Needs of a high-tech start-up: A Consultant's view;Forecast: microcomputers;

              A Consultant's View
High-technology start-up
companies are the most
intriguing of ventures
today. It is not unusual to see a
company develop in three to five
years from a dream or a product
prototype to a publicly held
multimillion-dollar revenue
company.
During this period, the
company is continually concerned
with systems, accounting, finan­cial,
or SEC-related matters. The
demands created on the company
as a result are significant. Too
often, the founders of the new
entity do not pay sufficient atten­tion
to these matters; and when
they do, they find the changes
required are costly and inefficient.
The most opportune time to
plan and develop basic strategy is
when the company has the most
flexibility, which is at the point
when it is being created. Many
of
Hipn-Tecn
scare-up/
by ROCCO A. LATERZO/Director of Audit Operations, Boston
entrepreneurs are beginning to
recognize the importance of
obtaining strong professional
expertise as one of the first steps
in forming the new venture.
The types of financial,
accounting, and tax concerns for
a given company vary signifi­cantly.
The need really depends
upon the objectives and expertise
of the entrepreneur. There are,
however, common elements in
each new entity.
Tax Structure
One of the first issues that
concerns the entrepreneur is the
tax structure of the new entity.
Many entities are organized as
regular taxable corporations.
Others elect Subchapter S status
or are formed as partnerships.
The latter forms are used to
provide the owners immediate
tax benefit from the start-up
losses that may be incurred by
the company. Such entities are
converted to corporations when
earnings commence. The most
obvious disadvantage of corpora­tions
or partnerships is the lack
of the loss carry-forwards for use
in the corporation's future years,
when earnings are being gener­ated.
Twelve start-ups I have been
involved with in the past two
years have required equity from
sources outside of the founders; of
these, two-thirds initially selected
the corporate form.
Research and development
partnerships are also used at
times—normally influencing those
stages after the initial start-up.
This is done to fund specific activ­ities
of high-technology compa­nies,
generally in such a way that
the research and development
costs do not appear in the
company's financial statements.
Such partnerships act as tax
shelters for the partners. Further,
though the agreements often
contain equity incentives in the