Archives for the month of: June, 2014

With EIS/SEIS, the Government has made it easier for startups to get their ideas off the ground by creating highly attractive tax breaks for investors willing to finance disruptive ideas. This creates a win-win scenario – allowing investors to generate attractive returns while helping to kick start the UK economy through supporting entrepreneurs with innovative, high-growth potential.

So what are the benefits for investors:

 Income Tax Relief

Under the EIS, 30% of the amount invested in EIS qualifying companies can be deducted from an Investor’s income tax bill in the tax year of investment or, if requested, in the preceding tax year, subject to reducing that bill to zero and to an annual investment limit of £1 million. This is subject to any income tax relief which has already been claimed under the EIS for that year. Under the SEIS, the rate of income tax relief given is 50% and this is subject to an annual investment limit of £100,000. Spouses and civil partners can each contribute up to the limits set out above.

For example: Paul would like to reduce his income tax liability and so decides to invest a sum of £100,000 into SEIS/EIS qualifying companies. Paul will therefore be eligible to receive between £30,000 and £50,000 of income tax relief provided that he is liable to pay at least that sum in income tax.

Capital Gains Tax Relief

When SEIS or EIS investments are sold, the seller enjoys tax-free capital gains on any increase in their value.

For example: Paul has sold an investment and realised a taxable gain of £100,000. Paul has already used his annual CGT exemption. Paul is a top rate taxpayer and is looking to defer the £28,000 CGT liability, so he decides to re-invest his gain and £100,000 is invested into SEIS/EIS qualifying companies on his behalf. The £28,000 CGT liability is not payable until the shares which Paul subscribed for with his £100,000 are disposed of.

Capital Gains Tax wipe-out on gains (SEIS investments only)

Where an Investor has made a gain on the disposal of assets during the tax year prior to investment, 50% of the tax payable on this gain can be wiped out entirely to the extent the gain is invested in SEIS qualifying shares and an eligible claim for SEIS Relief is made in respect of the tax year in which an investment is made.

Capital Gains Deferral Relief (EIS investments only)

Investors who have made a capital gain which is taxable or which was taxed within the last three years can invest the gain in an EIS qualifying company and the capital gains tax can be deferred over the life of the investment or recovered (if already paid). Investors have three years from the date of realising a gain to invest (and the Investor can even reclaim capital gains tax paid in the preceding two years) or can go forward one year from the date on which the Fund invests in an EIS qualifying company. If the Investor dies whilst the money is invested , the tax due on the Investor’s deferred capital gain will die with the Investor. The initial deferral therefore leads (on death) to capital gains elimination. Whilst income tax relief at 30% is limited to the first £1 million invested in any tax year, there is no upper limit on the size of the capital gain that can be deferred after two tax years.

Inheritance Tax Relief

SEIS and EIS qualifying investments also qualify for 100% business property relief from IHT; provided they have been held for at least two years, are still held at time of death and remain unlisted. This means that the value of the shares will fall outside the Investor’s taxable estate and will not be subject to inheritance tax.

If Paul’s shares have been held for at least two years before his death, the investment would, in most cases, qualify for Business Property Relief for Inheritance Tax purposes. For this example we assume that Pauls’ shares are worth £150,000 at the time of his death. IHT relief would be obtained at up to 40% of this value. In this example £150,000 of value passes to Paul’s beneficiaries free of inheritance tax and the estate is also augmented by income tax and capital gains tax saved by the deceased in this example. The estate saved £60,000 in IHT, which would otherwise have been paid; the investment removes £150,000 of taxable value to the benefit of the estate; and if any CGT has been deferred (£28,000 in our previous example) on the original investment this would also fall away on Paul’s death.

Loss Relief

If the Investor makes a loss on an investment in any SEIS or EIS qualifying company, the net amount of that loss (after deducting any income tax relief obtained on making the investment) can be offset against the income tax charged in the year in which the loss is made, or can be carried back to the previous tax year. Alternatively, the amount of the loss (after taking into account any income tax relief initially obtained) can be offset against the individual’s capital gains in the tax year in which the disposal occurs, or, if not fully used, against gains of a subsequent year. Tax relief is available at any time in respect of any loss realised upon a disposal of shares in a SEIS or EIS Qualifying Company on which EIS income tax relief or CGT deferral relief has been given and not withdrawn.

For example, it is assumed that Paul’s initial investment of £100,000 is now worth £0. His net loss taking into account his income tax relief (assuming only EIS investments) is £70,000. He is a 45% taxpayer and chooses to offset his losses against his income tax bill. He can reduce his income tax bill by up to £31,500 as his income tax relief rate mirrors his income tax rate.

SEIS and EIS provide investors the security to invest in innovation, while enabling tax reliefs of up to 64% of the capital invested. It is important for entrepreneurs to understand the benefits of SEIS/EIS schemes to investors.  This is why many startups have chosen to relocate to the UK.

Blog by Marina Atarova – Co-Founder of Dreamstake an online network, that provides end-to-end support for entrepreneurs wishing to get a startup funded in the shortest possible time. The startup rating system allows entrepreneurs and investors to monitor progress.

Are you a non-technical startup founder looking for a “CTO” or technical team ? Read on !

“I need a CTO”

A lot of people are approaching me, with a sad and impatient look in their face, “I need a CTO. I can’t find a CTO. Can you help me to find a CTO ? XYZ recommended you – can you be my CTO ?”

A quick look at Wikipedia reveals that you actually might not be looking for a senior executive with a market rate in the six digit range, but rather a … developer. Often in early stage startups the “CTO” turns out to be a 21-year old glorified developer, as part of a two founder team with a “CEO” – versus – being an experienced technology manager. If this is the first technical member of your team, and you are on a tight budget, you are very likely to need an experienced developer much more than a manager – who would the manager be managing if there is no tech team ?

“I need a Front End Dev / Node.js Coder / Designer / App Developer”

Often a non-technical first time founder actually does not know what kind of technical resource is needed. Going to networking events and desperately shouting “I need a dev ! I need a dev !” should be replaced by a more targeted approach, after identifying the skill set and level of experience required – if needed with help of someone who knows (try the Dreamstake Forum for example to start such discussion). Typical internet projects require a variety of technical skills, and one technical individual might not even be able to provide all the skills needed – for example the most basic website project might be feasible with just one resource who knows how to configure WordPress and do some image editing, but as soon as you actually want to build a website you might be looking at a graphics designer, a front end and a back end developer. For a mobile app, you often need a designer, a mobile app developer (or even separate developers for iPhone and Android) and a back end developer. If you take things seriously, you should also have a technical tester. If you are not “technical” then you should not dictate the technology used – because you just read that “node.js is the coolest way to build something”, or that “Netflix is using Hadoop” – it doesn’t mean that you need it too, right now. Get suggestions from someone who understands what you are trying to achieve, and only trust someone who can explain the options with advantages and disadvantages to you, in a way that you can understand. Otherwise, walk away and talk with someone else.

Parallel approach (search / outsource)

Unlike many recent university graduates, who are willing to carry out various unpaid activities to get some work experience onto their CVs to make them more attractive to employers, the person you are looking for typically requires a level of experience that will make it quite easy for them to find “proper” work, for example as mobile app developer in the City of London for £450/day or £80k/annually (real values from today’s job boards). Obviously you are competing with a very attractive market for such resources, no matter how entrepreneurial the candidate’s ambitions might be, and no matter how well you are pitching your “work for me for free on my fantastic unproven vision of a bio-degradable multi purpose umbrella holder with weather detector iPhone app – you can work from home on Mondays and I give you 5% (of nothing)” proposal.

Therefore your level of funding will greatly impact your options. Basically if you have no or a very little amount of funding, it’s unlikely that you can afford to PAY someone a decent amount of money for their services. Unfortunately there is often a direct link between cost of resource and level of quality, experience and overall satisfaction you will get. This leaves you with two options:

  1. Keep on looking for a technical resource who really buys into your idea and is willing to join your startup as co-founder, even if initially only on a part-time basis, for no/low pay
  2. If what you need is just a prototype to show to potential investors and business partners, and / or as part of customer validation, consider paying some money for outsourced development. That way you can tap into a resource pool with a technical skill mix you would usually not find in one person – see my blog post Building Your MVP on a Budget

Many people make the mistake and think that they have to choose either option (1) or (2) – which I think is a mistake ! Your ultimate goal is that you want a technical co-founder, it’s just not easy to find one. But instead of waiting for (1) to happen, which means no technical work takes place, you should instead work on both options in parallel. Try to get something built externally, while still looking for a technical co-founder, because otherwise you will never find one.

For those of you still undecided or confused about what they are looking for, I created this awesome flowchart for you:

Blog June 2014

CTORalph Stenzel, Dreamstake CTO

Twitter @amazingsquirrel

Daniel Murray (Grabble)

Original Text Here Shell Livewire

It may surprise you to know that actually the most important marketing you can do when you’re starting out as an entrepreneur, is to shamelessly self-promote everywhere you go. It is a sad fact, but networking really is the bread and butter when you are a self starter. 

 
We began our journey 1 year ago exactly (June 2013) and we got our very first office for free at Regus by meeting the Managing Director at a conference and asking him why they didn’t do more for startups. Our spring board was the opportunity to have an office to go to every day. We went to all the fashion-related activities we could to meet not only our target audience, but also the ideal candidates for our first employees.
Our next challenges came in the form of development – we knew no one, so we did what anyone lucky enough to reside in London did, and went to Google Campus, Rainmaker’s Loft, and a number of other entrepreneur focused venues. We put ads out all over the place. In the end, we hired our first developer via a contact my co-founder had made when we had been out searching for coffees with successful young entrepreneurs – we figured taking someone from recommendation was better than from an ad.
Finally, we needed to find funding – and we did this by shamelessly applying to each and every speaking or pitching opportunity we could find. There was barely a night of the week we weren’t picking up our Eventbrite tickets and making sure we were meeting people with money to invest.
In one year, we’ve gone from not knowing a single entrepreneur, developer, designer, investor, or client, to working with over 300 of the top fashion brands in the UK, as well as having a number of quality investors, a team of nine employees (including three developers), and an endless list of entrepreneur contacts from across the globe, including truly inspiring people like the head of entrepreneurship at Google to the guy who started Last.Fm. We have even won four awards, including the Shell LiveWIRE Grand Ideas Award, and were the youngest company in the UK to be featured in the Startups 100.
This has all been possible because of our personal drive and determination to meet anyone and everyone at all levels and, along our journey, impart our growing knowledge to anyone who asks. We now even run our own invite-only ‘Founder’ dinners which are very oversubscribed and supported by the Hoxton Hotel and Soho House. In essence, there is no more powerful brand than yourself, and your energy.
Different startups, of course, have different goals. As an individual, I would recommend the following tactics, whether your organisation is B2B focused or not.
  1. LinkedIn – There is no better place to promote your journey, find and connect with likeminded people and approach them for coffees. You will have to accept every rejection and take them well, but remember the value that is being added to your life with every ‘yes’. Publish articles of interest and use these to introduce yourself to others.
  2. Meetup – There is a meetup for just about everything, but if you can’t find one relevant to you, why not start one? That’s what we did. In the very early days we started a Meetup relevant to being a super early stage startup that wanted to share ideas and contacts in an open manner with other founders, and it really helped.
  3. Eventbrite – Again, events and meeting people are the bread and butter of success. You don’t have to be in London for endless entrepreneurial events – we’ve even attended a number in Leeds and Manchester and got the train home straight after.  The bottom line is if it sounds interesting, or even slightly relevant, you should be there.
  4. Dreamstake – This is an online accelerator and has been a very helpful community for us. It’s online with a number of offline events (usually around London’s tech city) but you can put your project on their platform and find investors and advice from just about everywhere.
  5. Tumblr – I write my blog on www.startupmumblr.tumblr.com. I document most of the positives and negatives of our journey and its served a dual purpose to us. It’s been a great source for our investors to really believe in us because we have been honest throughout, and it’s also been seen as a useful source of inspiration to fellow entrepreneurs. Using the right hashtags, publishing this through Twitter, etc has actually resulted in a number of quality inbound questions from not only fellow founders, but equally partners, developers, designers, and advisors.
  6. Twitter – Twitter has been incredible for us, both on our company account and my personal profile. My personal profile is used for sharing, complimenting and endorsing a variety of startup material, whereas our company account focuses entirely on fashion, humour and engaging a community in an ongoing conversation.
On a consumer level, I strongly recommend using Buffer to schedule activity throughout LinkedIn, Facebook, Twitter, Pinterest and Google+. You might only be one person, but if you spend one hour a week thinking about what to share, and what you want your company to represent from a vocal perspective, you can schedule every single word your brand speaks that week, without having to worry for the next seven days. If you do this a few times, you will begin to spot trends on the response rates and can change your strategy to time your posts around when they are most likely to be seen on each platform.
My final piece of advice is to notice what works well for you and invest your time in that. For Grabble, Twitter, Instagram and Pinterest are where we get the best engagements, so we really drive our strategy there, and use Facebook, Tumblr and LinkedIn as a secondary level of engagement. You can’t be a master of all platforms in the early days so make sure you are confident enough to pick and choose.
Just remember, there is no better brand than you, so whatever you do, put in the effort to meet people, participate in the community you are seeking to engage with, and the rest will come naturally over time.

About Daniel Murray (Co-founder of Grabble)

Daniel Murray is the co-founder of Grabble. Grabble lets online shoppers save their favourite fashion products from any other site and organise them into personalised collections, using the business’ ‘Grab’ button. The service also sends online shoppers sales alerts on items they are interested in, enhancing their browsing experience. The business enables retailers to sell online and leverage their existing social media communities to share collections of their favourite or relevant products without any technical integration, cost or time expense.
You can follow him on Twitter @murraymuzz and @Grabble.

An official definition of a ‘gold rush’ is that it’s a period of feverish migration of workers, mainly in the 19th and 20th centuries, to an area filled with dramatic gold deposits.

Gold rushes were typically marked with a general buoyant feeling of “free for all”, income mobility, and an opportunity for any single individual to become abundantly wealthy almost instantly.

California’s name is indelibly connected with the Gold Rush since the gold was discovered in 1849. Therefore, the fast success in a new world became known as the “California Dream”.

California was perceived as a place of new beginnings, where great wealth could reward hard work and good luck. The notion inspired the idea of an American Dream. California was seen as a lucky place, a land of opportunity and good fortune.

Sounds familiar? The similar phenomenon is now developing within the world of tech startup communities.

Here are a few parallels between then and now which we see at Dreamstake.

Once again California is the centre of a ‘gold rush’, this time it is tech startups that are fueling the dream. California has the highest gdp of any U.S. state with, San Francisco creating more jobs than any place else in the world. Mini gold rushes are happening in Europe. London and Berlin are the centers of tech talent migration, that work as magnets for startups.

The permanent wealth that resulted during the gold rush was distributed widely because of reduced migration costs and low barriers to entry. These days, thanks to the Internet we are in an environment where it is easier for a tech startup to get funded and where less resources and less effort are needed. Theoretically, anyone can do a startup in nowadays.

Whilst gold mining itself was unprofitable for most diggers and mine owners, some people made large fortunes and the merchants and transportation facilities made vast profits. In a similar way, a small number of highly profitable startups trickle down wealth into the whole economy.

Although the percentage of the ‘winning strtups ‘ is small, some of them are making enormous fortunes. Google’s average revenue per user (ARPU) is six times than that of Facebook’s, and Facebook’s is twice than that of Twitter’s.

The resulting increase in the world’s gold supply had stimulated global trade and investment. Tech startups are now disrupting the industries, boost the economies and reform the way investors think.

Historians have written extensively about the migration, trade, colonization, and environmental history associated with gold rushes. Now, if you think about it, do you know of any current economic or financial publication which doesn’t have a ‘tech startup’ section in it?! Entertainers and models now describe themselves as entrepreneurs and every business journal and even some fashion magazines now features articles on the sector.

So don’t delay. If you have a great startup idea, join the gold rush today!!

Blog by Marina Atarova – Co-Founder of Dreamstake an online network, that provides end-to-end support for entrepreneurs wishing to get a startup funded in the shortest possible time. The startup rating system allows entrepreneurs and investors to monitor progress.

Dreamstake Academy  provides guidance on how to create a successful startup. Dreamstake will link startups with suitable mentors and professional advisors. Startups that have successfully achieved an acceptable rating will be given the opportunity to feature at monthly demo days and investor pitching events.

Cash Flow or Cash Flop?

Startups often overlook the importance of utilizing the right cash flow model. Most founders are comfortable believing that in order to succeed in this cut-throat industry, one need to focus more on constantly developing, innovating their products. But if one looks to how the biggest names in the industry achieved success, this is not necessarily the case.

Success with software, apps or web services necessitates not only for you to create great products and services that solve a need (B2C) or problem (B2B) but also for you to utilize the right cash flow model for your start-ups. While the product or service creates value and the business model captures value; it’s the cash flow model that keeps startups, or any business for that matter, alive.

Cash flow is where the essential properties of a business model are determined

The right cash flow model should be able to help you to determine who will pay for your services, how often, how much, and of paramount importance: when they are going to do so. The right cash flow model should also help you keep away from bankruptcy. The only reason why startups die is not because of low revenue, low profits, high costs or even negative margins but because of cash flow.

Cash flow is more important than your mother

Startups have to select the right cash flow model as this will be the single biggest contributor to success. In the workshop we will discuss the “PAY NOW”, “PAY NEVER”, PAY FIRST” “PAY SOON” and “PAY LATER” model in details and which one applies to your startup. All these models differ in cash flow trajectories. Many SaaS (Software as a Service) companies use the popular “PAY LATER” business model mainly due to its skyrocketing growth strategy, the famous hockey stick. It has become apparent that success can be detrimental to the cash flow in this model. For SaaS, success not failure is killing the business.

It is important for startups to note that there is no one-size-fit-all solution when it comes to cash flows models — often a combination of different models is the best approach. Careful assessment of company goals, growth and access to capital, as well as the competition and the state of the market, should be taken into consideration in deciding for the right cash flow model to use, a tool which can either make or break your entire business operations.

by Omar Mohout
Growth Engineer, Sirris