (Danone and Siemens) that Leung previously worked for and “miles away from practice”, where she did three years in audit at Smith & Williamson. She describes her current role as “a little more technical experimental” and “incredibly varied”.
Embrace the chaos
In the space of a few months, Leung’s ‘to do’ list has included considering for share-based payment trans - actions, designing intercompany finance processes, and she’s been very involved in due diligence for a recent round of fundraising. Leung has also been collaborating not just with her manager, but with Verve’s ex-investment banker CFO and its VP of finance. Now, her audit experience has come to the fore again and she is leading on Verve’s first audit.
“That’s what I was supposed to be doing when I started, but I got pulled into due diligence.” For Doole, launching her own tech start-up and working at Boom Cycle has broadened her insight into the challenges of finding funding – and how variable this can be (see Finding funding, overleaf ). “Tech businesses are in some ways a lot easier to get funded with higher valuations,” she says, adding: “More people want to invest because it’s not capital intensive and the money raised can go further on development and marketing strategies. But there are other fundraising challenges.”
Investments in tech ventures can be more risky, Doole says. “If the business fails there may be no assets to sell so investors are less likely to receive any money back. Funding is also very dependent on how much you can protect your idea with patents and how saturated the market is.” Doole has also gained first-hand experience of the life-cycle of the finance function and varying perspectives on its importance as companies grow and change. This is part of the day-to-day for some accountants. At start-up studio The Eleven, managing director Dan Jarrett partners with a portfolio of entrepreneurs and founders.
“We’re a hands-on incubator. We launch businesses and support them as they grow to scale,” he says, by providing a pool of shared operational resources and expertise. As finance director for those portfolio businesses, Jarrett helps to establish processes and infrastructure for sustainable growth, such as building out the finance function. In a start-up culture, establishing finance process and controls can come as an afterthought. The lifecycle from start-up to scale-up often begins with finance being done in house by one of the founders, then gets outsourced to an external bookkeeper or accountant, with finance coming back into the company again (or being handled by an incubator like The Eleven), when the start-up wants to attract external finance. Jarrett automates and tightens as much of the finance function as possible to support growth and attract investment for his portfolio.
Enable and inspire
At Be Amazing, Viv Parry takes a different approach to providing services and strategic advice to “enable and inspire people” to grow their businesses. She appreciates the importance of basic bookkeeping and finance processes, but encourages the businesses she works with to automate and outsource this. “Entrepreneurs want accountants to under - stand their business model, how it can become financially viable, when its break-even point will be,” says Parry, but as well as enabling them with strategic advice, she supports them in other ways.
“I help to get the best from themselves and their team,” says Parry, who urges more accountants to put themselves in the business owner’s shoes before offering them advice. “I can get into a business by telling them that I know about accounts, but I can have a bigger impact when I get into other things. The accounts enable you to see what’s going on in a business, but they are just a window that opens onto people and the day-to-day challenges they face.”
Scale-ups contribute disproportionately to the prosperity of any country. “They are the engine drivers of local economies,” says Irene Graham, CEO of the UK’s ScaleUp Institute. “They are twice as innovative as large firms, employ twice as many apprentices, are twice as likely to be operating in international markets, and they create high-quality jobs and are more productive than their peers.” The OECD defines a scale-up as an enterprise with average annual growth in employees or turnover greater than 20% per annum over a three-year period, and with more than 10 employees at the beginning of the period. By this definition, UK scale-up numbers have grown over the past five years, but the rate of growth has slowed – for various reasons. Multiple respondents to the 2017 government consultation on Building our Industrial Strategy cited: gaps in sector-specific skills and lack of management training; inflexible infrastructure; and insufficient finance for growth. “Scale-ups continue to face major challenges,” says Graham.
The UK is Europe’s start-up leader, but other countries are better at supporting scale-ups. The UK is third in the OECD ranking for startups, but a less impressive 13th for scale-ups. So there are opportunities for government, funding providers and accountants to better identify ventures with scale-up appetite and potential and offer them the support and services they need to succeed. “Scale-ups tend to be younger businesses, be set up by younger people and have more women than less fast-growing companies,” says ICAEW’s Iain Wright. According to research, he says, successful scaleups have management accounts, report on financial information and benchmark against peers. “They want to know how well they are doing.”
The British Business Bank offers information on sources of funding. Its Finance Hub (britishbusiness-bank.co.uk/finance-hub) can help start-ups and scale-ups to discover and understand finance options – and prepare for investment. The bank worked with ICAEW to create The Business Finance Guide (thebusinessfinanceguide. co.uk). This online resource directs businesses to sources of investment and professional advice available during different phases of their journey. Growth Hubs (of Local Enterprise Partnerships) offer free advice and courses on start-ups, development and growth, growth audits and information on ways that businesses of different types and at different stages can access finance.
The Business Finance Support Finder at gov.uk/ business-finance-support covers funding, including government grants. Government-funded loans for companies in some sectors are available from Innovate UK (innovateuk.gov.uk). Private sector funding options include: angel investors; pre-seed financing; seed financing; venture capital (with multiple sequential moneyraising ‘rounds’ labelled series A, series B and so on, as they typically ramp up in value); accelerated funding (typically with close support and relatively short gaps between rounds); crowdfunding (using platforms that enable individuals and professionals to invest in exchange for debt, equity, products, rewards or nothing at all); private equity (typically for more established businesses); debt financing; initial coin offerings (using cryptocurrency to raise money via crowdfunding), not to be confused with an initial public offering (stock market launch).
Securing funding can be easier for start-ups than for scale-ups (which typically require more money) and is more accessible for tech ventures. Research from financial adviser and broker finCapp found 52% of scale-ups feel they have fewer funding options than start-ups and 61% feel they get less government support. Funding can be particularly difficult to find for start-ups and scale-ups led by women. The UK and VC Female Founders report from the British Business Bank found that for every £1 of venture capital investment, less than 1p goes to all-female led teams – and although this situation is improving, progress is slow.