Abstract

Startup ecosystems around the world are maturing and it seems that there has never been a more favorable climate to start a company. However, according to Forbes 90% of startups are actually being discontinued leaving startup founders devastated and causing underperformance of venture capital funds. But who should actually be held accountable? Can some of the startup failures be predicted beforehand or at all avoided? Are there early signals that startup founders and their financiers overlooked or miscalculated?

Research suggests that accounting practices can help to mitigate agency problems between investors and investees (Gompers, 1995; Mitchell, Reid & Terry, 1995; Cassar, 2009). Scholars also argue that accounting can increase startups survival (Achleitner & Bassen, 2003; Davila & Foster, 2005). However, for startups accounting often means a trade-off between benefits and the costs of producing accounting reports.

In the recent years, traditional accounting practice for startups was challenged by Ries (2011) and Croll & Yoskovitz (2013). Although based on the anecdotal evidence, these authors are promoting the concept of Innovation Accounting via a build-measure-learn cycle and validated learning. In contrast to traditional accounting aimed at controlling past performance and costs, Innovation Accounting is future oriented and focused on identifying and understanding consumer needs in the diverse stages of a product development process.

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