Issue 02 | Winter 2014 | Quarterly
Brought to you by Buckworths
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The Finance Issue Raising finance for your startup
LEGAL
MARKETING
A guide to legal structures
How to harness social media
EDTECH
TRAVEL
The current growth sector in startups
Around the world in eighteen hours
SPOTLIGHT ON CROYDON startuproar.co.uk
Corporate Lawyer of the Year 2014 Lawyer Monthly Corporate Law Firm of the Year UK 2014 Worldwide Financial Advisor Magazine Financial Deal Maker of the Year 2014 Finance Monthly Corporate Lawyer of the Year UK 2015 M&A Today
buckworths.com
Dear Reader Christmas isn’t just a holiday to be celebrated but also a time to reflect on the past and a take hopeful leap into the future. Autumn 2014 saw the launch of our very first issue of StartUp Roar. We received an overwhelmingly positive response and would like to extend our gratitude to all the contributors, startups, coffee manufacturers and StartUp Roar staff who were involved in the project. Without your patience and support, this wouldn’t have been possible! I now have the pleasure of introducing you to our second (December) issue! This issue focuses on the world of funding for startups. Michael Buckworth (named corporate lawyer of the year 2014) talks about angel funding and offers top tips on how to raise a seed round in six weeks. Bryan Kemsley from McCabe Ford Williams runs us through the generous “R&D” and “Patent Box” tax reliefs whilst we are introduced to crowdfunding by Chris Hancock, CEO of Crowd2Fund. We are also introduced to the Croydon startup scene (the topic of our March 2015 edition) and some of the key players there. Just 15 minutes from Central London, Croydon has experienced an explosion in its tech startup scene and now boasts one of the most vibrant tech scenes in London. So grab a mince pie, mull that wine, turn on the fairy lights and delve into the second edition of StartUp Roar. From all the team here, and at Buckworths, we wish you a Happy Christmas and prosperous 2015. Miles Alexander Editor 2
HELLO
“’Tis the season to be jolly, stuff one’s face and drink mulled wine.”
3
CONTENTS
FEATURE
Croydon - 22 An introduction to the burgeoning tech scene
FINANCE
Crowdfunding – 10 Chris Hancock from Crowd2Fund on crowdfunding
R&D Tax Reliefs – 16 Bryan Kemsley introduces R&D and Patent Box beliefs
EDUCATION Emerge Education - 34 An introduction to accelerating your EdTech business
LEGAL
CONTACTS T. 020 7952 1721 E. editor@startuproar.co.uk W. www.startuproar.co.uk /startuproar @RoarStartup StartUp Roar StartUp Roar is published by Buckworths Limited trading as “StartUp Roar”, 200 Aldersgate, St Paul’s, London EC1A 4HD.
EdTech - 30 Jan Matern discusses EdTech
LIFESTYLE Legal Structures - 26 An introduction to structures for a full-profit business
TRAVEL
All statements and opinions contained herein are those of the writers and content contributors and do not reflect the opinions of Buckworths Limited. Any content of a legal or financial nature contained in this magazine is published by way of guidance only and shall not be deemed to constitute legal, accountancy, tax or financial advice. No content contained herein is intended to be, nor shall be interpreted as, a financial promotion. No advertiser or subject of any articles is or shall be deemed to be making or communicating any inducement to engage in investment activity of any kind. Buckworths specifically disclaims any liability for losses, damages or other expenses incurred by any person as a result of reliance on any statement in this magazine. Copyright 2014. All rights reserved.
Social Networking for business - 20
4
NYE - 38 We travel around the world on our fantasy NYE trip
No part of this magazine may be reproduced, stored in a retrieval system or transmitted in any form or by any means, without the prior written consent of Buckworths.
FINANCE
Raising Funding As an entrepreneur trying to raise funds, it is easy to feel like a penguin pup at lunchtime. The water is pretty chilly, there are lots of other penguins diving in and grabbing lots of fish, you aren’t sure where the sharks are lurking and your feet are extremely cold. The reality is that there is a huge
a round using one’s own network
amount of angel money fairly easily
is time-consuming and can detract
available in the London market (along
from the day job of running the
with a few sharks). Angel investors
business.
are attracted by the generous reliefs
term benefits of expanding your
available to investors in startups
network and making your network
which give investors up to 50% up
more relevant and more involved.
front income tax relief on qualifying
In addition, investor terms (particularly
investments and 100% capital gains tax
valuation)
relief on any gain made on a sale. Most
founders have raised from within their
business models qualify for the reliefs
own network.
However,
are
far
it
has
better
long
when
and the process of qualification is fairly straight-forward. (See the article on the
Angel funds may charge an arrangement
Seed Enterprise Investment Scheme in
fee and valuations may be lower than
our Autumn 2014 edition).
if the round was raised independently, but on the upside, the process is often
But how to find these tasty
quicker and most networks provide
morsels? Entrepreneurs have
help and advice in getting the round
a couple of options: network
closed quickly.
like crazy and find investors themselves
through
Crowdfunding requires the company
their network, use an angel
raising the funds to have an existing
group or crowdfunding
network and a portion of the target
platform
a
amount pledged when the campaign
fundraising
goes live – the general advice is 30%
advisor to co-ordinate the
– but the platforms add considerable
fundraising process.
value from a marketing and promotion
connected
or
or
hire
perspective due to their access to a Each approach has benefits and disadvantages. Raising
large number of potential investors and customers.
5
“Entrepreneurs should not forget that fundraising isn’t necessarily about getting third party investment – saving money and getting “free” grants is just as valuable”
6
FINANCE Finally, hiring advisors can bring with
on Research & Development or
In this special finance section, we
it a depth of experience (particularly
patenting elements of their product
have pulled together experts who
where the advisor is a seasoned and
or service. Entrepreneurs should
discuss some of the sources of finance
successful entrepreneur) as well as the
investigate the availability and suitability
detailed above.
advisor’s own personal network. That
of both grant funding and tax
said, entrepreneurs should always
reliefs in the context of seeking to
Michael Buckworth from Buckworths
be careful to check the suitability of
raise investment.
sets out the basics of the TSB SMART
advisors – there are enough warning
grants (grants of up to £250,000
stories out there about advisors
for
who have promised the world and
carry
delivered nothing.
develop a prototype) whilst Chris
innovative out
tech
market
startups research
to and
Hancock, founder of Crowd2Fund, Entrepreneurs should not forget that fundraising isn’t necessarily about getting third party investment – saving money and getting “free” grants is just as valuable. The
the
UK’s
only
crowdfunding
platform offering all forms of crowdfunding in one place, explains what crowdfunding is and how it can be used by startups not
Technology Strategy
just
Board offers very
Finally, Bryan Kemsley
generous
of
grants
to
raise
McCabe
funds. Ford
for tech startups
Williams
doing something
Accountants explains
innovative
the basics of both
which
can
R&D and Patent Box
replace
or
tax reliefs.
Chartered
complement an investment
With the information
r o u n d .
in this finance edition,
S i m i l a r l y,
entrepreneurs
there are a
penguins) will be able
number
of
to dive into the sea of
generous
tax
fundraising
and
(and
pluck
reliefs available
out juicy morsels without
to tech startups,
getting snapped by the
particularly
sharks. Sorry, we can’t help
those
carrying
with the cold feet!
7
Technology Strat Smart Grant Scheme Financial help in the form of grants is available for ambitious entrepreneurs who have a fantastic, potentially life changing concept.
8
FINANCE
tegy Board The Smart Grant Scheme is a
rely upon whether the technical
competition run by the Technology
development that the project produces
Strategy Board (“TSB”) that allows
is a “step” change in how technology
small and medium sized enterprises
is used, or an “incremental” change/
(“SMEs”)
funding
increase in functionality. Funding can
(“Smart Grants”) towards the cost
be allowed for the former, but not
of a research and development project
the latter.
to
apply
for
in science, engineering or technology with the ultimate goal of producing
The key features of Smart Grants are
new products, processes and services.
as follows:
This often takes the form of an initial
• Smart Grants are available to single
prototype that can be showcased to the wider community in order to test the market.
companies. • The IP of a project undertaken with the aid of a Smart Grant will remain with the company.
A Smart Grant will only make up a
• A company in receipt of a Smart
proportion of the total project cost.
Grant can also apply for additional
A company will have to match Smart
funding from other public bodies.
Grant funding with its own resources
• A company can simultaneously
and/or investment. TSB requires a
obtain investment under SEIS
company to provide evidence that it
whilst claiming the grant.
can obtain the remainder of the funds to complete the project.
• All eligible costs of the project, however financed, will attract R&D tax credits at the large company
A company awarded a Smart Grant
rate, which can be set against
is required to reclaim eligible costs
taxable profits.
from TSB after such costs have been incurred. Claims can only be made for
For full details of how to apply,
costs that (i) are directly incurred as a
deadlines
result of delivering the project and (ii)
application and a detailed overview of
have been incurred during the pre-
the application process visit: https://
agreed project period.
interact.innovateuk.org/competition-
for
submitting
your
d i s p l a y- p a g e / - / a s s e t _ p u b l i s h e r / If an application relates to a software
RqEt2AKmEBhi/content/smart-2014-
project, eligibility for the grant will
15-round-5?p_p_auth=6l3cMtB8
9
Crowdfunding Article contributed by Chris Hancock of Crowd2Fund.
According
to
a
government
money controlled by individuals which
supported by generous
UK
would otherwise be sitting in bank
tax incentives such as
businesses are facing a funding
accounts earning negligible or negative
the
Seed
Enterprise
gap
returns (once the impact of inflation
Investment
Scheme
is taken into account). This pool of
(SEIS)
private money is estimated to be as
investors in qualifying
large as £260 billion.
companies up to 50%
appointed of
committee, £191billion
in
the
coming years. This funding gap arises in part due to the lack of enthusiasm within the
which
gives
of the amount of their
high street banks to lend to smaller
Crowdfunding offers investors the
investment
and riskier businesses. UK banks have
opportunity to earn better returns on
HMRC off their income tax
faced increased regulatory demands in
their investment than traditional means
bills as well as a capital gains
recent years and have been required
and allows investors to support UK
tax free exit when they sell their
to recapitalise their balance sheets.
businesses through their investments.
shares after three years.
Crowdfunding “Crowdfunding is generating exciting opportunities for private investors whilst simultaneously creating jobs and boosting macroeconomic growth. It is the start of the regeneration of the entire finance sector.” Chris Hancock, CEO of Crowd2Fund
being
back
from
is
embraced
These regulatory and tax advantages,
by both institutions
coupled with an abundance of skills
and individuals as
and technology companies, have made
a way to manage
the UK the perfect jurisdiction for
financial
crowdfunding to grow and succeed.
needs
and make monies harder.
How does crowdfunding differ
This has resulted in a reduction in bank
In particular, crowdfunding is giving
from traditional forms of finance?
lending and an increased emphasis
individuals more choice and control
on the creditworthiness of businesses
over where to invest and is helping
Crowdfunding offers an alternative
borrowing money with the result that
break the monopoly that traditional
way to raise funds when banks and
bank funding for startups has restricted.
banking methods have over the
other investors are not interested
provision of funding.
in investing. This is often particularly
work
This funding shortfall has lead to the
useful for early stage businesses which
rise of alternative funding options
In the UK, the Financial Conduct
banks view as too risky whilst VCs
including peer to peer funding (known
Authority (FCA) has lead the way in
won’t invest because the business is
colloquially as crowdfunding).
creating a clear regulatory regime
too early stage.
which
supports
the
develop
of
Crowdfunding provides a unique
crowdfunding whilst at the same time
Crowdfunding provides a way of
and attractive solution to this funding
protecting investors and companies.
harnessing the “crowd” – both
gap. Crowdfunding mobilises private
Coupled with this, the sector is
a business’ own supporters and
10
FINANCE
Chris Hancock Chris is the Founder and Chief Executive Officer of Crowd2Fund. Based in London and regulated by the FCA, Crowd2Fund is the first crowdfunding platform in the UK offering every type of crowdfunding models.
crowd2fund.com
11
12
social network, but also that of the
Campaigns tend to be relatively short
wider
community
meaning that finance can be raised
to complete the fundraising and
quickly (often within 6 weeks) and the
facititate the growth of the profile of
process is much more straightforward
the business.
than borrowing money from a bank.
crowdfunding
FINANCE
In addition, aside from the money
a huge number of investors, some
as investors have become part of
itself, crowd-funded businesses get a
of whom may not choose to invest
the success of the business, they are
significant boost from the advertising
immediately but may join the business’
encouraged to further market the
and PR that goes in parallel with the
network with a view to supporting or
proposition to their friends, family and
fund raise. The business is seen by
becoming involved later. Furthermore,
business associates meaning that the
13
14
FINANCE company gets (free) verification and
of the business itself) or a VC agrees
to the bank multiple times to extend
recommendation from third parties.
to invest (where at best a couple of
borrowing facilities.
decision makers think the business Aside from the obvious funding
will succeed). As such, crowdfunding
Finally, new crowdfunding models
opportunities
by
provides a cheap and efficient way to
such as Revenue Share can offer much
crowdfunding, the proposition also
road test an idea before spending time
more flexible and tailored finance
provides market validation for a new
and money on a business that may
for business when compared with
concept in a way that is not provided
not succeed.
traditional bank loans.
campaign is a success, “the crowd”
Crowdfunding often provides cheaper
In summary, crowdfunding combines
believes in the idea which is a good
quicker funding than traditional forms
market validation, and PR with fund
indication that the business will be
of finance. With debt crowdfunding,
raising in a way that is not achieved
successful when launched to the
interest rates payable on loans are
by more traditional forms of finance.
market as a whole. This differs from
often below those offered by banks
Businesses that raise initial rounds
the situation where a bank approves
and the amounts borrowed are
through crowdfunding often benefit
a loan (which is probably based on
often significantly higher. Businesses
from a wider network and more
the ability of the founders to repay
can borrow more money on better
thorough market testing than other
the loan rather than the prospects
terms without the need to go back
self-funded or bank-funded businesses.
brought
by more traditional bank lending. If a
Crowdfunding covers a number of different models. Equity crowdfunding enables companies to market to “the crowd” making a lawful financial promotion via the crowdfunding entity’s platform to pre-selected angel investors. The platform handles the campaign and the collection of the investment monies. When the campaign target has been met, the monies are released to the company and shares are issued to investors.
Debt crowdfunding enables businesses to borrow money from “the crowd”. The business publishes a campaign summary on the crowdfunding entity’s platform and investors submit the amount they are prepared to lend and the interest rate applicable to the loan. At the end of the campaign, the business selects the best offers and enters into loan agreements with those investors.
Rewards crowdfunding enables a business to raise finance by offering a “reward” to investors who pledge a certain amount of money. Often, this form of funding is used by businesses to pre-sell their product.
Donation crowdfunding is where a person or cause asks for donations from investors often to facilitate a social enterprise activity of other good cause.
Revenue share crowdfunding enables a business to borrow money whilst enjoying the flexibility of no fixed repayments. Instead the business defines a total repayment value and repays the loan as a percentage of it’s monthly revenue.
15
R&D Tax Reliefs an In addition to raising finance through investment, loans and grants, startups should not forget the importance of saving money wherever possible. For companies in the tech space, there are significant tax reliefs available which can either reduce tax liabilities or result in a large tax credit. All startups should carefully consider whether they would be eligible for any reliefs in the context of more general fundraising activities. In this article, Bryan Kemsley from McCabe Ford Williams Chartered Accountants explains the reliefs.
R&D Research and development (R&D) by UK companies is being actively encouraged by Government through a range of tax incentives. The incentives are only available to companies and include an increased deduction for R&D revenue spending and a payable R&D tax credit for companies not in profit. The relief The R&D revenue relief increases the amount a company can obtain in tax relief to more than the normal 100% revenue deduction. This relief is 225%
16
FINANCE
nd Patent Box for expenditure incurred by a SME on
If, on the other hand, Neuf Ltd is making
Furthermore it must be related to the
or after 1 April 2012. Large companies
losses, the £225,000 attributable to
company’s trade either an existing
are subject to a different regime not
the R&D expenditure can either be
one, or one that the company intends
considered here.
carried forward for relief against future
to start up based on the results of
trading profits or converted into a
the R&D.
Alternatively an SME may claim
payable R&D tax credit. The rate of
a payable R&D tax credit for an
conversion is currently set at 14.5%
HMRC
accounting period in which it has a
so this would generate a payment to
making the claim for relief that a
surrenderable loss. For expenditure
the company of £32,625 (£225,000 x
company should answer the following
incurred on or after 1 April 2014 the
14.5%) which equates to 32.63% of
questions, so they can see how your
amount of payable tax credit that a
the original expenditure.
view of the definition applies to the
company is entitled to for an accounting period is 14.5% of the surrenderable
guidance
suggests
company’s project. Considerations
loss for that period (previously 11%).
• What
is
the
scientific
For accounting periods ending on or
There are two main considerations to
after 1 April 2012 the R&D credit is
establish whether the reliefs for R&D
no longer restricted to the PAYE/NIC
are available. These are concerned
technological
liabilities of the company.
with the activity and also the conditions
involved in the project?
relating to the expenditure incurred. The following is an example of the relief in operation.
when
or
technological advance? • What were the scientific or
• How
and
uncertainties when
were
the
uncertainties actually overcome? Is the activity qualifying R&D?
• Why was the knowledge being sought not readily deducible by a
Neuf Ltd is an SME and incurs qualifying
The first essential matter to determine
R&D expenditure during the year to
is whether HMRC would accept that
31 March 2015 of £100,000.
the particular activities constitute R&D.
Does the expenditure qualify?
Assuming Neuf Ltd is profitable it
Relief is available if a project seeks
The second consideration is to ensure
will be able to claim a deduction in
to achieve an advance in overall
the relevant tax conditions are met,
respect of its R&D expenditure
knowledge or capability in a field of
the most important being that (i) the
of £225,000. This will reduce its
science or technology through the
expenditure must be from a qualifying
corporation tax liability by £45,000
resolution of scientific or technological
revenue category and not be capital
(assuming a 20% rate), giving the
uncertainty
an
expenditure, (ii) the spending must
company effective relief on the actual
advance in its own state of knowledge
not be incurred in carrying out
expenditure of 45%.
or capability.
activities contracted to the company
and
not
simply
competent professional?
17
by another person (however a slightly
invention. Profits derived from routine
Profits of Company’s trade chargeable
different form of R&D tax credit
manufacturing,
to CT = £1,000
may apply – you may still be able to
exploitation of brands and marketing
Patent Box Deduction 1,000 x (22-
claim, as a subcontractor, under the
intangible assets are excluded.
10)/22 = £545
development
or
Large Company Scheme which is not
Profit Chargeable to corporation tax =
considered further in this here) and (iii)
The reduced rate of tax is given by
£455
the expenditure must not have been
providing an additional deduction in
Tax payable (£455 x 22%) = £100
met by another person. (If the R&D
the corporation tax computation.
project is funded in whole or part by
This approach is used, rather than
‘State Aid’ such as a government grant,
To minimise administrative costs,
directly charging the relevant profits
none of the spending on that project
Patent Box profits for many claims
at 10%, to avoid complications if the
can qualify for R&D tax credits).
can be calculated using a formulaic
company claims losses or other reliefs
approach which is intended to identify,
and to simplify the way the Patent Box
The R&D does not have to be
in most circumstances, a reasonable
will be administered on corporation
undertaken in the UK.
figure for profit derived from the
tax returns.
patent.
Companies
can
opt
to
The Company must make a claim
identify the profit through a more
The formula is the same for companies
for R&D relief in its Company Tax
detailed calculation (not considered in
charged at the main rate of corporation
Return. The normal time limit for
this article).
tax and for companies charged at the
making a claim is two years after the
small profits rate, or at the main rate
end of the relevant Corporation Tax
The election allows a deduction to
with marginal relief. This means that in
accounting period.
be made in calculating the profits of
some cases Patent Box profits may be
the trade period. The amount of the
charged at a little below 10%.
deduction is:
Patent Box
(MR-IPR) RP x MR
Conditions
where:
The company must be a qualifying
• RP is the relevant IP profits of the
company and own or hold a license for
trade of the company, The Patent Box provides a reduced rate of corporation tax for companies exploiting patented inventions or certain other innovations protected
• MR is the main rate of corporation tax, and • IPR is the special IP rate of corporation tax (10%).
by particular intellectual property (IP) rights.
a UK or European patent. There are two main conditions: (i) the company must
have
undertaken
qualifying
development by making a significant contribution
to
the
creation
or
development of the item protected by The following is an example of the relief
the patent or a product incorporating
in operation.
this item; and (ii) if the company
How it works
holds a license in patent rights, the If a company has trade corporation tax
license must give it exclusivity for
The reduced rate applies to a
profits of £1,000, which qualify in full
those rights. This must extend at least
proportion of the profits derived
for the Patent Box when the main rate
country-wide.
from the licensing or sale of the
of tax is 22%, then instead of arriving
patent rights or from the sale of
at a tax charge of £100 by multiplying
There are a number of detailed
the patented invention or products
£1,000 by 10%, the calculation
conditions and qualifying criteria within
which
proceeds as follows:
the scheme.
18
incorporate
the
patented
FINANCE
Bryan Kemsley Bryan is a partner with McCabe Ford Williams, a leading chartered accountancy practice with 6 offices across Kent and a strong presence in London, particularly in the startups scene. McCabe Ford Williams is a modern and thriving firm offering many more services than the typical accountancy, tax and audit services clients might expect. With the skill set of a larger London based firm, they have all the necessary knowledge, experience and expertise clients will ever need, without the associated high City costs.
mfw.co.uk
19
Social networking f We live in an age where we
to streamline the advertised products
is now dominated by LinkedIn whose
are all connected. Our phones
and services to which an individual is
platform is business focused.
buzz continually with Facebook
exposed theoretically meaning that all
updates,
advertising is targeted to the particular
Yet generating new business leads
target audience.
in a cost effective and scalable way is
messages
and tweets from friends and followers. But how much of that
challenging in a B2B environment.
information is useful, particularly
Recently, Facebook announced that it
Traditional outsourced cold calling is
when it comes to generating
was launching a business to business
expensive and response rates to email
new business?
platform alongside its existing social
marketing are low. Engaging with
platform. Whilst the existing Facebook
prospective customers on social media
Advertising on social media isn’t a new
platform has proved successful for
networks is time consuming and results
phenomenon. In fact, most platforms
social marketing and consumer-facing
are often difficult to measure. Online
such as Facebook and Google rely on
products and services, it has been
advertising is expensive and ineffective.
trend-based targeted advertising in
much less successful as a B2B marketing
The estimated return on investment
order to raise some of their profits. By
tool or for marketing of professional
when it comes to online advertising is
monitoring user activity, they are able
services. The B2B networking market
thought to be less than 10%.
20
LIFESTYLE
for business The challenge has always been to
platform most dominant in the market
receive so many unsolicited emails
provide a cost effective and time
and with which businesses were most
that they will automatically junk an
efficient way to harness the power
familiar. However, they are now rolling
unexpected email. We harness the
of social media. London-based tech
out their services to other platforms to
research and selection tools available
business, B2B Consulting Services
meet the needs of clients with cross-
through platforms and their own in-
have developed a business marketing
platform presences.
house messaging services.”
quickly. They use a combination
Brett Davis: “The problem with relying
Rather
of proven B2B lead generation
on social media content alone to
for cold prospects, B2B Consulting
techniques and targeted social media
generate business leads is that the
Services clients’ development team
campaigns to deliver emailed leads
process is to some extent passive –
are able to rapidly expand the sales
from interested prospects directly to
leads have to approach the business
pipeline by engaging with a continual
the customer’s inbox.
as a result of seeing the content.
stream of interested people.
service that delivers high quality leads than
inefficiently
hunting
Other methods such as mass email B2B Consulting Services focused on
marketing are inefficient because they
This makes business marketing more
LinkedIn to start with as it was the B2B
are so commonly used. Most users
effective and cost-efficient.
Brett Davis Brett has over 19 years experience in the software industry and is co-founder of B2B Consultancy Services. Previously, Brett was co-founder and CEO of Sazneo, a real-time group messaging service for business. He grew Sazneo into a key player within the online collaboration market before the company was acquired by Access Group in December 2012.
b2bconsultancyservices.com
21
22
FEATURE
Croydon Tech Hub For most people, East Croydon is the station on the way to or from Gatwick Airport. It probably doesn’t immediately strike one as a centre of digital innovation. Yet, in the past few years since the London riots of 2011, Croydon has reinvented itself as a tech hub to rival Silicon Roundabout. The riots of 2011 rocketed Croydon to
not just those in the tech bubble. From
organisation determined to improve
international attention for all the wrong
the very start, there was an emphasis
and energise the local area through a
reasons. Images of the burnt out bus in
of inclusivity and education.
combination of innovation, enthusiasm
Croydon and riot police clashing with
and entrepreneurship.
violent protesters traumatised the local
One of the ironies of the Croydon
community and painted a picture to
riots and the effect it has had in
Currently the Croydon Tech City
the outside world of deprivation and
developing a tech community in
community is made up of more than
bitter inequality in an outer London
Croydon is that the riots were to some
400 entrepreneurs as well as savvy
suburb cut off from the success and
extent driven by technology. Multiple
angel and Venture Capital investors.
growth of much of the rest of London.
reports at the time commented on the
Croydon Tech City hold a monthly
importance of Twitter and Blackberry
gathering at which local startups and
But rather than reinforcing this sense
Messenger in helping organisers co-
success stories (of which there are
of chaos and allowing perception to
ordinate protests. Yet, it was tech
a fair few such as Karisma Kidz who
drive reality, the local community
entrepreneurs who lead the drive to
won startup of the year 2014 as
with the support of the council fought
create the Croydon startup hub. The
judged by Tech City News) share
back.
heart of Croydon’s startup is Croydon
their tips and experiences and seek
Tech City.
feedback and support from the rest of
Entrepreneurs
(who
might
otherwise have been attracted to the bright lights of Shoreditch’s Silicon
the community.
Roundabout) instead sought to create
Croydon Tech City is a community
a community of entrepreneurs in the
of software and app developers,
The local council have also been
heart of Croydon.
creatives, investors and founders of
extremely activist in supporting the
tech start-ups. Based in the heart of
startup community and offer support
The aims of this community were
the town centre, they offer a high
both in the form of grants and financial
broader though than simply creating
tech co-working space, meeting and
support. Alongside the work of
a startup hub for local entrepreneurs.
seminar rooms, a friendly bar and
the council, Develop Croydon is a
The council wanted to ensure that
most importantly a vibrant and tech-
network of local businesses aimed at
the development of a technology hub
centred community. Like its forbears
promoting Croydon’s regeneration
benefitted the whole community and
in Shoreditch, Croydon Tech City is an
and investment opportunities.
23
One
particular
success
story
in
herself. She organised training for the
they worked. Outspace provides a
the Croydon startup scene, is My
entrepreneurs on the scheme from a
range of membership options and has
OutSpace. Launched in November
range of professional organisations and
received fantastic support from local
2014, My Outspace is founded by
provided mentoring and support.
female entrepreneurs as well as from
Yuliana Topalzy as a co-working space
the council.
aimed at female founders, particularly
Yuliana wanted to set up her own
those with children. Based above
business and quickly identified that
Yuliana was helped by London Borough
a children’s play centre, the venue
networking hubs tend to be relatively
of Croydon with a low interest loan
is child-friendly and provides an
male dominated and unable to cater
from Croydon Council Growth Loan
innovative facility to allow mum’s and
for mums with young children who
Fund which helped My Outspace
female entrepreneurs a relaxed yet
tend not to be able to work normal
secure commercial premises. The
professional environment to work and
office hours and have to either work
council helps My Outspace with
network.
from home or pay for home care for
marketing and making direct referrals
their children.
and has provided a huge amount of
Yuliana’s background is representative of
the
scene.
Yuliana’s vision was to provide a
A mum, Yuliana headed up the
work space that was flexible so that
Coupled with the help from London
entrepreneurship
at
female founders could drop in when
Borough of Croydon, My OutSpace
University
convenient but also somewhere where
received help and guidance with
before becoming an entrepreneur
they could bring their children whilst
business planning and development of
London
Croydon
South
startup
help and guidance.
programme Bank
Spotlight on Croydon Buckworths
Croydon Tech City
My OutSpace
Publisher of Startup Roar and based just 15 minutes by train from Croydon, this City of London law firm is the only firm in the London market focusing entirely on startups.
A fun and weloming workspace for female founders (particularly those with young children) based in the heart of Croydon.
Buckworths already advises a number of Croydon startups as well as 45% of the wider London community.
The centre of all things tech in Croydon, and based at Matthew’s Yard, Croydon Tech City organizes monthly meetups for tech entrepreneurs, fortnightly social drinks and other regular meet ups. Croydon Tech City offers an invaluable network for new tech entrepreneurs.
Contact: office@buckworths.com – for a free call or meeting and to receive their “Introduction to Startup Law” brochure.
Contact: contact@croydontechcity.com – to attend on of their meet ups and get involved with the Croydon tech community.
Contact: working@myoutspace.co.uk – to meet the team and for information about offers and using My Outspace’s facilities.
www.buckworths.com
www.croydontechcity.com
www.myoutspace.co.uk
24
My Outspace offers excellent facilities (including a business library), an enthusiastic team and engaged entrepreneurs.
FEATURE business skills from Croydon Business Venture. Croydon Business Venture is the accredited Enterprise Agency for Croydon, a member of the National Enterprise Network and one of a network of about 150 around the country. My OutSpace’s story demonstrates the strength of the Croydon startups scene and the breadth of support and
experience
available
to
entrepreneurs based there. In many ways, Croydon shines as an example of how an engaged community can build a startup hub to the benefit of everyone. Our next Spring edition will focus on some of the key players in Croydon more closely.
London Borough of Croydon
Croydon Business Venture
The council are very pro-active in assisting the startup community. They offer commercial advice as well as financial support in the form of startup loans of between £1,000 and £5,000 for businesses less than one year old and from £2,000 to £25,000 for businesses older than one year.
The accredited Enterprise Agency for Croydon and a member of the National Enterprise Network. It helps those wanting to start their own business with both business planning and the development of basic business skills, in each case through engaging and interactive training sessions.
Contact: economy@croydon.gov.uk – for help and advice about setting up a business in Croydon or relocating an existing business to Croydon.
Contact: info@cbvltd.co.uk – for advice and support to start developing your business skills and to attend one of their seminars.
www.croydon.gov.uk/business
www.cbvltd.co.uk
25
Legal Structures
26
LEGAL The first decision for any entrepreneur is what legal structure to use. Fortunately, in the UK there are a variety of legal structures through which a business can operate. In this article, Michael Buckworth
a premium (i.e. at nominal value
income less allowable expenses) at
from Buckworths discusses some
plus an additional amount). Ordinary
20% up to an aggregate annual profit of
of the options.
shares generally carry three rights:
£300,000. Thereafter corporation tax
the right to a vote at a meeting of the
is charged at 21%. Once corporation
shareholders, the right to receive a
tax has been paid on any income, that
dividend (a distribution of profits) and
income can remain in the company
Part 1:
the right to share in the capital of the
and (under current tax law) will not
For-Profit Businesses
company (which is generally relevant
be taxed again unless and until it is
when the company is wound up or
paid out.
Businesses can be operated by
its assets sold). Crucially the liability of
individuals
shareholders is limited to the amount
Companies with a turnover in excess
unpaid on their shares.
of £81,000 in tax year 2014/15
as
partnerships.
sole
traders
However,
or
more
commonly, businesses are operated
are required to register for VAT.
through incorporated entities. There
Limited Liability Partnership. This is a
Companies with a turnover below that
are two main reasons for operating
special kind of partnership structure
threshold are not required to register,
a business through an incorporated
which is recognised as a separate
but may if they wish. VAT is chargeable
entity. The first is to take advantage
legal entity from its members for the
at 20% on provision of VATable goods
of the limited liability nature of some
purposes of entering into contracts
and services and is payable to HMRC
incorporated entities with the result
and carrying on its business and
in arrears. Companies registered for
that (absent the directors committing
has limited liability. Unlike a limited
VAT are permitted to offset VAT they
criminal offences or the shareholders
company, however, an LLP is not
have paid (input tax) from VAT they
giving personal guarantees of the
taxed as a separate entity but each
have charged (output tax).
business’s
founders
limited partner is taxed annually on the
will not be personally liable on an
profits of the LLP in accordance with
Subject to meeting certain qualification
insolvency of the business. The second
his proportional entitlement to such
criteria, entrepreneurs’ relief is available
(which is applicable to companies but
profits. An LLP must be set up by two
to founders of a company when they
not to limited liability partnerships) is to
or more people with a view to carrying
sell their shares. Entrepreneurs’ relief
have the business taxed separately to
on a profit making business.
reduces the capital gains tax payable
liabilities)
the
its owners.
on any gain arising on a sale of shares Taxation of companies and the
Private company limited by shares.
to 10%.
reliefs available Ongoing costs
This is a company with a share capital. Shares in the company construe an
Companies have to pay corporation
ownership stake and are purchased
tax each year. In the tax year 2014/15,
Limited companies are required to file
either at their nominal value or at
this is charged on profits (broadly
three sets of information on an annual
27
28
LEGAL basis: a return to Companies House,
Like companies, LLPs must file annual
4. Is there any reason why I would
annual accounts (or, if the Company
returns but not accounts. Each limited
want to be taxed personally on the
is dormant, a dormant return) and a
partner will be required to file a
profits of the business?
corporation tax return.
personal tax return taking into account his
Limited companies are ideal structures
If the company has employees, it must
proportion of the earnings of the
for businesses that want to bring on
deduct PAYE and account to HMRC
LLP. The fees payable to Companies
board investment, or commercialise
monthly for such deductions and its
House should be similar to those of a
a mass market product or service.
own employer’s NIC liabilities.
company.
Bringing in investment is effected (relatively) simply by issuing shares;
When new shares are issued and/or
Choosing a legal entity
directors appointed or removed, filings must be made at Companies House.
selling a stake in the business is achieved by a sale of shares. In addition
Before choosing a legal entity, you
there are a number of significant tax
should consider the following questions
reliefs available on the issue and sale
and have a talk to your accountant:
of shares.
time, the fees payable to Companies
1. Is my business selling a packagable
Investing into an LLP is more complex
House should not exceed £50 per year.
product, software or service or
whilst selling the business of an LLP is
Accountancy fees will vary depending
is it a means for me (and my
challenging and often less tax efficient.
on the complexity of the company’s
fellow founders) to sell our time,
business but in general should be in the
experience and knowledge?
The cost of this compliance is relatively low. So long as all filings are made on
region of £1,000 to £2,000. Where the company is dormant, accountancy fees should be nominal.
2. Will the business need investment in the future? 3. What is my exit strategy?
Part 2: Social Enterprises We will be discussing appropriate legal structures for social enterprises in the next issue.
Michael Buckworth The founding partner of Buckworths. Based at St. Paul’s in the City of London, Buckworths is the only firm to work entirely with startups. The firm offers unparalleled experience and expertise in advising startups on a range of issues from incorporation, seed and VC investment rounds, commercial agreements and eventual sale.
buckworths.com
29
EdTech: an Overview Education is a global $4.4trillion industry. The education system as it exists today was designed in the 18th and 19th century to meet the needs of a resource-constrained and quickly industrialising society. Yesterday’s education system is no longer relevant for the needs of today’s economy. It retains glaring and unnecessary inefficiencies which mean it fails to make fully individualized education universally affordable. In addition, it fails to effectively engage disengaged and underachieving learners and connect students with industry and prepare them for the world post-education.
The education industry is ripe for
more grade A* to C including English
disruption. There are a number of
and Maths, compared to 65.3%
factors which make the education
achieved by pupils not eligible for free
system so ideal for disruption. These
school meals. This disparity has been
factors are discussed below.
addressed by government which has created the “pupil premium”, additional
Those startups that enable successful
funding given to publicly funded schools
disruption of the education market will
in England to raise the attainment of
reap significant benefits.
disadvantaged pupils and close the gap between them and their peers. Yet,
The
education
system
is
the cost benefit ratio of education is
under unprecedented pressure
worsening: the average earnings for
to perform
US students with a bachelors degree fell 14.7% between 2000 and 2013
Today’s
consumers
demand
an
despite a 72% increase in cost.
education system that delivers a higher material benefit at lower
Education doesn’t prepare youth for
cost. The current education system
the world of work. Young people are
systematically fails to deliver this.
three times more likely than their parents to be unemployed. Yet only
School fails to address individual needs.
40% of employers surveyed in a
In the UK, just 38.7% of pupils eligible
McKinsey study agree that they can find
for free school meals achieve five or
enough skilled entry-level workers.
30
EDUCATION
Jan Matern Jan directs Emerge Venture Lab and is responsible for its overall vision, financial and strategic health. Jan co-founded the Lab during his final year at Oxford University, where he graduated with a 1st class degree in Philosophy, Politics and Economics. He was previously an Associate at Chelwood Capital, a social investment consultancy, where he worked with scalable social ventures seeking to access capital markets.
emerge.education
31
Technology
has
enormous
potential to improve system performance Technology
offers
the
prospect
of significantly improving learning outcomes and addressing operational inefficiencies in education. Recent developments
support
this
view.
Whilst currently only 3% of education takes place online, E-Learning is the fastest growing segment of the global education industry. Governments welcome
digital
and
consumers
innovation
in
education: adoption of technologyenabled approaches to education such as massive open online courses, blended learning, and home schooling is increasing. The US Government’s National Education Technology Plan seeks to fully personalise education for all learners. Coupled with the above, financing in Ed Tech has shown a clear upward trend, with consistent growth since 2010. Funding in 2013 represented a 212% growth in the sector since 2009. The 334 deals occurring in 2013 represented a 35% year over year growth from 2012. Notably, 2014 saw funding and deal activity on pace to top 2013’s previous investment highs. Startup capital expenditure has significantly decreased The cost of entry for education technology startups is dramatically lower than a decade ago, as setup costs have decreased, institutions are more open to change, and new
32
EDUCATION business models promise to cure a
radically reducing the cost of trialling or
FutureLearn (UK). As of May 2014,
broken procurement cycle.
switching to new software.
more than 900 MOOCs are offered by US universities and colleges.
Setting up an education technology
The UK academies programme and
startup now costs a fraction of what it
the US Charter Schools programme
Advent
did even a decade ago. The required
are increasing schools’ autonomy
models that avoid a broken
capital expenditure to start a technology
over spending, creating the ability
procurement cycle
company has decreased as access to
for individual schools to adopt new
affordable cloud computing, open
digital products. In the UK, by 2015,
Traditionally, a key challenge for new
source programmes and software
academies are likely to outnumber
education technology enterprises has
as a service has soared. Access to
traditional maintained schools. This
been the length and costliness of the
high quality talent with pedagogical
significantly lowers the barriers to
procurement cycle involved in selling
expertise and engineering skills has
entry for new enterprises that are not
directly to schools and universities.
increased as careers in education
yet large enough to sell to government
According to New Schools Venture
are becoming aspirational for elite
directly.
Fund, the industry is shifting toward
achievers, as demonstrated by the fact
delivering
of
new
products
and
business
services
that Teach First is the UK’s number one
We know first hand that schools are
directly to consumers – i.e. learners
graduate employer.
eager to adopt new technologies.
or educators – and selling up into
Emerge Education has partnered with
institutions once a critical mass of
are
over 140 schools, which provide our
their members are signed up as users.
to
startups with beta testers and access
This ‘freemium’ approach mirrors
to feedback on their product by end
recent shifts in the enterprise software
users. They are eager to be involved
industry, which were led by Yammer
Educational becoming
institutions more
open
innovation Performance pressure from consumers
because
and government is forcing educational
E m e r g e
institutions to become more open
provides
to testing new, private sector-driven
them
with
approaches to education. A number of
insights
into
factors amplify this effect.
EdTech
and
Technology offers the prospect of significantly improving learning outcomes and addressing operational inefficiencies in education.
access to the most interesting and
(acquired by Microsoft for $1.2bn
The number one barrier to technology
potentially disruptive innovations in
in 2012) and Salesforce (trading on
adoption in education institutions,
education.
NYSE with a market cap of $37.
prohibitive
installation
costs,
is
bn), and promises to circumvent an
collapsing: schools and universities are
The rising cost to the consumer of
otherwise broken procurement cycle
upgrading their networks to prepare
higher education in both the UK and
in education.
for digital content growth. They are
the US is intensifying rivalry between
upgrading network capacity to support
universities. Opportunities to increase
In conclusion, there are a number
bring-your-own-device
their
and
of factors that are driving innovation
reducing required capital expenditure
enhance their offering to students are
and change in the education sector.
for adopting new digital products.
driving up universities’ spending on
Entrepreneurial startups have, and will
Further, modern software enables
education
Universities
continue, to drive this change. EdTech
institutions to seamlessly automate the
globally are providing content through
has massive potential and should be
integration of digital products with their
massive open online courses platforms
one of the fastest growing tech sectors
existing data management systems,
such as Coursera (US), EdX (US) and
over the next five years.
initiatives,
operational
efficiency
technology.
33
Accelerate your EdT
Emerge Education was launched
sector, whether the technology is
All startups on the Emerge accelerator
in Autumn 2013 as an accelerator
aimed at children, teachers, institutions,
receive office space in our Emerge
for education startups. As its
parents or adult learners.
Hub, access to beta testers and a pool
third cohort prepare to join the accelerator in January 2015,
of potential customers to trial and What do participants receive?
potentially buy their product.
we caught up with Jan Matern, founder of Emerge Education, to
On
find out how things are going.
participants
joining
the
accelerator,
receive
some
all initial
Tell us more about the mentoring and beta testing.
seed funding from our experienced What is Emerge Education?
education sector investors.
We have built a specific mentor group that target learners directly. This group
Emerge is an accelerator for education
Throughout
month
of expert mentors includes Bernhard
startups. We look for startups with
accelerator, participant companies are
Niesner (CEO, Busuu), Ben Whately
some traction, generally pre-seed
given training, guidance and expertise
(COO, Memrise) and Jan Reichelt (Co-
investment, which are using technology
from our group of experienced experts
Founder and President, Mendeley)
to innovate within education. Our
which aims to get them to a position
each of whom is an entrepreneur
mission to upgrade the quality of
by the end of the accelerator where
who has scaled products to millions
offerings available to the education
they are fully investable.
of learners.
34
the
three
EDUCATION
Tech business
We also have a partnership with TLS Education, the world’s largest online which
an industry that is varied, fragmented
we provide our teacher-focussed
and notoriously difficult to navigate.
startups with unprecedented access
Emerge Education have gathered
have built vast edtech companies,
to teachers themselves. Their honest
together a rare ecosystem of people
experienced investors who appreciate
feedback helps our startups develop
who truly understand the sector
the limitations encountered when
their ideas, test their products and
and can provide valuable insight into
scaling within education and decision
develop launchable scalable products
tailoring products for the target market.
makers across the entire education
teacher
network,
through
value chain.
directly in response to feedback from the target market. Why education?
Startup success is often about the network – who makes up the
We
Emerge Network?
funding, physical space, expertise
connect
startups
with
in the form of venture partners The education sector represents a
Our network consists of forward
and mentors and access to beta testers
huge opportunity for new businesses.
thinking
and customers.
Education is a vast, global industry in
students who expect more from
need of radical change. However, it is
their school system, founders who
teachers,
21st
century
emerge.education 35
Spotlight on Buckworths Clients
Meducation Meducation is an educational social network for medical professionals where members can connect with friends,
lecturers,
fellow
doctors
and medical experts. Through their website, Meducation offers members access to over 30,000 learning
Buckworths have acted for a number of participants in the Emerge accelerator, here are four of them…
resources. “Meducation have rewritten the rules on career-based education networks. Coupled with innovative engaged founders
with
practical
medical
experience and a supportive angel investor base, the business is perfectly placed to become the single go-to resource for medical professionals
Orientalmente Initially founded in Spain, Orientalmente has launched its business to the UK market. The company provides online Chinese lessons using native teachers. “Orientalmente have identified the need for Chinese speakers in the commercial world of the future. A truly international business, Orientalmente provide Chinese language tuition to customers in a range of countries through their online platform.”
36
EDUCATION Drum Roll Drumroll make mobile and computer games which help teach children coding logic. Gamification is increasingly seen as a key tool in education and this business is leading the way in the sector. “Drumroll has a young founder team who have the innovation and inspiration to create amazing products that can develop coding skills in the country’s children in a way that formalised education cannot.”
Primo Primo have developed coding toys for young children to help teach coding logic in a fun and interactive way. Launched in the UK, the business now has customers for its beta product in a number of countries throughout the world. Primo was part of the Autumn 2014 cohort at Emerge Education. “Buckworths started working with Primo in late 2013 when they had their first prototype and had just completed a crowdfunded raise. Now the business has raised seed funding, is launching its second product and is on the cusp of significant global expansion.”
37
Happy New Year! If money were no object and private jets a plenty, imagine what it would be like celebrating New Years around the globe. Well here at StartUp Roar, we have dreamt up our dream party tour for the end of 2014.
38
TRAVEL
Australia Our party starts in the land down-under! Being the most easterly country away from Great Britain, New Year happens first for the Ozzies! And seeing as though English winter is tropical summer over there, you will find yourself caressing the curves of a decadent beachfront sunlounger, basking in glorious golden rays, Pinot in hand. Then as the night draws in, a casual stroll up to the Sydney mariner where further bevvies are ready to be consumed ahead of the countdown and unforgettable firework display. 5, 4, 3, 2, 1! A cheer and a dance with those all around as hundreds of explosions light up the sky… but the party isn’t over. A quick dash to the private jet and we’re on our way to the Philippines, for food, firecrackers and more food.
39
Philippines
Dubai – United Arab Emirates
Naples – Italy
*Crackle* *bang* *crackle* – It’s
The epitome of lavish luxury and
Ready to experience true New Years
an instant hit as you set foot in the
exuberant excess, Dubai is a real
spirit!? Well welcome to La Festa Di
Philipino capital of Manila. The
showstopper! Seeing relatives for a
San Silvestro in Southern Italy – a
streets are flooded with hustle
late Christmas? Now is your prime
celebration fuelled by Prosecco,
and bustle as children and adults
chance to find that perfect gift in
dancing
alike play with street firecrackers,
one of Dubai’s many boastful and
baggage… literally! It is tradition on
making intimate and original light
spectacular shopping malls, including
New Years to physically throw out old
displays. Pots and pans are bashed
the
commerce
unwanted belongings into the street
simultaneously to bring good luck
centers, the Dubai mall! With over
as a symbol of starting anew. And
and ward off evil spirits. But that’s
1,200 shops and covering 5,400,000
who can forget the unmistakable and
not all, for the Philipines is famed for
sq ft, it’s impossible not to find
sickeningly delicious Italian dishes!?
it’s glorious food; a fusion of meat
something for everyone, all the
New Years is a feast for the masses
dishes with rich aromatic sauces and
while burning off the excessive food
as Italian families spend weeks (even
spices. Lechon – or roasted pig – is
and alcohol consumption from our
during Christmas) preparing meals
a delicacy over the new year period
previous destination. Then, as the
for New Years – so better butter up
whilst chicken and pig is avoided
countdown begins for yet another
a local Familia to get a slice of the
as these animals are considered
midnight, head outside the mall
action. Oh, and don’t forget to slip
scroungers; eating these animals is
for one of the most spectacular
into your red underwear – Italians
symbolic for having to scrounge for
firework displays in the world; a
believe wearing red over New Years
food in the new year. So enjoy your
truly ostentatious display attracting
will bring good! Alas we are nearing
glutinous meal, comsume some of
over 600,000 people. But it doesn’t
the end of our journey, time to head
the cheapest alcohol in the world.
end here – quick, to the jet!
to the motherland.
40
worlds
biggest
and
disposing
of
old
TRAVEL United Kingdom (Home) Travelling the globe in undisputable fun. You are immersed in rich culture and develop humility for people with lives so removed from that of our own. For we are lucky to live in a society that offers some level of equality, shelter and arguably, most importantly, healthcare. And so what we come to realise, celebrations over the Christmas and New Years period is best experienced at home, in the comfort of our closest loved ones, friends and family. So as the clock strikes 12, grab the hands of your nearest and dearest and drunkenly leap and sway to the familiar sounds of Auld Lang Syne for what better way to enter the new year than with a monstrous hangover in the comfort of your own bed, awoken by the smells of mum’s best of British fry-up!
Happy New Year!
“A LAW ABIDING SHOWSTOPPER! A SEMINAR NOT TO BE MISSED” STARTUP ROAR
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Commercial issues in setting up a UK branch A LEGAL SEMINAR BY
Friday 19 June 2015 from 18:30h to 21:00h AT FÁBRICA DE STARTUPS RUA RODRIGO DA FONSECA Nº11, 1250-189 LISBOA
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