On Growth, Virality Loops and Customer Acquisition

This is a guest post by Carlos Eduardo Espinal of Seedcamp.

Everyone loves a personality test. Whether for fun, or to better asses our skills as part of choosing a career, we all love hearing about how others perceive us, how we function, and how we are likely to react in situations. We are all naturally narcissistic (up to a point) and it is at this point that Traity, a Seedcamp company that specialises in helping its users figure out how they rank in a variety of psychometric test (think of them as a more thoroughly complete Myers-Briggs test), helps users identify their core attributes as ranked by people in their social graph.

For the purpose of simplicity when speaking of Traity’s technology, I’ll use the term ‘personality test’ loosely, however, what was confusing for the founders was that while ‘personality tests’ are generally well received and actually fun for many (as in magazines or online for example), Traity struggled quite a bit, in their early days, in converting people to use their service because their personality test, while far more accurate and useful than those you take online where you assess yourself, requires you to have had your friend assess you as part of their process.

Traity was having a classical conversion/acquisition problem. Traity’s CEO, Juan Cartagena, could funnel people to his website, but couldn’t get them to go through the sign up process and then get others to sign up (which he needs as part of his product). So he went on a mission to find out how to optimise this. Here the video of Juan sharing his story of discovery (it is embedded at the bottom of this post for your convenience).

After this video came out, I recently had the chance to catch up with Juan and ask him if he could help me summarise how he worked his way through to where he is now. Firstly, he told me it all started with a chat with social games guru Blake Commagere (http://www.crunchbase.com/person/blake-commagere), who pointed him in the right direction…

Next, he identified the key metric he wanted to optimise around. In his words: “There is generally one key metric for every business that matters- optimise around that metric.”

He then decided to experiment with design as a key growth driver vs. the traditional MBA-type solutions which, until then, had not been working for him. For the record, Juan has an MBA from the Chicago Booth School of Management. One of the top MBA programs in the world, so for him to make a jump like this, really does mean a lot in terms of not adhering to ‘traditional-type’ thinking.

He then further committed to this path of experimentation by reading two books which greatly influenced his thinking on how to further evolve his customer acquisition process:

• Influence 
  


• Design for Hackers 
  

After having read both books, he went through each one of the key influence factors outlined in the book and scoured through his product to see how we could apply the concepts. Once identified, he then went about applying the appropriate design principles to yield the ultimate effect on the influence factors.

For your reference, the key influence factors highlighted in Caldini’s book on Influence include:

• Reciprocation


• Social Proof


• Commitment & Consistency


• Liking


• Authority


• Scarcity

Before proceeding any further, I should state that in order to better apply these concepts, that you understand what your Minimum Viable Segment (MVS) is. Without understanding your MVS, any optimization of design or messaging will likely not be targeted enough to yield directionally measurable results. For a primer on an MVS, go to Northbridge Partner, Michael Skok‘s site here:http://www.mjskok.com/resource/gtm-segmentation

The design process Juan subsequently followed, included not just the obvious making of buttons, bigger, correctly placed, or prettier or red (one of the points he mentioned about colors and engagement) or choosing a different logo, but more importantly in coming up with the correct messaging to convey the influence factors he was trying to exploit. This is crucial. The messaging is just as important, if not more, than the more traditionally-experimented visual elements of design. Although not from the books that Juan mentioned, two good books to get you thinking about how messaging matters for positioning and differentiation are:

• Positioning


• Differentiate or Die

As far as Juan’s design focus, think about it this way, he moved away from just building a more explosive gunpowder to thinking more about how to package and propel it forward (otherwise all you have is explosive gunpowder that will explode in your face).

Although it seems obvious when you read this, Juan discovered that a key aspect of using both influence and design as part of evolving his process, was understanding that his costs of user acquisition would go down the more his viral acquisition would go up, and in order to scale this virality he would need to leverage the emotions of users to have a stronger reaction. However, I’d venture to say that many don’t consider this as part of their design process, Juan admits he didn’t at first.

Specifically, Juan saw how, via design, narcissism and voyeurism was used by sites like Facebook & LinkedIn to yield frequent use, fear of missing out by sites like Instagram, Twitter, and Groupon, and Inspiration by brands like Coca-Cola. He set out to understand how he could leverage these feelings as part of creating better copy on his site’s messaging to both yield better conversion but also more virality.

He then took things one step further by truly delving deeply into what virality is… and then nesting virality loops within his product that amplified his ‘K’ value  (For a primer on Viral Marketing, check this Slideshare presentation from David Skok:http://www.slideshare.net/DavidSkok/the-science-behind-viral-marketing ) oh, and yes.. he’s Michael J Skok’s brother. Also from David Skok, an excel model you can use that might help you plan and predict this to investors: http://www.forentrepreneurs.com/lessons-learnt-viral-marketing/

Lastly, because without metrics you are just flying blind, Juan used Kissmetrics to analyse his efforts and truly understand whether his changes across the board were yielding his desired results. Build, Measure, Learn… Build, Measure, Learn.

In summary, if you have identified a real need within a market and built something awesome (gunpowder) but you just can’t seem to reach your customers, perhaps go through the journey Juan went through and assess whether perhaps the issue isn’t what your product does, but rather how you are presenting it to your users.

Additional Resources:

For a curated list of talks on what will get you on the right track in Customer Development - http://www.hackertalks.io/index/2
For a curated list of talks on UX - http://www.hackertalks.io/index/3
For a list of Growth Hackers - http://www.aginnt.com/the-growth-hacker-mafia#.UWvHXSv70qv

Juan’s original video -

Juan Cartagena: Getting What you Want from Interaction Design Association on Vimeo.

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Silicon Valley Heartland

I have just returned from a seven-day trip to San Francisco to learn more about how the tech scene works in Silicon Valley and what makes it so different to London.

The reason I am there is to make connections so that if and when some of our portfolio companies decide to raise capital or enter the US market I can be of some help.

I joined a trip with 25 entrepreneurs organized by one of our angel investors; Jack Gavigan. The trip is known as LDN2SFO.com.

Hats off to Jack, he did a sterling job and considering it was his first attempt at this I found the trip invaluable, it will allow me to create a contact base on which I can now build on through subsequent trips.

The places we visited were:

Day One

UKTI: Talks by Andy McLoughlin from Huddle and Scott Allison from Teamly. Andy gave us some great advice on the being a British tech company coming to the Valley. Andy has some great slides on this here. If you are considering staying there for a while or even living there you should check out Andy's post on his experiences.

Elliot Loh gave a talk on product. Elliot is a mentor at 500 StartUps.

Bjoern Herrmann spoke about the Startup Genome, a project that surveys thousands of startups to learn about how and why they can fail or succeed. Anybody working in startup should check out their research and use their online tool.

Tour of Twilio offices.

Day Two

Visit to the offices of Orrick, San Francisco’s oldest law firm and the firm most connected in the tech world. For these very reasons Orrick represent EC1 Capital in London and work with us in completing our investment legal frameworks.

At Orrick Phil Black, Managing Partner of True Ventures who gave some great insights into how the US investment scene works.

Duncan Logan from Rocket Space, one of the leading co-working spaces in San Francisco then spoke about how they have incubated more than 600 companies in the past few years.

After lunch we visited a startup called Cloud Flare followed, currently 3% and risiing of all internet traffic goes through their servers

This was followed by a visit to a bootstrapped company called Mashape, five guys who rented one of the oldest houses in San Francisco (110 years old) and lived and worked in this house.

Finally a visit to Pivotal Labs, a 'guns for hire' development company.

Day Three

We left on a minibus to Silicon Valley. First stop was at the Vodafone Innovation Labs followed by a visit to the Plug ‘n’ Play Tech Center, a little like the UN for tech companies.

After that, a visit to another successful start-up WePay who provide an alternative to PayPal and offer an easy on boarding process for merchants to take and manage payments.

Then, a visit to BlackBox. This place had lots of energy, it’s a ‘start-up mansion’ with a pool! 

Photo: Blackbox Startup Mansion.

For any entrepreneur wishing to get plugged into the valley quickly it offers a two-week program for $10,000 or potential equity swap. You would achieve here in two weeks what might take you six months to achieve on your own. There are also social gatherings so you won’t be on your own, you can make friends too.

Finally an evening out at The Crunchies, the annual tech awards show. This was a lot of fun but what was amazing was that the you were literally rubbing shoulders with famous tech folk such as Mark Zuckerberg, Marissa Meyer, Peter Thiel, Om Malik, Max Levchin, Marc Andressen who were freely moving around in the after party and posing for photo opportunities.

Day Four

This was the best and most relevant day for me starting with a visit to Sand Hill Road, where all the legendary US VC’s are based.

Photo: Sand Hill Road

What struck me here, was that they literally live next door to each other and often mix in the local café.

First off, a vist to Glynn Capital one of the oldest VC firms and a family business that is now run by the founders’ sons. We heard a presentation from David Glynn who had an uncanny resemblance to John F Kennedy. I loved his style and deep knowledge of the valley, it was interesting to note that they never take board seats and just have informal meetings every quarter with the founders but this is often in a situation whereby they are in a syndicate.

Next door, a visit to Sequoia Capital, one the most powerful and legendary VC firms in the valley.

We then visited Singularity University. This was quite amazing; if you took a course here I think you would never look at the world the same way again. 

A visit to Y-Combinator, the World’s most successful accelerator program followed. The entire building was deserted except for a few people here and there and it is only fully occupied when they run the intakes twice a year. Harj Taggar gave a talk, he went through YC in 2007 and created a startup called Auctomatic which was acquired by Live Current Media. He was then invited to become a partner at YC and has been there ever since.

Photo: Y Combinator

Finally after a long d with nothing after graduating and Kurt Varner who joined the panel spoke of how he even slept in his car for a period while his start-up grew legs.

 Photo: Electonic components vending machine @ Hacker Dojo.

Here are some useful links:

http://sfbeta.eventbrite.com – startup mixer/meetup tonight in SF. 

www.svnewtech.com – demo meetup in Silicon Valley tomorrow night, usually features 5 startup pitches and generally well attended. 

www.liquidspace.com – this is an app that allows you to locate and book desk space by the hour.  Several incubators and shared workspaces in town (including RocketSpace I believe) have open desks on there.  If you’re itching to get working and don’t feel like sitting in Starbucks all day, Liquidspace is a great option!

Thanks to @jspeckle from UKTI for the tips.

The Big Takeaway

It is probably unfair to compare London to a far developed tech eco-system like Silicon Valley which has had far more time to mature.

However standouts are:

1. They are less risk averse in California and more optimistic (Is it the weather? Eric Schmidt seems to think so)


2. A can do attitude


3. Everybody pays it forward. It is deeply embedded that people will actively help you succeed and an entrepreneurs reputation is everything.


4. Of the successful startup firms I saw, the CEO’s were total masters of their domain. They had a grip on every aspect of the business and had plenty of charisma, confidence and authority, something I don’t see enough of in London but this is likely a cultural difference as much as anything else.


5. Tech culture is everywhere. To give an example, on the way over to the US I was sat next to a lady who worked for Google in London and on the way back I sat next to a young guy who worked for Google in the YouTube division and who was leaving to join a startup in NYC.


6. There is a greater availability of investment capital at all levels but especially at the seed stage due to the amount of exited founders from the many acqui-hires, trade sales and IPO’s.  However they don’t have anything like SEIS in the US and that seemed to be something they couldn’t quite believe to be true. The saying goes you can raise twice as much in half the time in the US, after this trip I can see how true that is.

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Send Us A Postcard

All too often we see startup's that seem interesting but may be missing certain metrics and therefore we decline to invest.

In cases like this I always say to keep in touch.

Investors are always influenced by momentum from other investors so if you manage to convince them you should not be shy about sharing it.

Regardless, if I ask you to keep in touch, I mean it. It's not a brush off. Keep me in the loop on fund raising, milestones met, product/market fit and so on. I may be unconvinced on your initial proposition but early stage startups change almost daily.

A good policy is to have a weekly/monthly bulletin that is sent out to an investor list.

Too often, entrepreneurs take rejection personally and should look beyond that emotion. Investors are swayed by a mutliple of factors outside of your pitch, some of which you would have no control over as they are internal processes.

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The SEIS Scheme. A Primer.

This is a guest blog post by Tasnim Mustafa ACA of Barnes & Scott 

The Seed Enterprise Investment Scheme (SEIS), launched in April this year, offers some of the most attractive tax relief opportunities for investors seen in recent years. It has been described by a notable investor as “one of the most extraordinary incentives ever created”.

What is it?

The scheme gives investors income tax relief at 50% of the amount invested and a complete capital gains exemption on the sale of the investment.   

Furthermore, in the current 12/13 tax year only, investors get a capital gains tax exemption on any capital gain they make – even on other assets, but only if the proceeds are reinvested into the scheme. 

There are of course strict qualifying conditions and restrictions on the size and type of the investment, the start-up and the investor.

So what’s all the fuss about?

For investors, the tax incentives are extremely generous. An investment of £100k (the maximum limit for SEIS) will only cost the investor £22k, assuming full use of the income tax and capital gains reliefs. The investment would therefore have to lose over three quarters of its value before the investor began to make a loss

But the large reward comes in hand with high risk. The scheme only applies to start-up companies less than two years old, so there is a high inherent risk of complete failure.  And investors are unable to make a quick exit – they must hold the shares for at least three years in order to receive the full benefits.

Who does it benefit?

The obvious benefit is to investors. But directors of start-ups can also obtain the relief.

Start-ups can also benefit by using their SEIS status to become more attractive to investors. In fact, many investors now see SEIS status as minimum criteria when investing in new businesses. 

What are the downsides?

The scheme is not for everyone. Some entrepreneurs may prefer to sell debt in their company, rather than equity, especially if they are confident in the long-term success of their company.

The scheme also encourages riskier investments. Crowdfunding platforms have made it easier for more people to invest in small businesses. The government might unknowingly create a small asset bubble in start-ups, fuelled by tax-incentivised investors.  

How is the scheme administered?

The scheme is administered by a two-stage process:

1. The company obtains approval to use the scheme from HMRC by submitting a compliance statement.

2. Upon receiving approval a compliance certificate is issued to investors, which they use to obtain their tax benefits.

There is also an “advance assurance” scheme that start-ups can obtain to confirm they qualify for the scheme.

So what happens next?

The scheme runs until 2017. HM Treasury predict that only 1000 small businesses will benefit over this period. Currently there are no figures on the amount invested in the scheme. Its wider implications are unlikely to be known for many years to come.

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The Fighting Irish

I'm just back from the Dublin Web Summit 2012 this week and it was quite an event with hundreds of startups pitching.

Paddy Cosgrave has made some great strides in building this into a phenomenal event within only a few years and it really helps Ireland's economy to get back on the road to recovery, drawing thousands of attendees into the country. Paddy has built the f.ounders event into an exclusive 'meetup' for some of the world's top internet leaders.

The startups in attendance varied widly in quality and I would say only a 1/3 were from Ireland. I think there has to be a better way of filtering so many startups based on stage and financing requirements as they were all bundled into one pool, so pairing the entrepreneurs with suitably staged investors is important to give a good experience for both parties. I took part in a speed funding session for an hour, for around 3-5 minutes startups pitched to you alongside other investors, sat shouler to shoulder to process so many companies. The problem was it was just a free for all with my time wasted on companies that are not investment ready or in our sweetspot as well as a poor experience for the pitching companies. It was so noisy I could barely hear the pitches and got little more out of it than a headache. I hope that this can be refined so that all parties get a better experience with matched investors in possibly a cubicle style area.

As a 'Lean VC' we need to be sure we got the most value out of any expenditure and in actual fact I calculated I spent probably only four hours at the summit event with the rest being taken up at meetings off site in the hotels, bars and restaurants around the venue. I have also found with any exhibition that the big takeaway is not around the presentations and speeches but the one to one's and the connections that can be made at such events. DWS makes the effort more than most in putting people together, it is an inherent Irish trait that comes through in the event.

Aside from the DWS I met with some accelerators in Dublin, there are more than five in Dublin now, more than we have here in London!

Dogpatch Labs

Wayra Ireland

Propellor

Startup Bootcamp

NDRC

Given there are so many accelerators, to make the trip worthwhile for investors it would be great if they could bring all the investor days together over a few days and I think plans are afoot for this next year, however some accelerators like Wayra are not keen on this model and prefer a rolling investment process which is understandable given startups can be at very different stages and trying to synchronise them all to be 'investor ready' must be very difficult.

Dublin is on our geographic investment map as well as Edinburgh and London and we hope to build relations into both countries in the coming months and years.

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The Lego Story

If you are feeling downbeat and demoralised about your startup watch this five minute animated story of how LEGO started and continues to diversify.

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R&D Tax Credits Explained-Part III

This is the third in a series of guest posts by Daniel Tenner of GrantTree. The first article is here.

How to file R&D Tax Credits

Finally in Part III, here’s how to go about filing tax credits.

This is information that R&D tax credit specialists (like myself!) normally don’t want you to know, because they’re worried you might not need them, but I believe that this is a misplaced fear. The reason to use a specialist is to save time, maximise the claim size (we recently improved one client’s claim by a whopping 118%), and ensure things are done “properly”. Basic knowledge of the process should not be a secret, and in-depth, specialist knowledge is available to anyone willing to read the hundreds of pages of HMRC documentation, talk to HMRC, and start filing.

The process is simple. There are two things you need to communicate with HMRC, and one standard form that needs to be submitted (or amended if it’s been submitted already).

The first thing you have to communicate is why the work qualifies. This goes back to our previous article covering how to tell if a project qualifies for R&D Tax Credits. In essence, you need to write what’s called a “Technical Narrative” that explains, in HMRC’s terms and in clear English understandable to a layman, why the work is innovative, complicated, pushing boundaries, and so on. There’s an art in writing these technical narratives, and it’s beyond the scope of this article to go into that in depth, but in essence you need to make the case that the technology passes HMRC’s criteria.

The second part of the filing is the calculations. There, you need to justify the “headline figure” (the “qualifying expenditure”) so that HMRC can check your calculations and make sure you haven’t made any mistakes. Most claims will list people involved in the R&D, along with the portion of their costs that is estimated to qualify under the scheme. They will also list any subcontractors involved in the project, apportioned appropriately, and decreased to 65%, as per HMRC’s rules. Finally, most claims, even software claims, include some so-called “R&D Consumables” - things like software licences which were “consumed” in the R&D process.

Both of those together need to make a reasonable and coherent case for the claim, so that a non-specialist (most HMRC inspectors are not also technical experts!) can understand why the work is innovative and qualifies and adds up to this cost figure.

Finally, the form that is impacted by this is called a CT600 form. It is a form that states the Corporation Tax liabilities of the company. How to amend the form to include an R&D tax credit is beyond the scope of this article (most accountants will know how to do it, though in some rare cases we’ve seen mistakes), but in short, the headline figure needs to be included there and the tax calculations adjusted to reflect the tax credit.

On the highest level, that’s all there is to filing tax credits. Of course, in practice there are hundreds of little niggles that can catch you out, and both the calculation process and the definition of “qualifying R&D” subtly shifts through the years. I believe that it’s best to go with a specialist who can make sure that you always get the maximum return from the scheme, but if you want to do it by yourself, the information above should provide the starting point you need.

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R&D Tax Credits Explained-Part II

This is the second in a series of guest posts by Daniel Tenner of GrantTree. The first article is here.

What kinds of startups can claim R&D Tax Credits?

A common misconception of R&D Tax Credits, one often spread by accountants (who cannot be expected to be experts in technology as well as the sophisticated juggling of tax and management numbers), is that tax credits are only for the kinds of companies where people wear lab coats and work with test tubes, wind tunnels and other advanced technical tools.

However, the reality is that the scheme is quite broad and includes, for example, software development. Not all the activities that fall under that heading are “qualifying under the scheme”, as the jargon goes, but a lot of them are. Developing a software product that is mostly content-based, for example, doesn’t typically qualify. On the other hand, the kind of product that startups build, which involves issues of scalability, performance, integration, algorithmic developments, and of course technical innovation, tends to qualify.

The other point worth making is that not all of a company’s activity has to qualify for that company to file for R&D Tax Credits. In fact, it is almost impossible for all of a company’s work to qualify. So long as some of the work is complex and challenging, there’s a good chance that a portion or even a majority of the costs will qualify.

What is “complex and challenging”? Well, the answer to that is “it depends”. You can find much more detail here, but as a rule of thumb, if it was not entirely obvious to a moderately competent programmer (i.e. not John Carmack, but not an inexperienced programmer either), what the solution would look like, in detail, before it was programmed, then it probably qualifies.

Most tech startups that we’ve encountered tend to qualify. However, to be sure, just give a specialist company a ring, and all of them will “qualify” you for free. It will only cost a bit of time with a technical person who can talk about the product that the startup is building, and you should be able to get a clear answer, without having to commit to anything.

There’s one more important “qualification criteria” that many startups fail, and it’s a fairly mundane one. R&D Tax Credits work by “enhancing”, for tax purposes, the amount of money spent on “qualifying R&D”. This means that in order to get money out of R&D Tax Credits, first you need to have spent money. Many bootstrapped startups spend little to no money until much later, and so tax credits are rarely worth the hassle of filing for them.

However, with up to 25% of the money recoverable, the maths is simple. If 25% of your R&D spend would make a tangible difference to your startup and be worth spending time and attention on, then tax credits are a no-brainer.

Coming up n Part III: how to file R&D tax credits.

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Meeting The Startup Community In Berlin

Last week I went to Berlin to attend two main events: Campus Party and Tech Open Air conference.

Campus Party is an event aiming to bring together coders and developers to "re-type Europe's source code". I am still not sure why their mission says "re-type" instead of "type", but anyway, the goal is to put together 10,000 developers during a week to build software. I brought a bus of CS students from UCL who had a lot of fun and came second in the 24-hour hackathon!. The event was hold in the iconic Tempelhof Airport in Berlin. Thousands of developers camped during the whole week in O2-sponsored blue tents (which did not seem very comfortable over the runway). 

Campus Party had some amazing keynote speakers including Paulo Coelho and Don Tapscott. During the event, Wayra ran the final competition for the Wayra-Munich chapter. However the main attention was probably focused on the technical events such as the 24-hour Mobile Hackathon and the Firefox OS Challenge.

The second main event I attended was the Tech Open Air Conference (TOA). Unlike Campus Party, TOA was a more standard type of entrepreneurship/VC conference. That does not mean that it was uninteresting or boring. Berlin is full of designers and creatives who have converted many old and nearly destroyed buildings into offices, homes and conference venues. TOA was hosted in one of these "refurnished" and "redecorated" buildings named KaterHolzig (see picture). Apart from enjoying musicians and frozen yogurt in the sun, I met many interesting entrepreneurs from the German startup scene. Many UK based entrepreneurs and VCs were there too (Tina from Everplaces; the Index Seed team; Philipp from Seedcamp, great to see you there!).

But these two events were not the only ones happening last week in Berlin. I also attended a party at the Betahaus for Time Capsule, a "Hangover Breakfast" (KaterFrushtuck) to pitch to investors and a BBQ on an amazing terrace of an entrepreneur in Mitte. In fact it was in these small events I had the opportunity to learn about the entrepreneurial community in Berlin. Definitely it is a very active and creative community of entrepreneurs there. And everything happens between Philipp and Chistoph. There are so many of them!

Thanks Christoph Gerber for the BBQ, Christoph Fahle for the Betahaus party and Philipp (Seedcamp) for keeping me posted of the cool parties! 

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R&D Tax Credits Explained

This is a guest post by Daniel Tenner of GrantTree.

Foreword by Julian Carter, M.D, EC1 Capital.

"Having successfully applied for R&D Tax credits in previous startups it is a 'no brainer', you actually get cash back in the form of a cheque, essential to any startup. However to avoid being tripped up, you need to plan ahead and have the necessary documentation and records to ensure a successful outcome."

Julian Carter

Despite the large scope of the R&D Tax Credits Scheme, with many tens of thousands of companies eligible, a lot of people that we approach don’t know about R&D tax credits, or have been misinformed about them.

The R&D Tax Credits scheme, whose full name is “Science and Technology Research and Development Tax Credits”, is a tax break that the government has had in place for over 10 years (though the rules are constantly evolving). The objective is to use tax incentives to encourage technical firms to invest in developing their own innovative products, and make the UK more competitive on the global scene.

The thinking behind this is that most of the UK’s economic advantage and growth is likely to come from its ability to deliver technological innovation, and the theory is that proper tax incentives can help encourage more investment in this critical kind of innovation.

R&D Tax Credits work by reducing your taxable profit (perhaps all the way into a tax loss) and thereby dropping your Corporation Tax. However, even if you don’t owe any Corporation Tax (or don’t owe much), the scheme can still provide you with cash in exchange for “surrendering” some of the tax loss that has been created. In other words, R&D Tax Credits can help whether you’re profitable or not.

How much can you get? Up to about 25% of your “qualifying costs” can be recovered. That can make a real difference to cash-strapped startups - and just as much difference to funded startups that are spending a lot of money on developing innovative products.

There is one disadvantage to the shape of the scheme. Because it is a tax break, it is only useable after you have finished at least one accounting year. However, there’s a trick that you can use even there: although you are only allowed to lengthen your accounting year once every five years, you can shorten it as many times as you want. Some of our clients have opted to use this trick to get the tax credits early. If you have 12 months of runway, it makes a lot of sense to shorten your year to 7 or 8 months so that you get a helpful cash injection in the 10th or 11th month, allowing you to extend your runway by a couple of months just as you’re about to run out.

The next article in the series will cover what kinds of startups can claim R&D Tax Credits.

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