“The trajectory of the US economy depends a great deal upon the actions of and investments into America’s startups—innovation, entrepreneurship, and rapid growth are their hallmarks.” This according to a recent report from Deloitte points to the role of these businesses in the broader investment landscape. However, with startups operating in an unclear business landscape, it’s important for leaders to understand what’s going on in this business landscape.
After a tumultuous year, Deloitte wanted to look at the challenges and constant changes that emerging companies will face in the coming years. Completing their survey during the middle of 2020, the recent report sought the opinions of senior executives representing 236 privately held companies headquartered in the United States with at least some venture capital funding.
Executives represented a variety of industries including consumer and industrial products, energy and resources, financial services, life sciences, health care, technology, media, and telecommunications and answers helped to paint a clear picture of expectations during lockdowns and the pandemic. Here are just some of the takeaways:
Varying Impact of COVID-19 on Exit Timelines
The past year had a varying impact on growth stage companies. With many companies already knowing their expected exit strategy, nearly half found themselves on the same path despite the pandemic—with 40 percent seeing their exit strategy unchanged and 8 percent moving up their exit date in response to the pandemic.
Among those who did delay their exit, the main reason for this delay was a lack of sales, followed by closures and lowered expectations.
“Most (70%) cite flat or declining sales as at least one of the reasons. A significant share (43%) say they had to close or partially close their company. Another common reason is an expectation that the market will not yield the targeted IPO price (32%).”
Technology Use among Startups
Though many may believe that QuickBooks is the de facto startup accounting technology, many have found value in other products to manage their financials.
Yes, QuickBooks remains the most commonly used platform with one quarter of respondents opting to use the entry-level product, but this is closely followed by mainstays in the ERP space. According to the survey, 18 percent each used Oracle and its cloud acquisition, NetSuite; 14 percent used SAP; with 12, 8, and 7 percent using Intacct, GP, and Workday.
“NetSuite is about three time more common than Oracle (21% versus 7%) among startups with $25 million or less in revenue and startups pursuing an IPO (28% versus 12%). NetSuite is also common among EGCs less than a year from exit (36%). That said, nearly a third of this near-to-exit group (32%) is still using QuickBooks. Oracle is more common than NetSuite (45% versus 36%) among companies with revenue of $26 million or more. It’s also significantly more common among companies with no plans to exit (29% versus 7%).”
When looking at monthly close, FloQast was the choice of companies with an IPO on the horizon, with nearly 50% opting to use this product to help clear the path for an offering.
A Continued Focus on Remote Work
Even after the pandemic is under control, a healthy number of respondents found themselves offering remote work for the foreseeable future. According to Deloitte,
“Half of all companies plan to continue offering employees the ability to work from home when pandemic restrictions are eased. Among IPO-bound companies, the proportion is even higher: 62%. But among companies within two years of exit, the same proportion also say working remotely is a challenge in closing their books.”
Additionally, incentives vary by revenue. Smaller startups offer few incentives, with companies at lower levels of capital funding less likely to offer employee incentives in the post–COVID-19 pandemic environment.
Learn More: Startup Scaled to IPO
Looking to learn more about the common pitfalls and opportunities on the road to IPO? Last year, the Controllers Council held a roundtable on a controller’s journey leading the company through the IPO process: Startup Scaled to IPO.
On July 16, 2020, Controllers Council hosted a webcast featuring Brandt Kucharski, Chief Accounting Officer of Grubhub, and Michael Whitmire, CEO of FloQast.
Brandt Kucharski was an early stage executive with Grubhub, and managed accounting from startup, through 5 rounds of investment capital, IPO, and going public with more than $5 billion market capitalization. Mike Whitmire, CEO of FloQast and Controllers Council Director will moderate and contribute his own experiences with startup funding.
Click here to watch on demand.
Additional Startup Resources
Path to IPO: Could Pre-IPO Company Controllers Benefit from a Part Time Chief?
Bracing for an IPO: How Controllers Can Plan for New Responsibilities
Series C and Beyond: Controller’s Guide to Successful Funding Rounds