Tag Archives: entrepreneur

SEIS Seed Enterprise Investment Scheme

As promised the chancellor has confirmed in his March budget documents that there will be a Seed Enterprise Investment Scheme (SEIS) starting from 6th April 2012, although it didn’t get a mention in his actual speech.

Just to clarify for anyone confused by the similarity of SEIS with an existing scheme, there is already an Enterprise Investment Scheme (EIS) which targets larger businesses rather than start-ups.

This big brother to the SEIS also received good news in the budget, with the qualifying size of a company moving from a maximum gross asset size of £7 million with 50 employees, to £15 million with 250 employees. This means later stage investment prospects will now qualify for EIS (see EIS for more information).

The basic information that I covered on my last blog on the SEIS remains unchanged, so I won’t go over that again. Suffice to say it is worth ensuring that your new business qualifies (not all industries do – eg. Property development and financial services) and publicise to potential Investors that they can get tax relief by investing in your business.

Clearly for Investors it’s a no-brainer that you should utilise this new scheme for your investments.

So how do you make use of it?

Luckily those nice people at HMRC have put together a fairly comprehensive web-page that explains the SEIS and how to apply for it. See http://www.hmrc.gov.uk/seedeis/index.htm

They are careful to say that although the scheme starts on the 6th April, until the budget gets Royal Assent (around July) it isn’t set in stone, but it’s unlikely to alter in my view.

The HMRC web-pages have a section on how to get advance assurance that your business and the shares that you are going to issue to an Investor will qualify. It can be useful to do this in making your opportunity attractive.

Government Support for Small Business

Small Business support Am I the only one that is getting confused by the increasing number of initiatives that the government is rolling out to encourage entrepreneurship? Or frustrated because they don’t actually seem to make a difference?

We had Business Link, then we didn’t, except it still exists as a “business advice and guidance service portal”.

The Small Firms Loan Guarantee scheme (SFLG) has been around for decades and continues to help companies that need a bank loan. Or it would if the banks fulfilled their part of the deal by releasing the funds.

To encourage them to do so the government set up Project Merlin last year whereby the banks agreed to lend £76B specifically to small firms. However it has been a failure and banks are still holding on to their money. Now Merlin looks like being dumped along with any credibility that the banks could have gained by making good on their promises.

For some time now we’ve had the Enterprise Investment Scheme (EIS) to encourage Investors, by giving them various tax breaks if they help to fund growing businesses.

In addition last year the Chancellor announced the Seed Enterprise Investment Scheme (SEIS) due to come into effect on the 6^th April 2012. This is aimed at small start-ups and gives a 50% tax relief to Investors. I’ll do a write up of that shortly, but it looks promising in motivating Investors.

Enterprise Zones were introduced to mixed response and the jury is out on their long-term effectiveness.

The Government has pushed StartupBritain which they call “a national campaign by entrepreneurs for entrepreneurs, harnessing the expertise and passion of Britain’s leading businesspeople to celebrate, inspire and accelerate enterprise in the UK”. Fine words – but never-the-less just words.

Talking about fine words, recently the latest campaign is “There’s a business in you”, which provides inspiring stories and highlights support available. However most of the highlighted support simply takes you to the Business Link website.

Then there’s talk about cutting Red Tape. There is a “Red Tape Challenge”, where members of the public can suggest red tape to be cut and a “1 in, 1 out” idea that says if a department wants to bring in a piece of legislation, they must first remove one. Latest government news is that there have been 19 in and 33 out, saving small businesses £3.2 B a year. What shall we spend it on?

How about making tax simpler and easier to understand I hear you say. Well there’s a government office called “The office for Tax Simplification”. Yes there really is, let’s hope they are successful.

So is it all spin and gimmicks as some business experts have commented, or a well co-ordinated and ambitious campaign to release the entrepreneurial spirit in us all and make Britain great again?

Make IT compulsory – get more start-ups.

Young high-tech start-up businesses I must admit this blog sounds a bit as though I’m standing on a soap-box, but a recent comment by Google’s chairman, Eric Schmidt, rang true with me. He said:

“I was flabbergasted to learn that today computer science isn’t even taught as standard in UK schools,” he said. “Your IT curriculum focuses on teaching how to use software, but gives no insight into how it’s made.”

Yes I thought, he’s right. We teach how to use software, not how to make it.

This made me think, would teaching Information Technology as standard make a difference to our ability to innovate in a high-tech world?

Innovation has always driven the economy. Just look back to the Industrial Revolution and the inventions that abounded, they were that time’s high-tech.

Today’s innovation tends to centre on software, electronics and biotech, all of which require not just a grasp, but actually a fairly good understanding of the principals behind these technologies. The sort of understanding that can then be used to develop new innovative businesses.

However, schools have increasingly concentrated on “soft” subjects and reduced the time spent on what is thought to be more difficult areas such as science, maths & technology.

I know that we are short of science and maths teachers and the need to meet higher and higher pass rates every year means that schools concentrate on courses that are not as exacting.

It doesn’t have to be this way; though it will require government willpower to change.

We’ve seen an enthusiasm for entrepreneurial activity, with programmes like Dragon’s Den and The Apprentice. Nearly all young people have a passion for the uses of technology, with Facebook and iPhone Apps.

So why not put a fresh emphasis on learning why an iPhone works and how to programme an application like Facebook, not just how to use them. Then we may be producing the future innovative entrepreneurs that the economy demands.

Enterprise Zones – what are they and will they help?

Enterprise Zones are the latest government incentive to get businesses growing. Within the Enterprise Zone you can get superfast broadband, lower rates & taxes, and low levels of regulation & planning controls.

That can only be a good thing – right? A great encouragement for younger companies who may otherwise struggle to reach critical mass.

Maybe, however there is considerable criticism of this approach also. Firstly it’s not new. Maggie Thatcher tried exactly this in the 1980’s. They provided a boost at the time that wasn’t able to be sustained.

Critics argue that all the Enterprise Zones do is to displace jobs from one area to another, with up to 80% of the jobs they create taken from other places.

Also that they are expensive, with estimates ranging from £23,000 to £50,000 per job created.

Having said that, if you are looking to expand your business (the zones will be most useful for businesses that have been going for two or three years, and are looking to expand and inhabit their first business premises), is there a benefit to doing so in a Enterprise Zone rather than elsewhere?

Probably yes. One of the main benefits that the zones will offer is a business rate discount worth up to £275,000, or enhanced capital allowances for plant and machinery where there is a strong focus on manufacturing, over a five year period. That coupled with the other advantages of infrastructure and support can make it attractive.

So where are these Zones? They are not all in areas needing regeneration, another criticism, but are areas with the most potential for growth and those which could attract inward investment from abroad. The government has announced the following areas will get an Enterprise Zone:

Bristol;
Liverpool;
Birmingham;
the Black Country;
the Tees Valley;
the West of England;
the North East;
London;
Manchester;
Derby;
Nottingham;
Humber Estuary Renewable Energy Super Cluster;
Daresbury Science Campus in Warrington;
Newquay AeroHub in Cornwall;
The Solent Enterprise Zone at Daedalus Airfield in Gosport;
MIRA Technology Park in Hinckley, Leicestershire;
Rotherwas Enterprise Zone in Hereford;
Discovery Park in Sandwich, Kent, and Enterprise West Essex in Harlow;
Science Vale UK in Oxfordshire;
Northampton Waterside;
Alconbury Airfield, near Huntingdon in Cambridgeshire;
Great Yarmouth in Norfolk, and Lowestoft in Suffolk.

Interestingly, it is difficult to then get further detail on each and how to apply to be in one. These are being managed by each Local Enterprise Partnership (LEP), so the first step is to contact one of these. You don’t have to already be working or living in the area, if you are prepared to move your business there.

Resources that may help:

Map of the Local Enterprise Partnerships (LEP).

Contact details for the Local Enterprise Partnerships (LEP).

Why SEO means sales for your business website

Almost all businesses now days have to have a web site. Even if you don’t sell over the web, your customers will expect to be able to find you on it.

If they know your name and it’s fairly unique then you are likely to be found. That’s good, you can give your customers contact details, support information and reassure them that you have a web presence.

But what if you not only want to be found by people that know you, but also by new customers? Then you have to be found by the type of product or service that you sell. These in web terms are keywords.

Given that all of your competitors also want to be found for those terms, it’s not easy to get to the first page of Google (hardly anyone looks beyond the first page).

If, like me, you get continued spam from people claiming that they can get you on that first page, you’ll be pretty jaded by now. There are some good SEO (search engine optimisation) companies out there but they are difficult to identify from the poor ones and do tend to charge quite a bit.

Also, the good companies do not send out spam, I’d never respond to unsolicited SEO mails, but actually SEO is something that you can take control of yourself.

We used a tool that we down-loaded, it looked at the top ten websites for our keywords and worked out what it was that made those particular sites rank higher than others. We then altered our site to match the recommendations.

All the recent spam I’ve had on SEO reminded me that we’ve had questions on this before and have written a resource on the subject (along with a plug for the tool we used – well worth getting !). Have a look at How to get people to your business web site

To grow a business employ a “great one”.

Whenever I hear advice from successful entrepreneurs the most consistent mantra is “always hire the best people you can afford”.

But how good is “the best”, how do you measure that? Also, if you are in a young company, with very limited resources, how much can you really afford?

Let’s step back for a moment though and examine that advice. Is it really the most important thing that a growing business should do? What about offices, buying equipment and developing the product or service, then there’s marketing, the best product is going nowhere unless people know that it exists.

The answer may be that if you have good people aboard, they will help you get the operating essentials cheaper, faster, and of better quality. When you look at product design the difference between good and average has even more staggering claims.

Mark Zuckerberg, of Facebook, suggests that some programmers and programming teams are 100 times more productive than their more typically talented peers.

This isn’t because they can programme 100 times the number of lines of code, but because they write smarter code. These truly great programmers grasp what is needed quickly and transform that into efficient, supportable, clever instructions that enhance the original concept.

What does this mean for the non IT side of businesses? Well the theory is still valid, if the multiplication factor may be less. Consider the likely results of an inspirational, highly respected and well networked senior figure in any sector of business, such as marketing, PR, raising finance, compared to an industrious but junior practitioner.

Can you measure the impact of the great person against the average worker? The difference may be that you get funding, or not. That you become well known, or not. What is the measure and worth of these?

I think we can all accept that the great person is going to do more for your company than an average worker, the question is what do you give up to be able to afford them?

Do you take out loans, sell your house or divert funds from infrastructure to hire a great employee?

It’s a balancing act, between all the calls upon your limited cash. The advice that successful entrepreneurs have given implies that you do all you can to get these few great people.

If the immensely talented ones can ramp up your business fast, then you can start to readjust the balance so that other areas have cash made available.

It is natural though to hope that even by using a less expensive resource you will still manage to make the break through. The lessons from very successful businesses however seem to speak against that.

Identifying successful businesses

Identifying a successful business start-up
Every experienced Investor develops a sixth sense when looking at potential business opportunities, but even so it can sometimes be difficult to put your finger on what is the key ingredient in making a new venture successful.

Over the years of working with start-ups I’ve seen companies grow rapidly and then fall away, great businesses that not only grew but sustained their position and of course those that never made it.

In all of the great ventures they got 3 basic elements right and I’ve tried to show those essentials on our model of Start-up Success above.

Much of it is common sense, but like many simple things it can often be forgotten and the whole process of identifying a good high growth business made over complicated.

Firstly, yes you guessed it, is the founders of the venture. It’s said many times that the management team is key, but why? It is because they provide the drive, ambition and ultimate quality of the business.

Not only must they have the will to succeed but also the competence to implement the business successfully. The idea is important, but the excellence of implementation of the idea is critical.

Great entrepreneurs have a vision of what they want to achieve based on an insight to a market opportunity and the capability to pull together the resources to address it.

When you as an Investor look at prospects, or perhaps if you are an entrepreneur thinking through options for starting a business, it’s worth remembering the 3 key ingredients and how they interact for sustainable success.

Division to provide business help is launched

Management Consultancy

Company Partners has been a blessing for those businesses who are looking for business partners, mentors and investors, but what if you need to reorganise your business to make it more profitable, or to grow?

I’ve been helping companies that have approached us for a while now, but eventually there is only so much of my time available. Rather than continue to turn down requests, we’ve started a new division dedicated just to helping companies with their consulting needs.

Called, “Company Partners Consulting” – yes maybe a bit of an obvious name – I’ve gathered together the consultants that I most respected and that follow my own ethos of practical advice geared to getting results.

Since it is aimed at this stage at the UK, I’m using our www.companypartners.co.uk address – have a look, I’d be interested in your feedback.

Spot checks by tax inspectors

HMRC inspection I wonder if anyone you know has been the victim of these? Various business journals have been mentioning for some time that the Inland Revenue has decided to target small companies. On the belief that such businesses would have poor record keeping and so would be able to have more tax squeezed out of them.

It flies in the face of the government’s pledge to reduce the burden of red-tape and to encourage entrepreneurship, but the HMRC is a law onto itself. Literally. As long as they are effective in raising money, they seem to be able to make their own rules.

But is targeting 1000′s of small companies a cost effective exercise given the small payback for the amount of time needed to do such investigations? Probably not, so the major benefit must be thought to discourage abuse of the system and encourage SMEs to pay fully all tax.

Most small businesses I know though are not run by greedy Arthur Daleys, but by hard working owner managers, who try their best in filling out the endless Companies House, VAT, PAYE, National Insurance and annual returns forms, but inevitably may not tick all the boxes in the right place or have kept 6 years records.

If these entrepreneurs make a error they don’t realise it at the time, so the punitive measures mentioned above are not likely to cause a change of behaviour. It all seems a waste.

But today I received a letter from my accountants suggesting I take out insurance that would cover their costs in the event of a investigation by HMRC. I’m not sure if it is just a scare tactic in order to drum up commission from the insurance providers, or if it is another sign that these investigations are generally increasing. Certainly the cost of dealing with a tax inspection worries me more than the likely outcome.

Hmm, should I take the insurance or live to regret not doing so – a dilemma.

Insights to the Angel Investor world

London-funding-conference I went along to The London Funding Conference at the British Library last night and was again impressed by the Library’s ability to host these events.

In football terms the conference had scored a couple own goals, with over-long sponsor’s talks during the first half, but came storming back to win with truly excellent insights into the minds of Investors during the second half.

Michael Blakey (Angel Investor with Avonmore Developments) and Luke Johnson (Chairman of Risk Capital Partners plus much more) gave very open accounts of the state of the investment market and the key tick boxes for an entrepreneur to gain funding.

Let me give you a flavour of the main points that were covered. I’ve noted them in bullet form so as to get as much information down as possible, I’m sure you’ll forgive my poor prose on this occasion.

Michael Blakey:

Sees 1000 plans a year and 100 go straight into the bin because the sender has not checked his investment criteria (size of deal and preferred stage/industry).
Because VCs are investing other people’s money they have a rigid procedure, Angel Investors are more flexible. Not interested in just “ideas” need to show some revenue.
Sees 350 presentations a year and 50% of them don’t explain what the problem is that they are solving and how they will do in the first 10 minutes. Do so immediately you start.
Lead investors are important. Find one first, they can help you find others. The lead investor can act as a conduit to the others, so not all your time is taken up communicating.
Valuation is the deal breaker 75% of the time. Investors never believe the sales forecasts, cash-flow forecasts are more believable and more controllable. If the valuation is not what you want, work out what would increase it, ie. a CEO joining with an established reputation, or more revenue coming in.
Have a due-diligence pack (IP/Business Plan/Accounts/Professional Contacts/Team CVs etc) ready, it impresses investors.
No surprises. Reveal all issues upfront, it won’t put investors off as much as you think, they’ve seen these before, but if you don’t and they find out it will break the trust and the deal.
Work out what your funding model is likely to be. How much you need now and how much in perhaps 18 months. Not less than 18 months or all your time is spent fund raising and not running the business.
No life-style businesses, no high salaries.
Get your exit strategy. It can drive decisions. As an Investor he wants to know you have thought it through, not just the cliché of an IPO or trade sale.
Michael will not invest if more than 10% goes out in fees. In particular legal fees don’t need to be so high, there are standard documents, the lead Investor can normally help because they’ve done it all before.
Pet hate: don’t use the word “conservative”. Investors don’t believe your sales figures anyway, but do want to see you talking as though you have ambition.

Luke Johnson:

Angel Investors will expect to see subsequent rounds. Plan for them.
Investors back teams. Prefer duos or triumvirates. (btw that’s why we started Company Partners, in order to bring partners together to form a business team).
They look for high margins, in the business.
IP (Intellectual Property) is key. You must preferably own your own IP, not using someone else’s.
Understand your market thoroughly (Michael also said this). Be a market expert when presenting to investors, don’t be caught out.
Don’t get worried about valuation. The down side is only that you may give more equity away than you might, if it goes wrong you have actually lost nothing (the investor has lost his money), but if it goes well you have made a lot.

Luke had some tips for Investors also.

Only invest in what you understand.
Focus on the team and the competition.
Add value.
Expect to get references; don’t accept what is said at face value.
Expect failures. 40% may fail completely, 40% may tick along and 10% do very well.
Look for obsessives.
Form a partnership, not “them and us”.
Have patience, poor businesses fail quicker than successful ones become a success (up to 10 years).
Enjoy. You are investing not just for the money, enjoy the business.

The Investment Market

The debt to equity proportions in funding a business have changed. Previously it might have been 25% equity, the rest debt. Now despite what banks are saying, there is less debt available. The proportion of equity is more like 50% to 100% now in many cases.
Floatation is difficult so private equity is increasingly used.
Do all you can to get longer terms from suppliers and quicker cash from customers to make up for less debt available to fund working capital.

Luke revealed some truths about Private Equity.

Private Equity and Venture Capital are not the same. The Private Equity industry is 50 times the size of VC and covers a broader spectrum of industries, VC tends to concentrate on high-tech or bio.
The BVCA (British Venture Capital Assoc) is more Private Equity than VC, but calls itself VC for perception benefits.
Private Equity firms don’t take over operating control of a company, although they do have people on the board.
Private Equity firms sometimes get more from their fees than from the increase in capital valuation of a business.
In 2005 – 2008 half of all Private Equity ever invested was invested then, when money was over abundant and some poor investments may have been made. There is a time-bomb of failures waiting.
Private Equity investment is not easy; it’s hard to find good opportunities.

Why now is a great time to start a business

There is much gloom, but technology is making it easier than ever to start a business. With the Internet you can experiment, try a business on-line and if it doesn’t work, learn from it and try another.
Corporate life is increasingly unappealing. There is no longer any job security and if you are taking a risk of being employed you might as well do that for yourself and start your own business. The personal control and enjoyment is much better.
The world needs entrepreneurs and governments are encouraging people to take this up.
Virtual companies are more common and nearly everything can be outsourced.

Finally

Need to move out of your comfort zone sometimes, remember the worst that you can lose is your equity, but the best is unlimited. Never however give “personal guarantees”, keep the risk to the company.

There we have it, these senior Angel Investors don’t have to come and give advice to groups such as they did last night, but do so out of a real passion for creating businesses. We need more successful entrepreneurs to do so as we continue to develop an entrepreneurial culture.

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