Why startups might want to rent hardware instead of buying it – TechCrunch

Startups

The possibility to rent all sorts of things is a logical step in the evolution of a subscription economy, but renting hardware wasn’t necessarily top-of-mind for startups until COVID-19 hit.

Pre-pandemic, a common step in the onboarding process at many VC-funded Bay Area startups, called on new employees to visit the nearest Apple Store with a corporate credit card so they could pick up a new laptop.

That practice stopped when offices closed and while buildings stood empty, all those unused laptops, desktops, widescreen monitors and Aeron chairs started to look like a bad use of precious money. At the same time, it became clear that remote working was here to stay and that shipping devices to another country was expensive.

Working from home during the pandemic has been a tailwind for hardware rental companies. But even with the perspective of a hybrid return to offices, there’s reason to rent not just software, but laptops, phones, or even furniture. What should your startup startup do?

OPEX vs CAPEX

“Don’t buy, rent,” reads the flyer from Emendu, a startup whose founders I recently met at an event. But now that SaaS is mainstream, why does this have to be said? Because Emendu does not sell software subscriptions; it rents hardware to a range of customers, including startups.

From a financial point of view, there is an important difference between buying and renting: the first is a capital charge; the latter an operating expense. In some places, this makes a huge difference when it comes to the amount of VAT a startup can deduct.

Add in options like credit and BNPL, and it seems like the main benefit of renting hardware may not be financial.

Emendu’s home country, Spain, is one of the locations where renting hardware is tax-efficient for startups. This aspect is less relevant in the US, accountant Paul Bianco told TechCrunch. “I haven’t seen the conversation come up here from a tax standpoint,” he said.

Bianco is the CEO of Graphite Financial, which provides startups with outsourced accounting and CFO support. But most of its clients owe “little to no taxes” because “VC-backed startups” [are] in growth mode [and] they are not profitable yet,” he said. If renting hardware makes sense to them, it’s not for tax deductions.

If there were financial reasons for a startup not to buy its hardware, “it would be more about cash flow management,” Bianco said. But decapitalization is only a major concern “for very early stage businesses where cash is a scarce commodity” or “when the amount of hardware purchased is material to the business.”

Add in options like credit and BNPL, and it seems like the main benefit of renting hardware may not be financial. “For companies that have raised money, it’s definitely more about [saving] time,” said Bianco

To keep it simple

Efficiency is a key success factor for startups, and it’s also the framework through which they can explore hardware rentals.

According to Emendu’s head of digital, Francisco Chaves, hardware rental starts to become relevant around 10 employees. Below that threshold, startups may find it easier to buy hardware.

Things change once the team grows, especially if it’s distributed, Chaves said, adding that Emendu ships devices all over Europe.

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