Since the availability of the internet in the 1990s, the tech industry has centered on the transformation of the data revolution from the industrial manufacturing led revolution. Today, it stands in the trillions of dollars and is the single largest addition to wealth in the last 20 years (over 45% of Total Market Cap in NASDAQ are tech companies in 2017). This information in the internet age has been touted as the fourth industrial revolution (The Global Information Technology Report 2016, World Economic Forum). Tech is here to stay.

2. Since the availability of the internet
in the 1990s, the tech industry has
centered on the transformation of
the data revolution from the
industrial manufacturing led
revolution. Today, it stands in the
trillions of dollars and is the single
largest addition to wealth in the
last 20 years (over 45% of Total
Market Cap in NASDAQ are tech
companies in 2017). This
information in the internet age has
been touted as the fourth industrial
revolution (The Global Information
Technology Report 2016, World
Economic Forum).
Tech is here to stay.

3. Let’s break this down into 3 fundamental aspects which set ‘tech finance’ aside:
Value in use as compared with value on sale Longevity Investment on intangibles first
New models of receiving value
The emergence of consumption tied
directly to the provider’s revenue (SaaS,
pay-per-use, freemium, pay-as-you-go, pay-
per-instance) open several questions of
when value is being delivered and when
commensurate consumption of effort
occurs.
New asset class
Compared with a tangible product, the
technology industry requires consumption
of service over a period with an implied
promise of support which may not be
commensurate with revenue generated.
New fundamentals
The fundamentals of technology services
imply a significant investment of time,
effort, resources and capital initially.
Whether it is learning/ building a domain
expertise or developing a product, the
value is being generated much before the
consumer buys a service/ product.
Example
A company (let’s call it, ‘Healthinity’) which I
had worked with, had built a unique device
in the field of healthcare where the revenue
model was linked to a franchise and pay-
per-use structure. Healthinity would receive
revenue from the product over the lifetime
of the product as the value of the product
would keep getting enjoyed rather than on
the sale of the device.
Example
A company (let’s call it, ‘GilFrend’) which I
had worked with, had perfected a SaaS
based solution to ERPs. While the service
was priced based on number of licenses
used monthly, there was an implicit
understanding that the company needed to
support the data and integrity of the
system in perpetuity and an express
understanding for technical support for the
next 3 years.
Example
A company (let’s call this one ‘Ensecore’)
which I worked with, had built a product
after 4 years of research and development
of over $5M. This product had received
adoption with its first few clients jumping
on to the beta product which was refined
over time which would do significantly
different functionality from the final
product. However, only the final product
would make revenue when the circle would
be completed.

7. There is no ‘one’ way. While GAAPs
have guidelines for measurement and
recognition, the business can choose
to differ on certain aspects simply
because of the uniqueness of their
business model. The real decision of
what is right needs to come from
experience on the technical side as
well as the business side. This is what is
making CFOs great CEO candidates
off late.

8. Disclaimer: The views expressed in this document are
solely that of the author based on his/ her
experiences. It is imperative that you and your
organization seek relevant professional expertise
before implementing the strategies to your business.