Lifecycle of a tech startup series: Case study

Having raised £500,000 and, in episode 8, hired a software developer, KNow Wear Limited is starting to flourish. As Ben Franklin wrote when the USA was in its infancy, nothing is certain except death and taxes. Knowledge of the UK tax system is valuable for any UK business owner, start-ups can dramatically improve their chances of success by ensuring they claim the various tax reliefs and incentives available. Episode 4 looked at the valuable tax reliefs a company can offer its investors, your focus today is on the tax relief (or repayment) available to companies carrying out research and development activities.

Social media has revolutionised the way in which we interact with businesses and each other and has shown that it can be a generous friend to business owners and entrepreneurs, helping them to harness a following, build their brand and grow a worldwide customer base. 

In our previous blog in our Lifecycle of a tech startup series, KNow Wear Limited secured investment of £500,000. Having completed the raise, you, Sarah and Chris have decided that you need more help in developing and marketing the product. You are looking to create two new roles in the business - the first is a Software Developer to support Sarah’s work and the second is a Head of Marketing.

Having decided in episode 4  of our lifecycle of a tech startup series on targeting angel investors to raise £500,000 investment in the business, the founders of KNow Wear Limited researched various angel investor networks which aimed to connect start-ups like yours with angel investors. You applied to pitch at a couple of events and were invited by one network to interview with them in person. The network was very impressed with the business and invited you to pitch at their next event.  

If you are involved in investing, either as a startup or an investor, you are likely to come across an advanced subscription agreement. So what is an advanced subscription agreement and what do you need to consider when entering into one? 

You are aware that the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two tax incentive schemes for individuals who invest in early-stage companies. What are the key considerations when determining whether a particular investment is eligible for SEIS/EIS relief?

In the last instalment we talked about the ways in which the founders of KNow Wear Limited could protect the intellectual property in their business. Since then, the business has been progressing well and our founders have been working on developing a prototype.  

In our last instalment our founders, Sarah and Chris, considered the basics in establishing their tech startup and they incorporated a company under the registered name ‘KNow Wear Limited’. 

Welcome back to the blog series covering the lifecycle of a tech startup, from a legal perspective.

Alex (tech), Andy (tech), Emer (investments) and I (investments) work alongside startups and founders day to day and thought it might to helpful to some of you out there to bring together our expertise on the legal issues that tend to arise and how we deal with them. 

This week the government announced a further loan scheme to help small and medium-sized businesses affected by coronavirus. In a reaction to the criticism received for the Coronavirus Business Interruption Loan Scheme (“CBILS”) and its implementation, the Bounce Bank Loan Scheme is promised as a simplified scheme which allows small and medium-sized businesses to borrow up to 25% of their turnover, capped at £50,000.

Since the start of the coronavirus outbreak, the UK government has launched a number of schemes offering financial support for businesses. This support includes the Coronavirus Job Retention Scheme, the Small Business Grant Fund, the Self-Employment Income Support Scheme and the Coronavirus Business Interruption Loan Scheme (“CBILS”).

The grandly titled Coronavirus Business Interruption Loan Scheme (“CBILS”) was announced by Rishi Sunak as part of his first budget on 11^th March.  Sunak, in the position of chancellor for only a matter of days, set out a series of plans which he claimed would represent the biggest fiscal boost to the economy in 30 years, and which were also intended to protect the UK economy from the impact of Covid-19.

You own your own home, and potentially have a second investment property. You make the maximum payment you can (while still receiving tax relief) into your pension each year and have funds invested in the stock market. You have maxed out your yearly ISA allowance, using it as a tax efficient wrapper for your investments into stocks and shares.

So, you're a founder of a start up business, you've worked hard to get it off the ground and you have even found investors who are willing to provide the funds you need to grow your business and achieve your goals.

Convertible loan notes are a great way for start ups to generate an initial chunk of cash in order to advance certain aspects of their business, at the same time as they try to secure a direct equity investment. As a result, convertible loan notes can act as a short term solution to financing needs and, once in place, can be an indication to future investors as to the potential of the business.

You have successfully incorporated your new startup company and are all set to grow your business. What is one of the first things you should do? Without a doubt, if you have two or more shareholders, you should consider a shareholders’ agreement. It is easy to postpone putting a shareholders’ agreement (aka founders’ agreement) in place, but it is important. Why? Because it can regulate how changes in the company in the future will be dealt with including how decisions will be made, what would happen if a shareholder wanted to leave or became ill and, most importantly, what would happen if the shareholders had a disagreement.  

Company jargon can be intimidating and confusing. However, once you get to terms with the key terminology and concepts of company law, it all becomes a lot more digestible. If you’re planning to set up your own company, or considering investing for the first time, this blog should help you get your head around some of the main company documents you’re likely to come across during the process.

If you are a founder, entrepreneur or a potential investor, at some stage you are likely to encounter a term sheet. So, what are term sheets actually for and what issues do you need to consider?

The UK has almost 60,000 tech businesses which together employ over 1.5 million people, and the numbers continue to grow. Much of the growth in the tech industry has been fuelled by startups which have benefited from the UK’s ability to attract talent from across the EU and the rest of the world.  However, following the Brexit vote there were concerns that the UK’s days as a magnet for tech talent may be numbered in a so called Techxit. As we wait to see when/if Article 50 will be triggered and try to manage the uncertainty this brings, we also need to monitor the changes that a new USA administration will bring. Will Trump help or hinder the UK tech sector?