The startup ecosystem is underserved - but the potential is huge with the right counselling

Danish startups do not get enough good advice when it comes to accounting and tax. As a result, many young tech companies are missing out on opportunities, according to auditing firm KPMG, which has a team focusing on startups and scaleups.

As a startup, it can be difficult to make ends meet. Experience shows that too many young Danish companies make critical mistakes or fail to capitalise on their opportunities because they do not get the right advice.

This is not helped by a general shortage of auditors in Denmark. Especially in the startup ecosystem, most auditing firms have down-prioritised young companies in favour of established clients, primarily because they have limited capacity. Since 2014, the auditing firm KPMG has specialised in this area through their Venture & Startup team, which today services approximately 450 startups and scaleups.

“Startups and scaleups have the challenge that they need even more counselling than others, but many of the startups do not know themselves - which topics they should relate to. Startups need patient advisors, but they are often down-prioritised - as many accountants find it easier to work with more mature

Morten Høgh-Petersen Partner, KPMG Denmark

clients,” explains Morten Høgh-Petersen, Partner in KPMG Denmark, and head of the KPMG Venture & Startup team.

A problem for the ecosystem

In Denmark, the number of limited liability companies has doubled from 150,000 to 325,000 over the past 20 years, while the number of authorised auditors has fallen over the same period.

“The startup ecosystem is sadly underserved. This is critical, because all scalable companies need to have their house in order. Otherwise, you risk investors dropping out due to errors in VAT, tax, accounting and the risk of the errors

KPMG Venture & Startup

• 25 employees, 4 state-authorised public accountants, in Aarhus and Copenhagen

• 450 customers based in the startup environment.

• Serving startups from early-stage to scaleup and IPO

• Experts in corporate structure (holding), tax credit scheme (ll8x and ll8b), accounting, tax, stock options (ll7p), investments, soft funding, exits, IPOs and international expansion growing,” says Morten Høgh-Petersen. Over the next ten years, there will be even fewer authorised accountants, while the number of startups and businesses is expected to increase. This is a challenge, as more advice is needed - not less.

“For most startups, it’s about getting the right advice from the start,” he summarises.

Untapped opportunities for startups

One example of this trend is the use of the tax credit scheme (ll8x), which was adopted by the Danish Parliament in 2013. The scheme allows startups, scaleups and other growth companies to receive the tax value (22%) of a loss of up to DKK 25 million if it relates to research and development expenses. A fragile phase where companies often lack liquidity.

In 2021, SKAT clarified that their interpretation of when the scheme can be used, especially in relation to software companies, is very limited. One of the effects of this has been that many startups that perform qualified research and development and their advisors - today refrain from using the scheme. Despite the limitation in terms of software, the scheme should continue to be more ben- eficial than we see in practice, especially for some smaller startups whose activity is technological development.

If you have a tech startup doing concrete and innovative development, “every fifth krone can be recouped in cash up to the 22% of DKK 25 million per year. But when many are not aware of the opportunities, they do not use them. The good advice is that you should at least investigate the possibility,” says Morten Høgh-Petersen.

In addition, we see that too few are aware of the technical accounting possibility of capitalising development as an intangible asset (i.e. putting the development on the balance sheet). This can be crucial for the company’s equity and thus its solvency. Many startups do not understand the importance of positive equity - which, among other things, is very important. Vækstfonden and suppliers are very keen on.

“I think one of the big challenges in the coming years will be access to capital. What we’re trying to do is to get startups to make a lot of small, good decisions that may prove to increase their chances of success further down the line,” Høgh-Petersen predicts.