Setting up a MTB related company (advice/opinions needed)

thomas.

I'm more of a forum reader than an active participant, but I've got a problem and I'm having trouble coming up with a solution, so I thought that I'd turn to the internet for advice. Perhaps not the greatest idea in itself, but as I'm not obliged to act on the internet's advice, I'm not really losing anything.

Basically, the Government has introduced some (amazing) new tax breaks for people investing in very small businesses, so I thought this could be the chance to try and set up that MTB clothing company I'd been thinking of. The problem is, to get the tax breaks the investor has to be fairly wealthy, not to mention the fact that I can't even offer the investment to "poor" people without falling foul of FSA regulations.

I've looked at going to business angel organisations, but their presentation fees tend to work out at £1,000+ with no guarantee of success and I've not really seen any that work on a purely contingent fee basis.

Does anyone, therefore, have any idea how to meet people wealthy individuals interested in cycling (or clothing)? There are lots of high profile/wealthy people interested in the sport out there (Alan Sugar, Paul Smith, etc) and I see a lot of fairly pimp MTBs when I'm out riding, but I can't see that going up to them and going "Hey, nice Ibis, put money into my company" would be successful.

I've been trying to work out how to meet investors for weeks now, and I'm at my wits end.

supersonic

As the Dragon's would say - phone, write, drive up to their company HQs and stand on the doorstep. But you need a product first. People don't invest in ideas, they invest in physical stuff that is going to make money.

henryfuller

Twitter.

paul.skibum

thomas. wrote:

I'm more of a forum reader than an active participant, but I've got a problem and I'm having trouble coming up with a solution, so I thought that I'd turn to the internet for advice. Perhaps not the greatest idea in itself, but as I'm not obliged to act on the internet's advice, I'm not really losing anything.

Basically, the Government has introduced some (amazing) new tax breaks for people investing in very small businesses, so I thought this could be the chance to try and set up that MTB clothing company I'd been thinking of. The problem is, to get the tax breaks the investor has to be fairly wealthy, not to mention the fact that I can't even offer the investment to "poor" people without falling foul of FSA regulations.

I've looked at going to business angel organisations, but their presentation fees tend to work out at £1,000+ with no guarantee of success and I've not really seen any that work on a purely contingent fee basis.

Does anyone, therefore, have any idea how to meet people wealthy individuals interested in cycling (or clothing)? There are lots of high profile/wealthy people interested in the sport out there (Alan Sugar, Paul Smith, etc) and I see a lot of fairly pimp MTBs when I'm out riding, but I can't see that going up to them and going "Hey, nice Ibis, put money into my company" would be successful.

I've been trying to work out how to meet investors for weeks now, and I'm at my wits end.

Bit confused - what FSA regulations would you break if you asked for less wealthy individuals to invest in your company? Surely you can ask anyone to put money into a company - if I were starting one I'd be tempted to garner support from friends and family - would I be arrested and carted away to some lush white collar prison for asking my Mum for a fiver?

As for finding wealthy people to invest in your product - as SS says - you need product or at least very good mockups to tempt people with. At the very least material samples and graphic designs, logos etc etc, suppliers on board and so on, fabrications would be best though.

I heard Brad Wiggins won a fair bit for the TdF so you could try him, I hear he likes cycling.

thomas.

It's to do with the company being a private one (i.e. not a PLC) and me not being FSA related. It's basically to stop people from getting scammed.

I don't think you'd get busted over a fiver (even if you technically could), but I'm not talk about a fiver here.

cooldad

Really? I know plenty of people who have invested in private companies. How else can they raise capital?

thomas.

It's not that private companies can't offer their shares for sale, it's just that there are very specific rules about how you go about doing it (the following is my understanding of the rules, as explained to me by a friend who is involved in this sort of thing, so it's probably only 90% correct):

If your friends decide to set up a company with mates, and all put in some money, then that falls outside of the rules (in FSMA 2000). If you turn round and go "buy shares in my little company" then that's a Regulated Activity and you either have to do it via an authorised person (an IFA presumably, although I'm not entirely sure if you get people that are FSA authorised in different ways) or the person you have to offer the shares to must be:

1) I high net worth individual (earning above £150k/yr and having assets of over £250k) or
2) A sophisticated investor (must be/have been a director of a company turning over more than £10m/yr or have experience with investments) or
3) You can offer them to certain companies as well

As it stands, I can't offer the opportunity to invest in my company to my mates because they're not rich or "sophisticated" enough. I've also had to put a disclosure about not being FSA authorised and the investment only being suitable for the above investors on my business plan to avoid possibly breaking the law.

If you happen to have friends that have invested in small companies and are looking for more investments/tax geared investments (this would be SEIS, which is the one that offers "too good to be true" tax reliefs) send me a PM. On the understanding that your friends fulfill one of the criteria above, I'll happily pass on details of what I'm intending on doing (the logos, market analysis, clothing diagrams, etc) to any of your friends that want to see it.

Hell, if they make the investment I'll make you a "product tester" to say thank you.

paul.skibum

I am not convinced about those regs - sounds enormously complicated and inhibiting for small businesses to develop.

I am pretty sure I can create a limited company, issue shares to myself and to my investor (whether that is a "Dragon" style investor or my mum giving me 50k from the sale of my grans jewelry) and go from there. I think the rules you are being quoted are for considerable sized companies - I am assuming you aren't looking for milions here.

By the way if you really want to go down the route of bikign related clothing you could do worse than drop the guys at Howies a line - if nothing else their story would probably put you off the idea!

thomas.

I think that the problem is that if someone puts money into a company, then without the regulations they'd have little comeback if it went wrong, and very small companies don't have to have large amounts of shares capital, or audits, which would normally offer some degree of shareholder protection.

There may be some sort of exemption for immediate family (I didn't bother looking into this, as it isn't really relevant to me), but this is definitely a major issue for raising funds in the £50k ballpark. In practise though, I guess it all comes down to whether you get caught - your parents are much less likely to report you to the police if you lose the money than a stranger would be.

As for the specific parts of the law, the relevant bit of the disclosure I've had to include is this:

This document is exempt from the general restriction (in Section 21 of the Financial Services and Markets Act 2000) on the communication of initiatives or inducements to engage in investment activity) on the grounds that it is made to persons who are (a) Investment Professionals (as described in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529) [the ‘FPO’]), (b) Certified High Net Worth Individuals (Article 48, FPO), (c) High Net Worth Companies, Unincorporated associations, etc. (Article 49, FPO) and (c) Self-certified Sophisticated Investors (Article 50A, FPO). Persons of any other description should not rely on the document.

I have friends that know the Howies people, but I also have friends that know the Rapha lot, so I've heard (albeit it second hand) about what can go wrong but about what can go right.

King_Pin_Rich

kickstarter.com

gingerrob25

King_Pin_Rich wrote:

kickstarter.com

+1

Shotsaway

A business only needs to comply with the FSA regulations if they are to carry out regulated activities.

If you are starting a new business and you are looking for investments this isn't regulated by the FSA regulations. Many new businesses need investment and this investment can come in the form of a loan or an investment. If somebody invests in the business they would likely want a % of the shareholding. That way they will benefit if the business is successful and by the same token if the business fails their loss will be limited by the amount they have invested.

Most individuals who invest in Start Ups are looking for something new or different. What is your unique selling point? Opening a coffee shop is unlikely to appeal to business investors as they are all over the place and the returns are likely to be low and slow. A reason to invest is because you will be expecting to get a better return than a bank account. Otherwise why take the risk?

The 1st thing I would suggest you do is speak to Business Link. You local BL will be able to advise on business investing.
http://www.businesslink.gov.uk/bdotg/ac ... 1074429027

Then join a Networking Group (4 Networking run meetings all around the country). Here you will get advice from other small business owners and you may also find an investor.

http://www.thejoyofbusiness.co.uk/blog/ ... -business/

Shotsaway

thomas. wrote:

I think that the problem is that if someone puts money into a company, then without the regulations they'd have little comeback if it went wrong, and very small companies don't have to have large amounts of shares capital, or audits, which would normally offer some degree of shareholder protection.

Business investors don't need or want shareholder protection. There isn't any comeback if the business fails. Before they invest they will review your business plan, look at your CV (Skills and experience) and if they like you and the product and IF they think the product is unique and may work, they may invest, if they believe they will get a return on their investment.

The other thing an investor is going to want to know is what you are putting into the business? If you are only putting £100 into share capital, can you really expect an investor to put in £5000, £10000 or £25000? If the investor is putting in more than you, he or she would probably expect to be the majority shareholder. That's if they invest at all! After all why would they risk their hard earned cash, if you are not taking any risk?

And if they are the majority shareholder, that means they could fire you if things aren't going well and then employ somebody else to do the job.

Their shareholder protection is by doing their due diligence prior to investing.

Growmac

Apologies if this has been covered, but have to go out in a second.

You're absolutely right about the limits placed upon selling stock to people other than sophisticated or high net worth investors. You're being overly cautious about the rule though. Selling to friends and family is absolutely fine.

If you have an existing relationship with someone, and they want to put money into your venture to suport you as a result of that existing relationship, then you're fine. We raised about £350k from friends and family when we were getting going, and that was all completely above board.

Second, you ask about how to meet high net worth individuals. From what you say, you may or may not be in a position to do that yet. You will be amazed how far along the path you need to be before anyone other than friends and family will take an interest. Once you do get to that point, you'll be horrified how much money the process costs. We have raised about £6.6M, in a number of tranches over a number of years, and just our monitoring fees are now about £200k a year. Investors will have their pound of flesh and then some. £1k to present to them isn't the half of it. Equity investment is seriously expensive, you should always, always look for alternatives first.

If you do want to take that route, go and talk to Business Link. Rather depends on who you get, some of them are idiots, but some are great. There are various investment readiness schemes run by Business Link and other organisations. For those you get training and mentoring for your business plan (you do have a detailed business plan covering three years, right?) and if you do well there is generally a chance to pitch to investors at the end.

You can also contact various Angel groups to see whether you could present. You need a well developed and advanced plan to get through (LBA has about 300 plans, 100 interviews and 30 pitches per year I think) but can work wonders. As with all though, it *will* cost you money to present.

Good luck, hope it works out for you. G

Growmac

Sorry, should have said 3000 plans per year, not 300.

Maybe also try Onion in Oxford, and look to see whether the Enterprise Accelerator scheme is still going. E-Synergy used to run a very good training scheme with a pitch at the end of it.

FunBus

thomas. wrote:

Basically, the Government has introduced some (amazing) new tax breaks for people investing in very small businesses, so I thought this could be the chance to try and set up that MTB clothing company I'd been thinking of.

This is a genuine question, so please dont see as sarcastic - you say the tax breaks are for the investor. So, as the 'owner' of the company would you see the same breaks?

Also mentioned above was the risk of the investor being the major share holder and replacing you if things didnt go to plan. If i were in your position i'd be more concerned about them getting rid of you if things really did go to plan!

All of that being said, all we know now is that you've got an idea for a company (as i think we all have to a certain extent), so no real product/company to invest in. Because of that, i'd say your only hope would be investment from friends and family or, a business loan - but then again, i guess that would contridict what you're trying to do re; tax breaks. Are the breaks really that attractive that it warrants setting up a business in a highly competitive market? I cant see how you'd make a success of a clothing company when a handful of manufacturer's make for all the big brands....? I've worked for UK distributors who struggle to sell in cycle clothing, so a 'one man band' (no offence) would see even more challenges. I also cant see it making you rich, or even close. To do well, i personally feel you need passion in the business, not how much tax you could potentially save off the back of it.

But, if you have a unique idea or product, then best of luck with it.....

diy

I suggest you find a company law forum or a venture capitalist forum. The well meaning posters here are clueless. The hint is in the name. Private company cannot issue shares publicly. Investors are quite able to invest for equity share and also able to get personal guarantees if necessary. You should get proper advice or just find some way to get started on a budget. Nobody with money will buy in to an idea. We all have ideas.

Growmac

A private company can quite happily issue shares to investors. We have issued more than £6M in shares to various friends and family, Angels and VCT organisations (under EIS rather than the scheme you mention). There are rules that have to be abided by, and you're quite right that there will be no money at all available for just an idea, but it's perfectly doable if you know what you're doing.

Anonymous

supersonic wrote:

As the Dragon's would say - phone, write, drive up to their company HQs and stand on the doorstep. But you need a product first. People don't invest in ideas, they invest in physical stuff that is going to make money.

^ This.

Been going through something similar with a software idea with some others, but while they say you've got a great idea they're not interested without seeing the goods. At least a good prototype.

Plus a cracking business plan with forecasts for at least 3 years, preferably more, and very detailed to cover all the costs and projections plus contingencies for all kinds of things.

As for the shares in a private company, issuing shares is no problem. There's little regulation there but there are rules when it comes to issuing dividends on those shares, but mainly where it's a close relative and it's seen as income shifting etc.

However *selling* shares in a private company I'm not so sure. A private company can sell shares and they can be traded but it's all done privately at the discretion of the company directors. Regulation there I guess applies to selling shares to a third party, but don't know what this is.

Anyway, ideally you are great at sweet talking potential investors and have a network of contacts, can go around meeting up in all kinds of trendy places to chat about it and so on. Or if you're like me you have a guy who's good at all that (I just do the work to make the stuff ).

thomas.

Thanks for you help.

Regarding the tax points (which, while I know nothing about meeting millionaires, I'm fairly good at tax):

The tax breaks for the investor can easily produce an effective cash return that is greater than investment (100.5%, to be precise) as long as they are paying enough tax. For someone paying enough tax, therefore, the investment can effectively be "free".

The scheme is called SEIS if anyone wants to look it up.

As long as you are good for the tax reliefs, and investing in one company doesn't stop you from being able to invest in another (due to investment limits) you should always make the investment as you have no downside and unlimited upside. Sort of. Hence why I'd like to meet someone rich, rather than crowd fund the venture (I'd rather lose the Government's money than an individual's).

As for income shifting, it's not an issue for a number of reasons, not least Jones vs Garnett (aka Arctic Systems).

craigw99

this has to be the most serious topic on here ever- im off to the crud catcher!

diy

A private ltd company cannot issue shares to the public. I'm interested to here if someone has a way. Assuming its not floatation and the creation of a plc

Growmac

diy wrote:

A private ltd company cannot issue shares to the public. I'm interested to here if someone has a way. Assuming its not floatation and the creation of a plc

You can't issue shares to just anyone. But, you can issue shares to family members. You can also issue to friends if they are fairly wealthy, wish to support your venture and can sign to say so. Then there are the certified sophisticated investors and high net worth individuals, who you can engage with individually or through Angel Groups such as London Business Angels or Oxford Investment Network.

Back to the OP, investors will be able to get EIS on any investment they make. It's a hygiene factor, the only difference it makes is that you won't get investment if you don't have it. Beyond that, you're looking at the same expectations as the other companies they are pitched to every year. They want at least 10 times return, as quickly as possible, and absolutely no risk.

Sadly in the UK the last point is the most important. No risk. The upside comes a surprisingly distant second.

An idea won't cut it. Often neither will a decent prototype and a shaky plan. Really they want you to be already in a fast growing market that you have made a success of previously, with a product and contracts, and with a short term and well defined need for cash for explosive growth. Investors are fairly lazy, and don't like taking risks. Don't delude yourself that EIS makes them any more likely to throw their cash at you. And remember from your point of view that equity cash is by far the most expensive type of cash available - it makes loan sharks look cheap. Always look at it as a last resort, they will take their poind of flesh. And their monitoring fees.

Anonymous

Growmac wrote:

You can't issue shares to just anyone. But, you can issue shares to family members. You can also issue to friends if they are fairly wealthy, wish to support your venture and can sign to say so.

Plus to employees if you have any. Issue as shares, share options or actually sell them shares. That's how I've made a bit of cash through Ltd companies I've worked for, issuing and flogging shares that were basically worthless as there's no public market for them until the company then gets sold and the new buyer purchases the shares.

And with that in mind, I've noticed a lot of investors are open to or looking for a business plan that is a short term growth to generate value and then sell to someone else or IPO. They may not be interested in how profitable the business is or if you even make any money, but so long as you have value when it comes to selling shares, they get their investment back plus huge interest, then the company can go down the crapper for all they care. Bit like Facebook (well their shares at least, though unless they sort out their profitability they are going to sink, or more likely get bought by Google or Apple).

diy

OK - no new clever scams that I'm not in on then