Category: News

The SEIS & EIS venture capital schemes are two of the four schemes managed by HMRC that enable UK early stage businesses that are potentially high risk to raise money from angel investors, crowdfunding platforms and venture capital trusts.

They offer investors attractive capital gains tax breaks that significantly hedge the risk of their investments. For any business looking to raise pre-seed to series A funding in the UK, offering SEIS & EIS relief to investors is almost a prerequisite for a successful raise. However, it is not always straightforward to navigate.

We spoke to specialist startup legal advisors Dragon Argent, who’ve seen numerous clients make mistakes over the years that can damage relationships with early investors and even invalidate their tax relief status. They shared their top tips below to help founders avoid some of these pitfalls!

SEIS & EIS TAX RELIEF SCHEMES: DO’S FOR FOUNDERS

1. Get Advance Assurance

• Assurance is available in respect of both SEIS and EIS. As neither
  relief can be applied for until the investment in question has been made, submitting the relevant information to HRMC ahead of this allows the company to get an indication of whether HMRC agree that the investment (and the company) will qualify under the terms of either regime. This means
  that if there is any objection by HMRC as to eligibility this can be dealt with before any investment which otherwise may not qualify.
  
  Having said that, the assurance itself is based on the information provided so the more specific and accurate an application for advance assurance is, the more reliable the indication from HMRC will be as a result.

2. Onboard funds & Issue Shares compliantly

• Take in SEIS funds first and issue your SEIS shares at least a day before your EIS shares. Shares will not be SEIS eligible if they are issued on the same day as EIS shares. If you do issue both sets of shares on the same day then you would need to opt for EIS relief on all of them.

3. Be Cautious of Self-Serve Platforms or a DIY Approach

• Get advice prior and instruct professionals to submit your Advance Assurance and Compliance Statements. The SEIS and EIS requirements are complex and as mentioned above, not all mistakes can be rectified. The most common mistakes
  encountered on applications include:
  
  – Trying to apply for SEIS/EIS relief for an existing shareholder who holds non-SEIS/EIS shares – this cannot be done.
  – Applying for EIS too late. Subject to certain exemptions, EIS investment must take place within 7 years of the company’s first commercial sale.
  – Applying too early. Applications for SEIS/EIS can only be submitted once the company has traded for at least 4 months, or spent 70% of the funds raised. The “trading date” is not always the date of your first invoice so advice should be sought.
  – The company submitting the application doesn’t carry out a qualifying trade. Not all companies will be SEIS/EIS eligible. Certain trades such as banking, insurance and property based trade are ineligible. Licensing IP will also sometimes render the company ineligible and subsidiaries also need to be taken into account.
  – The investor for whom SEIS or EIS is being applied for and their associates together hold more than 30% of the ordinary share capital or voting rights in the company. If this 30% threshold is exceeded this will render the investor ineligible and companies often forget that associates are included in this calculation.
  – Value provided to the investor by the company hasn’t been declared. Where value is received by an investor, relief may be reduced or withdrawn. Care should be taken when confirming whether or not value has been received as transactions that you wouldn’t necessarily expect e.g. the company
  repaying a loan to an investor, may also count as value.

4. Be Cautious Ahead of Transactions:

Take advice on SEIS/ EIS consequences before entering into any significant transaction. Some types of transaction can have adverse consequences on SEIS/EIS relief.

Transactions to be particularly aware of include:
– Share Buybacks. If a company buys back non-EIS shares from a non-EIS shareholder 12 months before or 3 months after an EIS share issue, there will be a clawback of EIS relief for the remaining EIS shareholders.
– Grants. Certain grants and allowances that a company may be interested in may count as ‘de minimise state aid’. This is important to know from the outset as SEIS is also classed as ‘de minimise state aid’. This means that any additional ‘de minimise’ funding would need to be taken into account when determining whether the £150,000 SEIS maximum has been met.
– Joint Ventures & Share for Share Exchanges. These types of transactions can cause companies to become ineligible in respect of SEIS/EIS due to requirements around percentage control over subsidiaries and qualifying trade.

5. Monitor Spending of SEIS/EIS Funds:

There are requirements for each regime in relation to how long the company will have to use the funds raised.

In addition, the funds can only be used for the purposes of the company’s trade. For many early stage start-ups it’s relatively easy to keep track of
when and how funds are spent but once the company begins to make it’s own money the waters can be muddied unless you take a proactive approach to monitoring.

SEIS & EIS Tax Relief Schemes: Don’ts For Founders

1. Submit an EIS Compliance Statement Before Using SEIS Entitlement:

Once an EIS compliance statement has been submitted to HMRC it cannot be withdrawn, even if it was submitted in error- so any SEIS relief would then be denied.

2. Assume Founders Aren’t Eligible:

Whilst it is true that the aim of the SEIS and EIS regimes is to encourage investment from third parties, this is not to say that founders can never be SEIS or EIS eligible. There are detailed rules which differ in respect of both regimes and set out the circumstances to apply to founders when deciding whether they are eligible.

It’s important to take advice on this before incorporating the company and allotting founding shares.

3. Assume all Advance Subscription Agreements (ASAs) Are SEIS/EIS Eligible:

The default position under the SEIS and EIS regimes is that investors will only be eligible for relief if they invest their funds in equity- not loans (even if they are convertible).The exception to this is that in some cases funds provided under ASAs may be eligible. HMRC guidance has been issued on when it is likely that an ASA will satisfy SEIS/EIS requirements and this includes:
– When there is 6 month longstop date for shares to be issued;
– Where the agreement is purely for equity;
– Where there can be no variation or cancellation; and
– Where there are no provisions in the ASA which would be standard for a loan document.
N.B. This is not definitive or conclusive guidance so checking the terms of any ASA with a professional is a must.

4. Inadvertently give SEIS/EIS Shares a Preference:

As SEIS/EIS shares must be ordinary, full-risk shares this means that they must not carry any rights to preferential treatment. For example, a liquidation
preference or preferential treatment over dividends. Some companies don’t realise that these rights can be inadvertently afforded to ordinary shares when articles of association or a shareholders’ agreement are drafted, particularly when a new class of shares is introduced which are to have lesser rights than the ordinary shares e.g. deferred shares. For this reason, both the articles and
shareholders’ agreement should be carefully drafted, ideally by a professional with SEIS/EIS experience.

5. Issue Shares Before Funds are Received:

In order to qualify under SEIS/EIS the shares issued must be ordinary shares which are subscribed for in cash and fully paid at the time of issue. If you would like to discuss utilising either the SEIS or EIS schemes on an upcoming funding round for your business, contact Dragon Argent to discuss eligibility and how to best manage the transaction.

If you’re looking for an angel investor to help fund your business, then the Angel Investment Network can help. Sign up to pitch your business to investors all over the world  

What is the magic formula that turns investor interest into action? In the last of our fundraising top tips blog series, we consider ‘the million dollar question’ of why investors back early stage businesses.

We have identified the top reasons based on the accumulated wisdom of startups who have successfully raised via AIN over the past two years, based on dozens of interviews. So exactly what are the top factors that will encourage an investor to become part of your cap table? 

1. The strength of the founding team

This came out as the number one reason startups received backing. After all, at this early stage, often pre-revenue, traction may be  limited. Investors are taking a gamble that any early stage company will go onto a significant exit and ensure a significant return. They need to have faith in the founding team to deliver. The old adage that ‘people buy people’ is proved out here.

According to Ben Hallett, CEO and co-founder of fast growing EdTech company Vygo: “Our first round of angels mostly invested in Vygo because they believed in the founders’ conviction around the mission and our horsepower to bring it into reality.”

This view was shared by Antony Yousefian, founder of innovative agtech businesses Bx Technologies: “ We are told it is our story and the experience of the team. We understand farming and the food chain deeply, the problems that exist including in agtech development. Bringing together data-science and experience from sectors including gaming, media and finance.”

According to Yang Li, Chief Growth Office, crypto firm Ziglu: “Ziglu has an experienced team with a proven track record of building amazing startups like Starling, Monzo, Wirex, Meituan.”

This view of the vital importance of the founding team was perhaps best summarised by Archie Wilkinson, Co-Founder of energy startup LifeSaver:
“Investors will invest in a great team with an ok idea over a great idea with an ok team, it is important to have people around you that make you feel like the weakest link!”

2. The market opportunity

As seasoned veterans backing a multitude of companies, angel investors are adept at very quickly identifying the opportunity. Ultimately their chance of making a decent return on their investment.

According to healthtech startup Occuity founder and CEO Dan Daly:
“We have a proprietary technology, protected by nine patents, and an expert team developing products which deliver clear solutions to large and growing markets. The opportunity is tremendous.”

According to StJohn Deakins, the founder of ‘Zero Data’ leader CitizenMe. 
“We’re a cutting-edge Marketing Technology provider that is also driving significant social impact. It’s a great mix of a market-making enterprise with huge market potential, whilst also creating a brighter future for us all.”

 According to Alex Christodoulakis, co-founder of DIY wealth-building app Wealthyhood:: “Our angel investors immediately acknowledged the gap between trading apps and robo advisors and the need for a DIY wealth building app for long-term investors.”

3. Timing

Investors will be drawn to the newsworthy, not just the why in terms of the problem you solve for, but the why now? Can investors see that your business is part of a rising trend that has real momentum?  This of course needs to be a substantiated trend rather than a more short term fad.

According to Nick Begley of  founder of Psychological Technologies (PSYT): “The popularisation of meditation, mental health destigmatisation, and the willingness of millennials and Gen Z to invest in their wellbeing, has led to the market exploding in recent years, giving rise to many 9 and 10 figure company valuations in the space.”

The importance of market timing in gaining the backing of angels was also stressed by Rav Roberts, CEO of UK Consumer & Business healthtech Pharma Sentinel: “Healthtech was very topical, even before Covid-19, with more people living longer & taking personal responsibility to manage their health to live quality lifestyles.” 

4. Traction

Alongside the team, market opportunity and timing, investors will still need the evidence for take up to show this is an investable opportunity. Good old fashioned traction is still a key factor in why successful startups get funded.

According to Alex Christodoulakis : “We had already built some momentum, showcasing that we were heading in the right direction. We had more than 3,000 users signed up to our waiting list, over 10,000 followers in our LinkedIn and Instagram pages and had developed a community of 50 Wealthyhood Ambassadors across Europe.”

As well as actual users, other metrics can also cut through the ice with investors who need verification of success. PR and those all important product reviews are crucial.

According to Katie McCourt from sustainable underwear startup Pantee: “Within a short time of launching, we had grown an engaged community of over 10,000+ women, were racking up 5* reviews on Trustpilot and had been featured by the likes of Vogue, Stylist Magazine, Drapers, The Observer and named a ‘Top Sustainable Underwear Brand’ by The Independent.”

5. Personal understanding

The final reason on our list can provide the sprinkle of magic dust to turn consideration into definite action. This is the investor having a personal understanding or connection with the business. This perhaps underlies why we tend to see a disproportionate amount of funding into food and drink startups. Clearly this may be more difficult for B2B SAAS platforms who will need to make sure they really deliver on the other four factors. 

According to co- founder and CEO of AI consumer technology business aisle 3:
“Investors understood the problems aisle 3 is trying to solve and they related to their own shopper journey – especially when I was able to walk them through the competitive landscape and how we had already exceeded the current incumbents. I think, as shoppers, we are too accepting of the status quo and the need to open multiple tabs on your browser even though hotels, car insurance or flights are easy to compare.”

Gary Piazzon founded digital travel companion Porter after becoming frustrated finding a suitable hotel. “All of our investors resonated with the problem we’re trying to solve. They’d all experienced the frustration and wasted time of endlessly searching for the right place to stay when going on holiday. This immediately put us in a good position when discussing the business.”

BorrowMyDoggy founder and CEO Rikke Rosenlund also agreed the ability to empathise was paramount. “It is also helped that many investors are dog lovers. They could ‘get it’ instinctively and understand it would be great to have something looking after their dog.”

So in summary, the top five reasons investors back startups are: The strength of the founding team, clearly defined market opportunity, timing, evidence of traction and personal connection with the service or product.

Good luck with your fundraise and keep those five factors in mind when preparing your pitch!

For our latest Behind The Raise interview we speak to StJohn Deakins, the founder of ‘Zero Data’ leader CitizenMe. He talks to AIN about his mission to improve the internet by enabling people to control their own data, developing your ‘why’ as a startup and his fundraising insights having raised in the UK, USA and Asia.

Tell us about CitizenMe and how you came up with the idea?

My last startup helped over 100 million people get online with their smartphones. After selling it, I had the ‘beach time’ to dig deep into the economics of the internet. It quickly became clear that data will become the new currency of our digital world. However, because everyday people can’t participate in the value of their own data, there are billions of dollars of value left untapped. This personal value from personal data can mean many things.

It could be the informational value of a type 1 diabetic collectively sharing blood glucose stats, plus other health and lifestyle data, with other type 1 diabetics; Or the utility value of receiving hyper-personalised loyalty offers, recommendations and services; Or the cash value of anonymously sharing 360º life data for consumer insights or medical research.

The important enabler is to do all of this “Citizen First” – with people always in control of their own data. If we do this, we unlock huge new value and a better internet for everyone: companies, governments, brands, healthcare providers – and people. This is the CitizenMe mission.

What is the problem you are looking to solve?

Democratising the value of personal data, for all.

What traction have you seen?

We’ve just been ranked #1 in the 2022 UK Marketing Technology Top 50. This is because we have unique technology that has enabled 450,000 Citizens to transact their zero-party data over 11 million times directly with organisations such as Mars, Sainsbury’s, GSK, WPP and the UK Government, through our Marketplace.

We’ve built world-leading technology that enables people (Citizens) to gather a copy of all their data available and store it locally on their own smartphone, where personal algorithms create personal insights. This way, our platform touches zero Personally Identifiable Information (PII), elevating our tech above all of the new regulations in the works in the UK, USA and EU. As a result, we’re now being approached by major UK and U.S. consumer brands to licence our ‘Zero Data’ tech for use with their own customers. 

In 2021, we raised a £1.4million investment from institutional investors and AIN angels, and we’re currently raising a round to support this acceleration in the USA market, with 60% of funds already committed.

What are the implications of the increasingly ‘privacy-first’ internet?

Huge! Our entire lives are becoming reflected digitally. Becoming privacy-first will improve the way that we all interact with the world and with each other. Data privacy is not about people reducing their interactions, it’s about promoting respect for people’s life data. It’s about asking rather than grabbing. Essentially, it’s about digital civility encouraging positive mass participation with data. Organisations that attempt to ‘harvest’ or ‘extract’ personal data make people anxious about interacting and the data that they share, and they are increasingly being legislated out of business. 

In the USA, 35 of the 50 states are passing different state-level personal data legislation, similar to GDPR. The UK is ‘upgrading’ GDPR to include more transparency and data portability. Meanwhile, the European Union has three new regulations in the works: the Data Act, the Data Regulation Act and the Artificial Intelligence Regulation. These will include more restrictions on “Big Data” (e.g. Facebook and Google), and give owners of all digital products the right to a copy of all the data they create. The legislation states that all this new data will be collected by people via personal “Intermediaries”, like CitizenMe.

We’re at the beginning of a shift to a more human-centred internet. Our real lives and online lives are rapidly blurring to become one. This will only be heightened with the imminent arrival of Augmented Reality and the ‘Metaverse/Omniverse’. It’s important that we make sure this happens in the right way.

What initially attracted investors to your company?

We’re a cutting-edge Marketing Technology provider that is also driving significant social impact. It’s a great mix of a market-making enterprise with huge market potential, whilst also creating a brighter future for us all.

Why did you raise via Angel Investment Network?

AIN is the UK’s most established and highly regarded Angel Network Platform – with good reason. The team understands the needs of both investors and the startups that they select, providing solid and trustworthy advice to both. They’re also great to work with. That’s why they’re number one.

What is your top tip for anyone raising investment for the first time?

Firstly, be brave. Starting a new company and raising investment can be daunting (and I should know, I’ve done it a number of times now!)

Be aware that you’ll need to kiss a lot of frogs! Meeting investors is a matching process, your new investors will hopefully be with you on your startup journey for a number of years. Also, have a plan, spend effort on designing and testing your deck, and assign adequate time to the process – it takes longer than expected.

Always be true to your ‘why’, but be open to hearing ideas on your ‘how’ and your ‘what’. Many investors have a great deal of experience, and talking with them can be valuable even if they’re not a match. That said, the final decisions are always down to you to execute; that’s what a startup is all about.

Finally, stay positive, enjoy the wins and keep the processes in perspective; it’s all a means to delivering your ‘Why’.

My biggest fundraising mistake was…

Speaking to institutional investors before we were ready. At the seed and pre-seed stage, startups are normally still proving out an idea and proving the value creation potential. It’s worth meeting with friendly VCs to align expectations for future raises. However, in the early days, it’s best to focus on spending time with users and customers and building products and revenues.

If you had a magic wand and could wave it, what would you wish for to improve the fundraising process for startups?

The startup fundraising market lacks information and transparency. I’ve been on both sides of the funding market, both raising and investing in Asia, the UK and the USA. Startups are often unsure where and how to engage with the right type of investors for their funding needs and funding stage.

Investors require a broad view of market opportunities, without being overwhelmed. They also want assurances about the representations being made, from the usual over-optimistic forecasts, through to protections against Theranos-style fraud. Platforms like AIN are bringing much needed connections to the marketplace. The wave of the magic wand would make the consideration and matching phase far faster and easier for both founders and funders.

CitizenMe are currently raising. Please contact Xavier Ballester for more information xavier@angelinvestmentnetwork.co.uk

Our latest fundraising blog series features the accumulated wisdom of startups who have successfully raised via AIN over the past two years. Last time we looked at the top fundraising pitfalls. This week we look at the top tips for raising successfully.

All of the founders interviewed have raised successfully through AIN and several on multiple occasions. They have kindly given up their time to share their top tips and advice, helping to improve the startup ecosystem for the benefit of all. Their advice really is worth its weight in gold.

1. Understand what stage your business is at before fundraising

This really is crucial to saving an awful lot of wasted time and effort. The first question you need to ask yourself is are you investment ready? Is your startup at a stage where investors will see something they want to invest in and you have some evidence of traction.

According to Andrea Armanni, Co-founder of marketplace for on demand services, The List: “It may sound obvious now, but one thing that we learnt whilst raising our first seed round is to be “Investment ready.” Angels invest when they believe in the idea they hear, in the founders’ ability to realise its vision and in the market opportunity. When, as a founder, you are ready to tell this story, and bring some proof of customer adoption, you are ready to raise money.”

If you are investment ready, then think hard about who you are approaching. Are you pitching for VC funding at too early a stage? This can be a fruitless exercise when an angel investment round is where you should be focused.

According to Benjamin Carew, Co-Founder of affordable workspace solution Othership: “If VCs keep being really nice but don’t invest you are probably too early. Save yourself the time and build more traction and try and do an Angel round or friends and family.”

This is backed up by Alex Christodoulakis, co-founder of DIY wealth-building app Wealthyhood: “It’s always easier to approach angel investors, than early-stage VC funds. Start from your own network, pitch them your company and vision and then expand to your second degree connections, angel networks and of course the Angel Investment Network. If you can’t persuade angel investors to invest in your company, then you should reconsider your pitch.”

2. Be patient

Based on the dozens of interviews we have conducted, the most common piece of advice was being patient. It may seem obvious but the point is, the process needs to be understood from the outset as fraught and difficult with so many variables at play. Therefore a patient mindset is the best one for founders to adopt. This includes understanding that multiple calls with some investors can be needed. While multiple rejections are an inevitable part of the process.  

According to Richard Romanowski, co-founder and Executive Director of cleantech energy company eleXsys Energy: “Be prepared to spend a large amount of time raising funds and listen and learn from every pitch. If they say no, ask why. Always be raising and expect to pitch to 50 or more before you hit any jackpot.”

Nick Begley, founder of wellbeing startup Psychological Technologies (PSYT) agrees: “It takes a great deal of time and attention, so start early. Make sure you have enough runway and try not to be involved in any other big projects at the same time. The process is time consuming, not just the pitching,  but the follow up emails and calls as well.”

This point is arguably most succinctly summed up by Rav Roberts, CEO of Medtech startup Pharma Sentinel: “Persist. It took us months of pitching to get our first investor, then bit by bit, the floodgates opened.” 

3. Practice, practice, practice

Being investment ready means being able to absolutely nail the pitch in front of seasoned investors who will ask all the tough questions. No amount of rehearsing can substitute for being in front of actual investors. But clearly you want to be absolutely ready for the most relevant on your target list.

According Thomas Vosper, founder of AI consumer technology business aisle 3: “Even if you feel very clear on your mission and execution I’d recommend drawing up a list of ideal investors and then flip the order so you are saving the most relevant till later. You have to practice your pitch so that it evolves naturally. I remember the pride we felt with the version of our deck but cringe now at some of those early conversations as we found our feet.”

Antony Yousefian, co-founder of agtech startup Bx Technologies had a similar approach: “Make a tier list and go to the tier 3 first and then end of tier 1. You will have refined the pitch, the deck and your data room.”  

According to Indiana Gregg, founder of neobank Wedo: “Practice with people in your surroundings to see how you can improve your pitch and ask experts their opinion of your model, your projections and your deck to refine and develop it so that when it’s time to present your plan to investors, you are confident and they are confident that you will be persistent and hit a home run for the company.” 

4. Don’t lose sight of the bigger picture

In thinking of all the crucial components of a pitch, the risk is losing sight of the bigger picture. Ultimately a clear narrative with what problem your startup solves for is what early stage investors will be buying into.  

According to Ben Hallett, co-founder of EdTech business Vygo. “Nail your authentic storytelling. If you feel like you don’t have an authentic story, dig deeper, you have one, find it and obsess over it.`’

Gary Piazzon founder of the digital travel companion, Porter is also an advocate of clearly articulating your story: “Don’t raise money until you have thought through your business model and can communicate what you are building/creating or selling very succinctly. If investors don’t understand what you are aiming to achieve, it means you aren’t communicating the problem you solve properly yet.”

Yang Li, Chief Growth Office of crypto company Ziglu stresses the importance of not being distracted by competitors. “Don’t overly focus on how your product compares to competitors. Be clear about how your product truly delights customers. No startup has failed due to competition alone.”

5. Ensure you have rigorous attention to detail

You can have the most awe-inspiring pitch, clearly demonstrated the problem you are solving for and shown the grit needed to get in front of the right investors. Yet you could still fall down at the final hurdle if you haven’t got the necessary attention to detail. This includes thinking through what questions investors will ask for and also having fully transparent financial information.

According to BorrowMyDoggy founder Rikke Rosenlund: “Do your due diligence on interested parties. Also have someone review the investor deck so you can get feedback on the material. Finally check a crowdfunding platform if you want an idea of top investor questions. I would also look at the top questions you would expect and have answers ready for them.” 

According to Derek Van Tonder, Senior Investor Relations Manager of 3D dataset company Axiom Holographics: “If you are at all cagey about disclosing financials, many investors will see this as a big red flag. The gold standard is to have an independent, 3rd party accountant sign off on a copy of your balance sheets before you raise capital.” 

So there you have it. The recommendations from those who have been there and done it and want to share with you their top tips. Good luck with your fundraise. Go for it!

If you’re looking for an angel investor to help fund your business, then the Angel Investment Network can help. Sign up to pitch your business to investors all over the world

In our latest blog post Graham Davies founder and CEO of Addition gives us the low down on R&D tax credits and what the recent changes in the budget mean for startups.

Innovation is at the heart of entrepreneurship – whether it’s finding a new solution to an age-old problem, or creating something no one else has thought of yet. Research and Development plays a vital role in economic growth – which is why the UK government has committed to investing 2.4% of GDP in R&D by 2027.

What are R&D Tax Credits

Research and Development Tax Credits are a UK tax incentive designed to encourage companies to invest in R&D. Companies can reduce their tax bill and recover up to 1/3 of their R&D expenditure.

To get R&D relief, your project must have:

• Looked for an advance in science and technology
• Had to overcome uncertainty
• Tried to overcome this uncertainty
• Could not be easily worked out by a professional in the field
• The project may research or develop a new process, product or service – or improve on an existing one.

Since 2020, the uptake in R&D tax credit claims from start-ups and SMEs has rocketed. Gov.uk reports a 16% rise in the number of SME R&D claims, with 76,225 small businesses benefiting from the scheme as of the government’s last report in 2020.

SMEs have been making the most of R&D tax credits, but what’s the uptake in your sector? Many start-ups – especially those at grassroots levels – have yet to understand the role that R&D plays in their business offering.

SMEs have been making the most of R&D tax credits, but what’s the uptake in your sector? Many start-ups – especially those at grassroots levels – have yet to understand the role that R&D plays in their business offering.

Figures from the last Government report (2020) show that certain start-up industries have yet to take full advantage of the scheme. Thanks to new reforms announced in March 2022, however, we might begin to see a change.  

What Changes Were Announced to R&D Tax Credits in 2022?

In his Spring Budget, Rishi Sunak laid out new reforms to the existing R&D system, with the aim of expanding qualifying expenditure while tackling false claims. The reforms, which come into effect April 2023, mean the following costs will qualify for R&D tax relief:

1.   Data and cloud computing costs associated with R&D (including storage)

2.   Expenditure on overseas R&D activities where there are:

a) material factors required for the research (for example, geographical factors such as weather conditions that are not present in the UK)

b) Regulatory or legal requirements which mean the R&D project must take place outside of the UK

What do the R&D reforms mean for start-ups?

Understanding how these changes relate to your business can help you spot opportunities for future claims and projects. It’s also important to be aware of any challenges these new reforms could present for start-ups.

First, let’s take a look at the good news:

A Triumph For Tech

Anthony Lalsing is Innovation and R&D tax expert at Menzies LLP. He acknowledges that data and cloud computing are necessary services for most start-ups – and often incur significant costs.

‘The cost of cloud computing, data and storage associated with R&D – as well as activities and expenditure which relate to mathematics – will all now qualify under the new proposals. These reforms will be appreciated by tech start-ups,’ Says Anthony, ‘and will support emerging sectors such as artificial intelligence, quantum computing, robotics, as well as strong sectors such as manufacturing.’

Bigger Wins for Small Businesses

So far, start-ups have only been able to claim under the SME R&D scheme. However, the government is now considering increasing rates on the RDEC (Research and Development Expenditure Credit) scheme. This is only reserved for larger companies, but Anthony suggests that start-ups should consider cashing in.

‘Most start-ups will claim under the more generous SME R&D scheme. However, the large (RDEC) scheme can still be relevant where work has been subcontracted to an SME company from a large company.’ He states, ‘Even if the intellectual property/R&D rests with a larger entity, if part of this has been subcontracted to an SME company, a claim can be made under the RDEC scheme.’

The inclusion of data and cloud computing costs is a massive win for start-ups – not to mention expanding possibilities for claims on other schemes. But other aspects of the R&D scheme reforms could negatively impact start-ups – so it’s important to be aware of them as early as possible.

A Loss for Longhaul Labour

For most start-ups, hiring or outsourcing tasks abroad is more cost-effective than paying UK wages. Salaries for overseas labour relating to innovation were previously covered under the R&D scheme. However, the new specifications mean the playing field is narrowing once more.

John Miller is COO at Addition. He says grassroots start-ups risk being disproportionately impacted by the change in April 2023. ‘ The purpose of the scheme is focusing R&D spend on UK talent and innovation.’ States John, ‘For potential claimants, all contractors and developers used must be UK-based, rather than foreign nationals (unless the project meets the new requirements). This means weighing up the cost/benefit of cheaper non-UK labour, versus a higher R&D claim.’

John adds that start-ups can best inform their choice by consulting an R&D expert (like Addition).

PAYE To Play

While this isn’t a recent announcement, many start-ups continue to be caught unawares by the April 2021 reform – which limits claims with low employee numbers and high connected sub-contractors costs.

‘The SME cap on R&D tax credits was introduced for accounting periods beginning on or after 1 April 2021.’ Says Anthony, ‘This limits the repayable R&D tax credits to £20,000 plus 3 x PAYE/NICE, albeit with exemptions available. Many start-ups do not have significant payroll costs (often using subcontractors) and may therefore find their R&D tax credit repayment unexpectedly restricted.’

How can start-ups access R&D tax credits in 2022?

R&D tax credits are claimed through your Company Tax Return (CT600). This is based on the numbers from your Statutory Company Accounts and is submitted annually.

Due to the complicated nature of the R&D claim process, many founders choose to outsource their application to a professional. And with the government set to clamp down on false or exaggerated claims, getting expert help is more important than ever.

 ‘It’s true we are seeing increased scrutiny from HMRC,’ Says Anthony, ‘including a new cross-cutting team focused on tackling the abuse of these reliefs. However, R&D tax incentives remain incredibly valuable, offering up to 43.7% tax relief on expenditure for profitable companies and 33.35% for loss-making companies in the form of cash back.

So what’s the most effective way for start-ups to access R&D tax credits, without risking the notorious wrath of HMRC?

‘It’s important that businesses engage with specialists.’ Anthony concurs, ‘This will ensure claims are properly considered and justified, with all relevant qualifying costs captured.’

TOP TIP: The gov.uk website has information about eligibility requirements. If you’d like more tailored details and support, why not use Addition’s R&D Tax Calculator to figure out how much you could claim?

In Conclusion

R&D Tax Credits are an excellent means of rewarding yourself for innovation. The March 2022 announcement brings new opportunities – and challenges – for UK start-ups. But with HMRC zooming in on claims, having professional support is more important than ever.

At Addition, we help start-ups like yours identify qualifying expenditure, and handle every aspect of your claim. We understand integrity matters, which is why we’ll only take on your claim if we’re confident you’ll be successful.

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A strong quality that marks out successful startup founders is a ‘fail fast mentality’. Integral to the fail fast philosophy is cutting losses when testing reveals something isn’t working and trying something else.

However in fundraising this can be a very costly process, with raising investment being carried out in parallel with running a nascent business. Making mistakes with potential investors or going down rabbit holes with time wasters can take you further away from your other job of building a game-changing startup. That’s why we wanted to bring to bear some of the accumulated wisdom of startups who have successfully raised via AIN over the past two years.

They have the self awareness to acknowledge the mistakes they have made so others don’t have to. Here are the top pitfalls.

1) Underestimating the time and effort required

This came through loudly and clearly from several startups we spoke to and was the most commonly reported fundraising mistake, based on our interviews. 

According to Benjamin Carew, Co-Founder of affordable workspace solution Othership: “It took me some time to realise that I needed to run it like any other business activity, as a structured process. I spent months pitching at intermittent events and meetings waiting for my angel to land in lap not realising what I was doing was practising. I was at the wrong events, with no real investors; and worse meetings with the wrong people who were more interested in introductions than investing. Once I sat down, opened the round in SeedLegals, got all my deliverables in place, built a sales funnel and set a firm date to close the round then I was well on the way.” 

This sentiment was echoed by Nino Judge, CEO of low cost airline Flypop:
“Building a company always takes longer and costs more. We ended up incurring unexpected costs including paying consultants to perfect the business plan. Good people cost money. Third party validation reports, marketing campaigns & events to raise funds, Legal & IT costs.” Visit trustcassie.com to find out how can CMPs help marketing teams achieve their goals.

He continued: “It always takes longer as the holiday seasons get in the way. With Easter, Summer, Ramadan, Christmas and New Year, nearly 4 months out of 12 are go slow or closed months. Let’s not forget our unexpected Covid -19 virus!”

BorrowMyDoggy founder Rikke Rosenlund agrees that everything takes longer than expected: “You need to be prepared that it may be longer, especially when it is the first time. For example with angel groups, they don’t necessarily meet that often. Even with a crowdfunding platform there is a lot of work to get a pitch ready and then the closing off of the investment round.”

2) Pitching to the wrong type of investor

A key part of the preparation stage should be on finding compatible investors. However much you hone your elevator pitch and deck, if you are targeting the wrong type of investor the investment of effort simply won’t be worth it. You can also get it wrong by pitching to the right investor but at the wrong time.

According to the co-founder of DIY wealth-building app WealthyHood, Alexandros Christodoulakis:   “We began by approaching early-stage VC funds, instead of angel investors. This was wrong; it cost us time and money, but we soon realised it and switched our focus to angels, who were a much better fit for our stage and needs! However, it helped us challenge our value proposition, improve our deck and positioning and make it more robust.” 

According to Ben Hallett, CEO and co-founder of EdTech business Vygo: “My biggest fundraising mistake has been limiting myself to close proximating investors, I wasted a lot of time with pools of investors that expected global standards of traction but only wanted to give us “local market standard” terms. We all now have access to global capital so in the same way that investors will have global benchmarks for your traction, startups should have global benchmark expectations for investment terms.”

3) Not doing your homework on investors

Once you have identified investors who could be a good fit for your business, you need to appropriately tailor your pitch. Getting this wrong can be costly.

Gary Piazzon who founded Porter, a digital travel companion said: “I initially failed to adapt pitches and conversations for my audience. I quickly learnt that different types of investors were looking for different information from our discussions, with a big difference between angels who were much more interested in the vision and team, versus VCs who were much more focused on the quantitative side of things.” 

Olivia Sibony, exited Founder of GrubClub and AIN Head of Impact and International Partnerships says: “Learning to switch perspective to put the most pertinent argument forward is one of the simple steps we can do to increase our chances of investment if fundraising for a start-up. Failing to do this can create a barrier. My experience of launching my old start-up GrubClub was critical in helping me understand how important it is to think of different angles, adapting my pitch according to the investor I was speaking to, so I would research each investor carefully and highlight a different reason for them to invest, based on their background and interests.”

4) Being impatient, understanding no’s are an inevitable part of the process

It is crucial to understand that rejection is an inevitable part of the fundraising process. You may have been raising for some time and not had much success but it could just take that one great conversation to get you back on track.

 According to Katie McCourt, founder of sustainable underwear brand Pantee:  It’s really easy to get bogged down by the no’s which you will get a lot of, in most cases more than the yes’. Don’t let it slow you down – we were given some great advice by a fellow startup founder who advised us to ‘learn to enjoy the rejection’ – once you stop taking it personally it allows you to learn from it – in a productive sense!”

According to Mike Lebus, AIN co-founder: “There is so much emotional investment that has gone into launching a startup it is easy to feel disheartened by rejection. All the most successful startups have to go through this, including many who have first raised on our platform who have gone on to successful exits. Being patient and having a realistic timeframe to find the perfect match is the best approach.”

He continued: “Remember it’s not a no until the investor says so. A lot of entrepreneurs say “I messaged the investor and didn’t hear back, so they’re obviously not interested”. Investors are busy people, so they often need to be nudged to jump into action. Think of sales people – they don’t just send you one email, they then send several follow-up emails to try and get a response. It may be mildly irritating, but it is clearly effective, and this tactic also shows investors that you’re persistent and won’t give up.”

5) Failing to drill into the terms on offer 

Of course once you have landed interest from an investor this is the time to exercise maximum caution. You may have great chemistry but their interest is gaining the maximum value they can from any partnership. 

According to Rich Wooley, CEO and founder of item-swapping marketplace app Paperclip: “Probably the biggest fundraising mistake I made was not pushing back on some of the investment agreement terms in our first VC raise. There are a bunch of reporting, corporate governance and approval processes that I have to go through. For example, I need to gain approval for spending over £5,000 on something, or hiring someone with a salary of over £35,000. These terms ultimately do benefit and protect our shareholders, so they’re not all bad – but for the stage we’re at, they can be slightly onerous; they  can slow things down at times or take me valuable time to report.”

Timing can also be crucial here in determining the terms, according to David Pattison, angel investor and founder of advertising agency PHD: “Never leave it too late to raise funds. Investors will sense if you are running out of money and will try and delay the completion so that they can ‘chip’ the deal just before closure. Leave yourself plenty of time. Never underestimate how long it takes to raise money, allow 6-9 months if you are looking for serious money. Try to give yourselves options. Taking money from the least worst option is never good.”

The fundraising process is time-consuming, can be draining and there will be many dead-ends. But it is a vital part of the process providing the investment that can fuel your startup’s future growth. All of the founders interviewed above have raised successfully and we thank them for their honesty. The more prepared you can be going into the process, the better the chances of success. We wish you the best of luck!

If you’re looking for an angel investor to help fund your business, then the Angel Investment Network can help. Sign up to pitch your business to investors all over the world

Ben Hallett is the CEO and co-founder of fast growing EdTech company Vygo, built to ensure no student is left behind. In the latest Behind The Raise interview he talks to AIN about creating equality in education, scaling fast and pivoting, the reasons for rising investor interest in EdTech and how to avoid wasting time when fundraising.

Tell us about Vygo and how you came up with the idea?
While studying at university, myself and my co-founder witnessed too many of our peers struggling, falling through the cracks and ultimately falling short of their potential. With further research we discovered that the problem was global with 30-50% of students dropping out of higher education and most students struggling with severe or debilitating stress. We discovered that one of the core challenges is helping students connect with the support they need when they need it and we couldn’t see anyone else meaningfully solving this. This set us out on a mission to ensure that every learner has equal access to the support they need, when they need it, so that they can reach their full potential.

What is the problem you are looking to solve?
Equality in education.

How did you get the business off the ground?
At first we built a minimum viable solution (MVP) which enabled students to academically support each other. We saw a overwhelming student response to and universities started asking us to lease the platform. We ran the impact and revenue numbers and after that decided to adapt the platform to be B2B SaaS. It’s accelerated since then. 

What traction have you seen?
We’re now working with universities across APAC, EMEA and North America, consistently doubling or tripling growth every year and have raised over $3m in investment.

Why has there been such increased investor interest in EdTech?
Better education is at the root of almost every challenge the world is facing. The pandemic exposed a lot of the weaknesses in the education system and further catalysed everyone interest in EdTech, including investors.

What initially attracted investors to your company?
Our first round of angels mostly invested in Vygo because they believed in the founders’ conviction around the mission and our horsepower to bring it into reality.

What is your top tip for anyone raising investment for the first time?
Nail your authentic story telling. If you feel like you don’t have an authentic story, dig deeper, you have one, find it and obsess over it. 

My biggest fundraising mistake has been…
Limiting myself to close proximating investors, I wasted a lot of time with pools of investors that expected global standards of traction but only wanted to give us “local market standard” terms. We all now have access to global capital so in the same way that investors will have global benchmarks for your traction, startups should have global benchmark expectations for investment terms.

If you had a magic wand and could wave it, what would you wish for to improve the fundraising process for startups?
I would wave that wand to create much more transparency from investors and startups about each other, the deals the are doing and the journey ahead. I’m a big believer that honesty and integrity leads to better deals. I’d wave my wand for something similar to the ingredients list and health ratings on food packaging. I’d love everyone to post the specifics of their deals ($, valuation, special terms, traction, TAM/SAM/SOM, etc.). This would save startups so much money and time spent in negotiation and lawyers. Of course this would create another suite of issues to be solved BUT it’s my magic wand.

In our latest guest post David Pattison, experienced angel investor, business leader and author, considers the thorny question of investor due diligence. Is it a threat or or an opportunity? Or a bit of both?

If you are trying to raise money, there will be a requirement for the company (and often the management) to go through a Due Diligence (DD) process. This is where the prospective investors will take a deeper look you and your business.

If the investors are individuals or angels then the DD can be quite light touch, usually involving an interrogation of the business plan, some conversations with the team and maybe some customers or current investors. If they are funds or institutions, then they will take an almost forensic look and ask you to provide a mountain of information.

This can cover Finance, Legal, Commercial, Tech, Management, Sales and Marketing, Security. IP etc. They are looking for weaknesses, threats to the business, problems and anything that could be vaguely called illegal. Almost all of this will be done by sector experts often employed externally.

It’s a tough and distracting process. My personal experiences and most businesses I have spoken to about this process show it to be exhausting and emotionally difficult.

So is DD a threat or an opportunity, or a bit of both? The answer is that it depends. It is largely driven by the type of investor. It can be a threat if they are obsessed with just protecting their money, then it can feel negative and can erode the future relationship. It can be an opportunity if they are looking to help to build the business and see the future health of the business as the key to their investment paying off. As they will use the DD to come up with recommendations on how to improve practices and processes.

Whatever type of investor you have, DD will be part of the investment process. Here are some things you can do to help yourself:

1. Be well prepared.
   A founder of a company I worked with always said ‘run your business as if you are always about to enter DD.’ Make sure you always know where all the documents are and be prepared to share everything. You will be asked to set up a data room with all the company information in it. Why not set this up from the start of your business? It’s a good discipline and shows good business practice.
   
2. Spread the load.
   The CEO should not be the only source for DD. Spread it around the team. It shows confidence in the team and exposes the team to the investors. Have a DD data lead and if possible don’t make it the CEO. If they are a good team, then show them off.
   
3. DD is distracting.
   Do not underestimate the amount of time it takes to get through the DD process. Often it can be three months or more. Almost every business I know suffers a drop in performance during this period, always because the team is distracted. Try to minimise the effect by being well prepared in advance.
   
4. Don’t be afraid to say no.
   Investors can be lazy and will just ask for everything you have. If you think the information is not justified, then push back.
   
5. Set a time limit.
   At the start of the process set a date for when no more information will be provided, and no more questions will be answered. Doing this will ensure that the deal keeps moving forward and the advisers/specialists employed by the investors will not be tempted to over justify their fees by dragging it on.
   
6. Do not lie or cover up in DD.
   This is a forensic process and whatever you are trying to hide will be found. Good businesses with good practices should not be afraid of DD. Bad businesses should.
   
7. Just answer the questions.
   Sometimes you don’t know the answer to a question, don’t try and tap dance your way through it. Just say you don’t know and then find out the answer. Sometimes a finding will surprise you. Be surprised and then find out why you are.
   
8. Do not get emotional.
   This is the easiest thing to say and the hardest thing to do. You and your company will effectively be accused of all sorts of things. It can sound like you are a ‘fraudulent liar’ running an illegal money laundering crime syndicate (I am exaggerating a bit!). Unless you are then let it wash over you and try to explain why none of this is appropriate and here are the reasons why. Remember they are looking for weaknesses and that’s what they focus on.
   
9. If it’s not mentioned, you are probably doing it well.
   It’s very rare in DD that you get congratulated for doing something well and if you are it is usually in passing and buried in the small print. Don’t look for a lot of ‘pats on the back’. If the investment happens that is usually the sign that you have a good business.
   
10. Investors become partners.
    Try not to burn bridges with the people doing the investment. You will work with them after the investment is made, and friction early in the relationship rarely diminishes.

Two final things to remember about DD:

• Firstly, it is, in effect, an extended interview. Part of that interview will be the ‘quick cup of coffee’ or ‘meet for a drink’. Everything you say will be noted. It’s important that you and your team are aligned and have the same answers to the same questions.
• Secondly, DD is a two-way process. Ask the investor about their performance, who they work with. Talk to some of the companies they have invested in. Do your own DD and do not stop asking questions of them.

DD is hard and even if you are well prepared it is distracting and emotionally demanding. But it can make you a better business in the long run. Is DD a threat or an opportunity? A lot of it is up to you.

This is one of the many topics David covers in his book The Money Train: 10 Things young businesses need to know about investors. It’s a guide to preparing for the investment process from seed capital to Series A, with lots of real-world examples.

There has been a significant rise in the numbers of angel investors looking to back startups across the globe. Technology is the most popular sector and food and beverage seeing the fastest year on year growth. These are some of the key findings from Angel Investment Network’s annual analysis of the global state of angel investment funding based on data from their platform. 

AIN has 40 networks extending to over 90 different countries; and now with more than 1.75 million users it is the largest angel investment community in the world. The results are a real barometer of global startup investment activity in 2022.

The data reveals there has been a significant rise in interest from investors looking to back businesses solving problems in a range of industries. There was a 6% increase in searches from angel investors looking for potential startup investments. Over the same period, the number of pitches fell by 7.5%, which highlights an increasingly positive ratio of investors to startups.

Technology remains the most popular sector for investors, with searches up 23% year-on-year. Software remains second, up 7%. Food and beverage is third with the fastest growth of all sectors, up 35% with a range of innovative ideas coming to market.

The finance sector becomes the fourth most popular sector, up 24% YoY, with huge interest in the FinTech space. However, there is a mismatch with it being only the 11th most popular sector for startup ideas. Meanwhile, interest in property has soared since the start of the pandemic, up more than 100%.

AgTech businesses remain in high demand and since the start of the pandemic have been one of the fastest risers. 

Top 10 sectors for startups
1. Food and beverage
2. Property
3. Technology
4. Entertainment and leisure
5. Fashion & Beauty
6. Retail
7. Software
8. Agriculture
9. Manufacturing & Engineering
10. Hospitality, Restaurants & Bars

Top 10 sectors for investors
1. Technology
2. Software
3. Food & Beverage
4. Finance
5. Agriculture
6. Property
7. Medical & Sciences
8. Entertainment & Leisure
9. Energy & Natural Resources
10. Retail 

According to Mike Lebus, founder of Angel Investment Network: “The results show the global startup ecosystem in good health. We are seeing a lot of pent-up demand from angel investors, who have held back during the pandemic and have accrued more capital that they are now looking to invest. Meanwhile entrepreneurs are now working harder at ensuring the proposals they are bringing forward are more fleshed out so we are seeing more quality over quantity in terms of nascent startup proposals. During a challenging period many have taken the sensible decision to bootstrap their businesses further and go for funding at a slightly later stage.”

If you’re looking for an angel investor to help fund your business, then the Angel Investment Network can help. Sign-up to pitch your business to investors located all over the world.

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Antony Yousefian is the co-founder of innovative agtech businesses Bx Technologies. In the latest Behind The Raise interview he talks to AIN about transforming farming, his lightbulb moment courtesy of cannabis growers, a near death epiphany, and a clever approach for refining your pitch for investors.

Tell us about Bx Technologies and how you came up with the idea?

Bx Technologies helps farmers switch to climate friendly practices by measuring the climate-impact of produce, and putting that information on food. We do this via our software technology that quantifies farmers’ positive impact on improving their soil. We then sell that as a service. This enables farmers to differentiate their crops from others.

My co-founder Ben Bardsley is a 5th generation farmer and my background is in asset management where I was involved in the initial waves of cleantech. So we really understood the challenges in this space. Both on the ground and the economics behind it. 

What is the problem you are looking to solve?
Food production systems are the main driver for 70% biodiversity loss and over 30% of greenhouse emissions globally. With the pressure to feed the growing world, this is creating a negative feedback loop, we are incentivising farmers to produce food as cheap as possible, at the expense of the planet. 

Our soils are our biggest carbon sink. They can hold three times the amount of carbon versus air. However through the use of damaging chemical inputs and pursuit of cheap yields, we are turning our biggest source of carbon capture into an emitter. 

There is now a clear realisation this needs to change, but helping farmers to transition is critical. Many farmers are also in the red, with many farms only covering costs with the farming subsidy. I have to give a shout out to Jeremy Clarkson for bringing this to life in his series on Prime. Supermarket and food brands are under pressure to reduce their emissions – with the majority coming from farms. So what if we could use technology to quantify farmers who improve the soil, share that knowledge and incentivise more of it?

What was your lightbulb moment?
My personal “ah ha” moment was when I was working with medicinal cannabis growers in North America with a Dutch agtech company 30MHz. They seemed to be optimising the crop by improving the soil health. The byproduct or result of this was putting more carbon back into the soil. 

They did this because they were incentivised by their buyers (pharmaceutical companies) who paid more for higher nutrients or therapeutic effects from the crop. When I quizzed these growers and said, “Why don’t you do this for food? Their response was, “Yes we should” and I asked them “why don’t you do it then?”. Their response was “There is no money, there is no incentive”.

This was where my two worlds collided together. I had left the finance industry where more than 30% of assets had an ESG mandate and looking to invest in impact. Here is one of the most important industries in the world, which can grow in a way which repairs and improves the soil and our planet.

No amount of agtech or robotic automation was going to solve this. We had to either pay growers more for what they did or help them earn new revenue streams. For example repairing nature or putting carbon back into soil. Where it belongs by the way! It is how nature has been designing it for 3.8 bn years.

How did you get the business off the ground?
Thanks to my co-founder Ben. He had been on a remarkable journey, coming back into his family farming business in 2013, after being a leader in the British army, who was shot on the front line in Afghanistan. He had a realisation in the moment of being shot that if he did survive, he needed to focus on something that would truly make a difference. He realised the farm would have to change if it was going to survive. He made the brave decision to stop investing in new trees for his farm, and agreed to set-up and incubate Bx within his farm business.

My role was to build out the capability to measure the positive impact in the soil (more carbon), quantify it and find a way to sell it.  We had the perfect incubator and the envy of many Agtechs, where we had 800ha of playground to test and iterate. We were able to go fast, test and iterate with a market leader in the industry at scale. 

It worked. Bardsley England became verified as Carbon Negative. Bx supported the farming business to win a multi-year contract with a supermarket. There we saw a brand or retailer willing to pay more for planet positive produce. We had proved the model.

What traction have you seen?
Food Brands are under pressure and also have made commitments to remove emissions. The majority of their emissions are occurring on farms. For example for Nestle 90% of their total emissions come from scope 3 (ingredients, farming). Working with brands directly, we have found they are willing to pay more for carbon removal. In some cases 10x more than carbon credits farmers are selling for today (£15/t Co2e). Consumers want this to happen and brands can capture market share and premium. We have seen fantastic traction with leading food brands in the UK, and have our first international customers in the US and NZ.

Why are you raising investment now?
We are raising to push out our series A raise (Early 2023), deliver the MVP for these first customers, including discussions with a major UK supermarket. We can double down resources on data-science, build on our machine learning capability and automate data-collection on the farm. This will give us the foundations, readying us to scale up with a supermarket and larger global brands in 2023.

What initially attracted investors to your company?
We are told it is our story and the experience of the team. We understand farming and the food chain deeply, the problems that exist including in agtech development. Bringing together data-science and experience from sectors including legit money making games, media and finance.

Our business model has been attractive to investors which is centred around incentivising a transformation in the food system. We are able to quantify impact and reward it explicitly. One of our first investors was Counteract, a carbon removal VC. They understand this space well and the potential for soil to remove carbon at scale.

How important are startups in helping to solve climate change? And how can their ideas be best facilitated to tackle the existential threat to our planet?
This is probably where us and Counteract see eye to eye. We believe it is going to take big bold bets NOW, not later to prevent a disaster. We need entrepreneurs with clear vision and backed by passionate impact investors who want to make a difference. Waiting for validation of business models is going to be too late. We have less than 8 years in the current carbon budget (1.5c warming-) and we need to start creating disruptive changes to industries. As Larry Fink (Blackrock CEO) said recently, the next 1,000 unicorns will be climatetech. 

What is your top tip for anyone raising investment for the first time?
Take time to do your homework on the investors you want to approach. Obviously capital/cash is one of the main drivers but investors can add a lot of value. For us now, patience, impact, food, ag. capital is best for us. 

For Bx right now, Angel Investment Network is perfect for us. Though in 12 months time, we are looking for investors who understand how to build an AI business. The expectations and go to market are different versus say an enterprise SaaS solution.

Another tip, once you have done the above, make a tier list and go to the tier 3 first and then end of tier 1. You will have refined the pitch, the deck and your data room.

My biggest fundraising mistake has been…
From a previous life, not doing the homework on the investors and bringing in the wrong type of investor. They wanted acceleration of commercialisation vs product development. This took us down a wrong path and stalled our growth. 

If you had a magic wand and could wave it what would you wish for to improve the fundraising process for startups?
Reduce the time needed. It would be great, if investors were able to look into a business remotely and it didn’t require any significant time from the founders of the business. It’s catch 22 though, you need to educate investors about your business but some of the most valuable people driving the business forward are out of the business for months on end.

Bx Technologies are currently raising. Please contact Sam Louis for more information – sam@angelinvestmentnetwork.co.uk

In this article, founder and CEO of Addition Finance Graham Davies explains how automation can help small businesses create scalable processes and promote growth.

The average startup is working with extremely limited resources and manpower in its early days. As cash is king, it’s easy to focus all your time and effort on delivering your product. This is natural and understandable. However, it’s also why founders are hitting burnout at record levels as they try to stay afloat while under pressure from wearing multiple hats. Attempting to manage everything, alone and all at once, isn’t only dangerous – it’s also ineffective.

“Well who else is going to do it?”. I hear you. It’s tough being an entrepreneur – especially when you’re just starting out. Maybe you’d love to outsource the bulk of the grunt work, or expand your team, but money’s tight and you’re not quite there yet. If this is you (and even if it’s not), automation is your friend.

Whether it’s B2B or B2C, automation trends are on the rise. According to 2022 Gartner research, AI software revenue will hit approximately $62.5 billion this year – with a 21% increase over last year.

Five ways automation can help you level up

Automation can help streamline workflows and reduce manual tasks – giving you (or your team) more time to focus on the human elements of growing a business, such as sales or customer service.

When wielded with precision, an AI toolkit is the perfect ally for startups – wherever you’re at on your business journey.

Let’s break this down.

1.   Processing Power

The power of streamlined processes can’t be understated. Regardless of how big your team grows, you want your product or service to be delivered in a consistent way. This builds trust, brand loyalty and credibility.

Workflow automation leader Zapier sums up its purpose very clearly in its Quick Start Guide: ‘The heart of any automation boils down to a simple command: WHEN and DO. “When this happens, do that.” Even the most complex automation can be broken down into this simple command.’

For example: when you get a lead from your ‘Get in Touch’ website form, the ‘do’ would be to have an automatic message sent to your sales team. This is a very basic workflow process, but it ensures that no leads are slipping through the cracks.

It may sound obvious, but always have your team test the trial version before committing. Different tools serve different workflow styles. We love Zapier and Make (formerly Integromat) at Addition. These are highly effective tools, but they do require training to use. Consider either hiring an automation specialist or investing in a training course for one of your team.

TOP TIP: Ask a sales rep to walk you through a demo on a call and answer any questions. This will help you determine whether the tool is really the best for your business. There’s sometimes wiggle room for price negotiation as well (if you don’t ask, you don’t get).

2.   Less hard, more smart

It’s not how many hours you work, or even how hard you work – it’s how smart you work. Diligently scraping data together into an Excel sheet, or manually emailing cold leads is a noble effort, but it isn’t going to help you scale. In fact, quite the opposite – it will slow you down and hinder growth.

Using automated software for process-heavy tasks is like using a dishwasher or tumble dryer. You could do without them – but the rate of progress isn’t even comparable.

TOP TIP: Lead generation, nurturing and conversion is one of the most common areas for automation. Tools like Hubspot and Mailchimp are giants in this space and for good reason. Hubspot has a wealth of free guides, ebooks and certified courses on all kinds of automated marketing processes. If you haven’t checked them out yet, it’s definitely worth the effort.

3.   Right on the money

Money, money, money. Businesses spend it, earn it and invest it. Keeping track of ingoings and outgoings is a lot easier with automation. There’s a wealth of bookkeeping and accounting software to choose from. Just picture it – a platform where you can raise and pay invoices, balance the books and manage your taxes, all in one place. Major leg-up for your company, right?

TOP TIP: Speaking from experience, Xero is the number one tool to beat. Why? Its open API syncs with over 1000 other apps (Stripe, Paypal etc). Also, optional add-ons like Payroll or Xero Tax make it a limber tool that can grow with your business. We love it at Addition.

4.   Track and trace

Ah the ‘key performance indicator’. We all know why they work – but figuring out how to get started is often just as difficult as keeping track. Automation can help you collate data to work with, like unique website visitors, conversion rates and domain rankings. When you already have a clear picture of where you’ve been and how you got there, it’s much easier to chart a path to where you want to go. And getting that information gets a lot easier by utilizing technology for your payroll.

TOP TIP: If you’re already automating things like your lead generation, the tool you’re working with probably has options to report back on KPIs. But if not, or if you’re looking for software that is KPI-tracking specific, here’s a list of some KPI Dashboard tools.

5.   Checks and balances

AI is by no means flawless. You’ll often find the ‘computer says no’ scenarios crop up where the situation isn’t cut and dry. This is where the human touch comes in – and it’s important to keep the right balance between program and person.

Focus your AI use on process-heavy tasks (like generating templates and reports, extracting and importing data scraped from multiple sources, or auto-filling forms). You can then channel that extra time and manpower into stellar customer service. Never underestimate the power of a sincere note or phone call when your clients hit a snag. And always double check your AI’s final product – just in case the computer said no when it should’ve said “let’s talk”.

TOP TIP: While the pandemic has given remote working and automated processes a huge boost, the need for human connection is also at an all-time high. If you don’t have the budget for a permanent physical office, look into shared professional spaces (like WeWork) where you can offer clients face-to-face meetings to build trust and relationships (and host company socials!).

In Conclusion:

It may take a bit of fine-tuning and digging, but the right tools to take your business further, faster are definitely out there.

However, automation can be much more than a tool to save money and scale quickly. Setting up efficient workflows through automation requires you to think about every process on a granular level and will give you a unique understanding of your business.

Addition offer outsourced financial services for startups in the UK and US.

When it comes to launching a brand-new startup business many entrepreneurs miscalculate how expensive it is to launch, and what sorts of things that they will need to spend money on to make their business successful.

We explore some of the main start-up costs that efficient small businesses owners may need to consider when they set up a new business. Not all these business startup costs apply to absolutely every business, but they might apply to certain types of business.

Also, many of these costs will apply to all businesses, so it is a good idea to familiarize yourself with some of the common expenses and business costs that entrepreneurs should have planned and covered for in their business plan, and for employees forms, the use of a w9 creator can be the best choice.

Research & Development Costs

When it comes to research and development, the costs here can be astronomical depending on what it is you are hoping to release. If you are bringing a brand-new concept to market, the cost of development might be so high that you will immediately require third party investment into your business. If you’re an entrepreneur with an existing track record, this might come from venture capital companies.

These costs do not apply to everyone. Some businesses do not really have much exposure to research and development outgoings, aide from some basic market research. This is especially true if the organization is being built on your own skills or as a services company.

Incorporation Costs

Although you could start your business on the side unofficially, as soon as you need to grow and lay some proper foundations for your business down, you will need to register it, and this will incur some incorporation costs.

The cost for incorporating your business is dependent on your own local market. For instance, the cost varies at a state level in the US. You will also need some documentation created depending on the type of company that you intend to create. With that in mind you may need to hire an expert to help you incorporate your company correctly, so you may need to factor this in as well. However, this expense is typically a one-time cost, and the fees are quite low in comparison to other things that you will need to invest in for your business.

You may also need to look at specific business licenses covering the area that you want to work in. These might be one-off costs or re-occurring but often you’ll need to get these before you begin trading so you should include them at the time of incorporation or trading if there is going to be a big delay between the two points.

Real Estate & Property Costs

When it comes to office space, warehouse space and retail space in general, the costs can range from effectively zero to a huge amount of money. It all depends on what sort of business you will be running and what your operational needs are.

If you are looking to launch a new business, one question you need to ask yourself is whether your business model can operate without office space in the first place. Many businesses today can run just as well with its team members working from home. When starting a brand-new business, it is a good idea to trim the expenses and costs down as far as you can, and often, renting or leasing expensive office space is a good way to burn through your finances quickly, without much to show for it.

Of course, some businesses require real estate, so this cost must be factored in. Size and location are the key factors to consider when choosing a retail property for your business. If you need to save some of your money on rental think about what your needs are and what location, you could base your business in.

Product, Tooling, Machinery

If your business sells physical products, then you will need to consider the costs of the products you sell. Retailers will look to source products from resellers, distributors and manufacturers and you will need to research where you can get your products from.

One problem is that many larger manufacturers won’t supply a new business with product directly, they will push you through to a reseller or distributor and even these companies can be picky with who they deal with since often they will look for a track record in retail and a decent credit score. Many new retailers find that the ‘doors are closed’, and it can be hard to buy product in the first place.

Other businesses that aren’t looking to sell other companies products look to create their own and bring a new product to the market. For these companies there is a different problem. How will the product be developed and produced?

Ultimately this will depend on the product you are creating. Sometimes it is a good idea to create the product yourself, but for this you may need tooling and machinery. Often, a different approach when a business first starts out is to outsource all of this to a third-party manufacturer. With this method a new business can at least get quotes and ascertain what the outgoing cost is going to be at an early stage, prior to investing in expensive machinery or tools. Often this is the preferred approach for a new business and many large multi-national companies also use this approach when manufacturing products for sale.

Another aspect that is overlooked that is relevant to this type of expense is shipping. Both from manufacturing plants and to your customers. It can be expensive and often it is an aspect that can be overlooked when calculating product profitability.

Business Equipment

Business equipment is another expense that is often overlooked. Some brand-new startups can get away with just one computer or laptop to get started but many people do not consider that if they recruit employees, each of these individuals will likely require a laptop if they are office-based staff. This then leads to the need to go to the furniture store for office furniture such as desks and office chairs. Even things like the office kettle or coffee machine can fall into this category, so again, have a long hard think as to what you will need for your business. This also includes all the software packages you will need to buy.

You will need to buy office supplies, from coffee, to stationary and all sorts of other things that employees need in their day-to-day activities. These will also need to be replenished on a regular basis, so you’ll need to consider this in your general day-to-day business expenses.

When it comes to software often there are free versions that offer similar features to the main applications that many businesses use. Perhaps you can cut costs and use these instead in the beginning. Other software packages such as with accounting software, you may need something that is specialist, so you cannot cut cost easily for all packages. Either way, anywhere you can save money on your startup costs and ongoing expenditure is something worth doing since all these business costs add up, especially in the beginning.

If you’re thinking of opening a retail outlet, then you will need to fit it out and invest in a whole range of different things to Point of Sale equipment to shelving and signage. It’s a long list of things that you’ll need so you will have to set a lot of money aside for this aspect. Warehouses, specialist outlets and manufacturing plants come with their own types of expenses, and these costs can add up quickly, so it is a good idea to have a comprehensive plan as to what it is you need in terms of startup funding. Often the expenses are a lot higher than first expected.

Business Insurance & Cover

There are a lot of different business insurance products available to help protect yourself when you are trading as a company. You might not need them all in the beginning, but lawsuits and claims can be expensive.

Some of the different types of business insurance products that might be applicable to your business (but not always all) might include: general liability insurance, professional liability insurance, product insurance, hazard insurance and insurance to cover issues with employees.

It is worth sitting down and going through the different insurance packages that are available to work out what you need and what doesn’t apply to your business type. It is an added expense to your outgoings but could make the difference to whether your business survives or fails if something is to occur that is unexpected. You’ll need to shop around to find out what the average cost of insurance is for your small business.

Recruitment, Employees, Outsourcing

Generally, a business needs people to service it and that’s where employees come into the picture. Payroll and salary expenses normally take up a huge amount of a businesses operating cash so you will need to factor in as to what employees you need and what budget you will need for them.

When evaluating how much an employee costs, you shouldn’t forget that they usually need items to do their job. Think about the uniforms, laptops, chairs, desks and even coffee! This also needs to be factored into your budgeting.

How are you going to find employees? If you use recruitment firms then these can be great at finding the right employee for your business, but they come with their own set of fees.

Often when a business is new it can be pragmatic to consider using freelances and external companies to service some of the areas of the business which you would need to typically need to hire a person for. One example might be too hire a third-party accounting firm to handle your books or to outsource your IT services. Although these costs can be high it is a lot easier to switch or cut back on an expense from another company than lay-off internal staff.

there are a wide range of professional services and freelancers that you might need for your business anyway, regardless of employees. These include accountancy firms, book-keeping, legal firms and lawyers to handle legal fees and issues, IT, and even marketing and advertising agencies, who all bring specialist skills into your business which you would otherwise have to recruit for. However if you or someone you love has sustained a traumatic brain injury, you’ll be needing good lawyers for the legal representation you need to make sure that you are fairly compensated.

Marketing & Advertising

Marketing and advertising is another area that you might need to spend money on as a business. If nobody knows about your product or service, how are you going to sell it? You need to get the word out about your new business and the way to do this is through marketing and advertising.

How much you may need to spend on marketing is dependent on your budget and your industry, but the good news is that there are some ways to reduce your marketing costs by utilizing some of the free marketing channels, such as social media. If you manage to get a post trending on social, then your customers can come in from that. Of course, social media is not always useful for every type of business, but it is one option out of many.

Most businesses these days have a website and if you’re an online business this might be a necessity. Building a web site can be expensive, but you can find free packages available for your site with free templates. You could pay someone to create a custom template, but if you’re looking to cut costs then a free one will get you started.

Once it’s time to launch your business then you will need to think about branding and design. This is something else you’ll need to spend money on at the beginning, because you will want something that looks professional and unique.

Types of Business Cost

When it comes to your business there are a lot of different costs, and these can be broken down into different expense types. Unfortunately, in the first year of trading there are a lot of different expenses and business needs, and this can have a big influence on your cash flow.

Some of the different business operating cost types are classified as:

Fixed and ongoing costs – these are the costs for your business that you cannot change. For example, your business property rent might be considered both fixed and on-going (even if it might be subject to change at some point or if you move location). In this case this is an expense that you need to factor in to pay your bills each month.

Variable costs – are the costs that can change depending on what happens in your business. Examples of variable costs are employee expenses and business travel.

One-time costs – These one-time expenses can be the big investments that your business needs, such as tooling and machinery, or even things like office equipment, such as laptops. You may occasionally need to replace items, but typically they can be classified as one-off costs. Often this is a type of upfront business cost that is quite high in the beginning.

How to Finance Your Business

So how do you finance your business? There are many ways to get the money to launch a new business. The question is what business finance method is right for your own startup?

Often new businesses are self-funded by the entrepreneurs own personal savings. You may even hear of businesses being launched off the back of someone’s credit card. These success stories are few and far between.

If you have a business idea but lack the funds to realize it, then you could look to outside sources for money for your business.

When you open a bank account you might expect that the lender will also offer you a small business loan. Unfortunately, that is not the case for most brand-new businesses and a line of credit is not open to most. Often, they will not even give you a business credit card.

The good news is that there are other financing options such as angel investment. Angel investors are high net worth individuals who look to invest in brand new businesses and startups in return for some equity in the business.

Often angel investors can help with business startup expenses or expansion costs and offer an invaluable service to would be entrepreneurs what have good business ideas but do not have the means to launch themselves with their own finances.

If you’re looking for an angel investor to help fund your business, then the Angel Investment Network can help. Sign-up to pitch your business to investors located all over the world.

Funding will help accelerate global borderless education support in higher education

Fast growing EdTech startup Vygo has raised £1.5m in a pre-seed funding round supported by Angel Investment Network, the world’s largest online angel investment platform. Vygo is a Saas platform reinventing the conventional social support ecosystem in higher education.

Offering personalised support services beyond the physical campus, the business already works with a third of Australian Universities and is rapidly growing in the UK. The raise will help it expand in the UK and Europe and fuel its ambition to build borderless social education for every student.

The round was led by EdTech VC Sparkmind and supported by Angel Investment Network. Other participants include EdTech accelerator Supercharger Ventures and the Australian Catholic University. The funds will be used for platform development and expansion of its UK and European presence. 

The demand for Vygo has soared in the past few years as a result of the increased demand for HE institutions to extend their support services digitally. A recent JISC study estimates that up to 96% of university students require additional access to support during their undergraduate degree. This demonstrates the need for support services to be more accessible than ever to ensure that students are getting the best educational experience possible.

Ben Hallett, Vygo CEO & Co-Founder, comments: “At Vygo, we believe that every human deserves a world-class education and that social experience is at the core of impactful learning. The Vygo platform gives every learner a social education community filled with their peers, mentors, tutors, advisors and other supporters. With Vygo, education institutions are able to reinvent their social support ecosystem online and ultimately improve their student outcomes whilst scaling their impact. We were delighted to work with AIN to find amazing investors and individuals through a well-streamlined process.”

According to Sam Louis, Director, Angel Investment Network: “We’ve worked with some fantastic EdTech startups in recent years – Ben and the Vygo team are right up there with the best of them. Their focus on the social and pastoral side of education resonated with us right away and, combined with significant international traction, investors within our network from right across the globe felt the same. The need for this platform has only accelerated in the past few years with so much learning being done remotely and we’re delighted to have helped Vygo on their journey.”

Olivia Sibony, AIN’s Head of Impact, looks at the rise in interest in green and clean tech startups and why we have seen a ‘perfect storm’ of conditions for their growth.

Over the past few years we have seen the perfect storm of conditions that have rocketed investor interest in green and clean tech startups. Looking at the patterns of investor keyword searches on the AIN global platform we have seen impressive growth for green business terms, including ‘renewables’, ‘greentech’  and ‘environmental’.

In the last three years these business ideas have gone from niche to mainstream with investors hungry for standout solutions for our manifold environmental challenges. The COP 26 conference further committed Governments to carbon reduction targets. As was acknowledged in Glasgow, it is private enterprise and nascent businesses that will provide many of the solutions. 

Factors such as the recent surge in gas prices have made us more aware of the need to find alternative and renewable energy sources, alongside smart ways to reduce energy consumption. 

Reasons behind rising interest

There are several reasons for the rising interest among investors. 

1. Firstly, the increased global natural disasters with floods and wildfires closer to home have really brought this home to everyone. Including consumers, business leaders and governments.
   
2. We then saw COP 26 turning up the volume on the dialogue. This included recognition of the need for the ingenuity of businesses to come up with the solutions to the challenges we all face. 
   
3. A third factor at play has been covid reframing people’s values on what really matters and the increasing interconnectedness of the planet. 

Companies have realised they need to nurture their customers and the younger generation who have the most to lose are the most vocal in advocating for change. So they’ve shifted their focus which has opened up the supply chain market for a lot of B2B Climate Tech opportunities.

A further spur to action comes from companies also realising their employees increasingly care about the environmental impact of the companies they work with, so has also stimulated growth in this space.

Case study examples

This means more entrepreneurs are stimulated to build companies in this space as more investors see great commercial opportunities. As well as the obvious motivation for passion driven angel investors in investing in something that will provide a better future for them and their children. Over the past year through AIN, we have seen some impressive cleantech businesses being backed by our experienced angel investors.

Exciting businesses who have raised including cleantech business, eleXsys Energy who successfully raised £5m last year. They have developed a unique, enabling technology that will drive the transition of global energy grids to a clean energy future. Investors bought into their vision for their technology which enables commercial and industrial rooftops to become grid-connected, solar power plants.

Another business that has seen a great deal of investor interest is Zero Carbon Farms. They are a cutting edge AgTech company that builds and operates Controlled Environment Farms, providing a future-proof and sustainable solution for growing. They solve the problem of carbon generation in farms by providing up to 90% less water and a fraction of the space compared to conventional farming.

While Zero Carbon are dealing with sustainable production, Greyparrot – Co-founded by CEO Mikela Druckman, are applying cutting-edge deep-learning AI computer vision technology to the formidable problem of waste recycling. Their solution analyses waste on moving conveyor belts to allow monitoring, audit and sorting of waste at scale. Greyparrot have trials ongoing at 12 facilities with leading waste management companies, and are now raising a £10m Series A to scale their commercial product and become the category leader in waste analytics.

Seeing the success of these businesses can inspire the next generation of entrepreneurs to come up with their own solutions, offering the chance to marry profit with purpose. In turn many will go on to become investors themselves creating a virtuous cycle to help power the circular economy that must become the future of the planet if we are to avoid the worst ravages of climate change.