StartUpRoar Magazine issue02

Issue 02 | Winter 2014 | Quarterly

Brought to you by Buckworths

ÂŁ5 where sold

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

Whatsapp

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!

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