Dotcom financial controls are 'lax'

Dotcom startups were this week branded "irresponsible" by UK venture capitalists for regularly sidelining the role of finance directors and operating without adequate financial controls.

David Thorp, chairman of the British Venture Capitalists Association, has hit out at New Economy startup directors who fail to install financial directors in their boardrooms.

"Financial directors are needed in a new business from day one," said Thorp. "They play a central role in any business - as a contrary voice who can exercise cost control and count the pennies."

He added that a lack of financial control could hinder vital future UK venture capital investment, which last year backed more than 470 hi-tech companies to the tune of £1bn.

Swedish 30-year-olds Kajsa Leander and Ernst Malmsten, founders of online fashion site boo.com which went bust in May without a financial director, have revealed they are to write a book about how they burnt through £80m during just six months in business.

New boo.com owner Fashionmall.com, whose independent accountants are Arthur Andersen, plan to have the site up and running again at the end of this month.

Thorp said: "Young startups have got to give more attention to their business and financial planning."

He warned dotcoms must start to apply due diligence and corporate governance process, and look after shareholders "in a proper manner".

"People are just not going to get support just for having a good idea," he said. "There has to be some genuine level of competence."

Clive Brook, corporate finance partner at Pannell Kerr Forster, said: "The difficulty facing many startups who have pulled together pre-venture capital, is they need to exercise tight financial control until they can attract further funding."

Business-to-consumer dotcoms are particularly vulnerable to running out of funds, with venture capitalists viewing business-to-business operations as a sounder investment sector.

Anita Monteith, Wordoftraining.com director and former English ICA tax faculty chairwoman, said: "Is it any wonder if you travel first class and stay in the Ritz that you go out business?"

UK ecommerce minister Patricia Hewitt unveiled figures this week showing that more than a quarter of UK businesses now trade online - an ecommerce take-up rate on a par with the US and Canada, and ahead of Germany and Sweden.

First published on accountancyage.com