Client profile:

Carbon Law Partners
Icon Tick White Why would you have new shareholders when you can use your own money through your pension to get the return that will probably beat the returns you will get through ordinary investments?
Icon Tick White Partners invested their own money to keep control of the business
Icon Tick White Two SIPPs set up
Icon Tick White Purchased £260,000 of five year preference shares (£130,000 each) with a 15 per cent coupon

The date is etched into his memory. September 15, 2008. Sat in the offices of a private equity firm about to give a pitch to raise £10 million to launch a new national law firm, which he believed would transform the relationship between a lawyer and client, Michael Burne watched in disbelief.

He had a business plan, five-year forecasts, a team and 17 potential investors lined up to share his vision. He was within touching distance of realising his dream.

But in a moment it all started to fall apart in front of his eyes. Michael takes up the story.

“My first presentation followed the news that came on the screen as I sat in the investor’s reception in Mayfair. Lehman’s had collapsed.

“I went to all 17 meetings, everybody was really complimentary about the plan, the opportunity, the market, the budget, the management team, even about me but none of them was going to invest £10 million in a start up in that week, or any week soon thereafter.

“It got a hell of a lot worse following that week.”

Michael had travelled a long way since telling his boss, who had promoted him to head of legal at wealth management firm St James’s Place, that he didn’t want to be a lawyer, he wanted to run a business.

Head hunted at 31 to be part of a new board by Inter-Alliance Group plc, Michael worked in a team to turn around the business which had 1,500 IFAs in 80 separate businesses. From there a small management consultancy working for clients in the financial and professional services sectors which had also helped a client to fund a £25 million management buy-out.

The collapse of Lehman’s may have rendered his fundraising impossible but opportunity came from an unexpected source. Just two weeks later, Keith Carby, the founder of St James’s Place, called with an invitation to join the board of Openwork (formerly Allied Dunbar).

Things were looking up. Michael said: “This opportunity arose. I couldn’t fund the businesses I really wanted to fund but maybe I could still be a CEO at 40 (a promise he had made to his father).”

It wasn’t to be. Seven months in and hammer blow number two, the plans for Openwork were changing and the opportunity to lead the business wasn’t going to come. Michael waited until January 2010 before resigning “with no job, and none of the 10 million quid but an itch to scratch”, to start a law firm based on the SJP model with lawyers as self-employed consultants with their own limited companies and an umbrella brand.

He said: “I had no money, no clients, no brand, no nothing but I thought it would be a good idea for me to prove to myself that I could run a law firm before I asked anyone else to join it.”

Carbon Law Partners was authorised as a law firm in July, 2010.

“I wanted to try to change the way that a law firm interfaces with clients. I’d had lots of experience buying legal services and I was convinced (still am) that lawyers needed to operate in different structures and be more like business people. I thought I ought to prove that clients would buy, so that then with credibility I could go to senior lawyers and say with confidence and experience of doing it myself ‘come to this business and you need not worry because I can run a law firm and I have proved that you can do big law for big commercial clients in a totally different way.’

“I did that for two years from a standing start. I managed to bill in the region of £1.7 million in two years, but my cost base was only £100,000.”

Fast forward to the end of 2013 and it was back to the future for Michael and founding partner Owain Saunders-Jones, who had worked for Barclays and Lloyds Bank. Time to put the 2008 business plan into action but on this occasion using their own money.

Key was targeting solicitors from top 100 firms who had been qualified for at least eight years and looking for the freedom to work in a different way. “Much of our thinking remains to work out how will tomorrow’s partners in law firms interact with clients.”

Carbon needed to fund rapid growth and a longer-term strategy for their online platform. The route to financing both phases of the company’s expansion was through the portal, a collaboration of more than 90 market leading business funders.

Michael admitted: “We’re impatient, we’re in a hurry, we really want to grow. We saw opportunity to do that, so we had our eyes open to the possibility of alternative sources of funding where the banks have left a gap.”

The route was perfect, a sort of one-stop shop to deliver the immediate cash injection Carbon required and the longer-term finance to support a major recruitment drive.

Carbon secured a loan from Boost Capital to finance a new application to add to their existing platform and to hire a senior manager to drive growth plans.

Michael and Owain were also looking to fund a further phase by investing more of their own money back into the business and, importantly, keep control of Carbon. This time the Alternative Business Funding portal returned a match with

The partners turned to their combined pension pots to finance further growth after set up two Small Self-Invested Schemes (SIPP) which purchased £260,000 of five year preference shares (£130,000 each) with a 15 per cent coupon.

Carbon is also talking to PLF’s sister company Clifton Wealth about an employee benefits package, including auto-enrolment and other employee benefits.

Michael is a huge supporter of Pension-led funding, so much so, that Carbon would encourage their own lawyers to consider it as a way of funding their own businesses.

“It is designed for people who have a pension pot and a business they want to back to the extent that is something that we would offer to our own lawyers as a way that they could fund their own businesses,” he said.

“If you understand business you understand the need to deploy capital. Some of our Partners in Carbon will have pensions from law firms they have worked in. Rather than using other funding sources and generating returns for those providers, using your own pension to invest in yourself is a great idea. Business is all about understanding risk and taking well-informed risk decisions. Pension-led funding has enabled us to continue to back our business without the distraction of external investors.” Carbon is on a mission to be “advisers of choice for fast-growing, enterprising business in the UK and beyond.” Their lawyers are self-employed consultants but are called “Partners”. “By the end of the next financial year we aim to have 50 partners. By the end of March 2019 we would like to think we would be at 100,” Michael said.

“We see a growing partnership across a range of cities in the UK over the next 12 to 24 months. We see opportunities to apply our business model and its platform in other countries within legal services and we see the opportunity for us to apply our platform in other sectors.

Michael said: “The tremendous value of ABF first and PLF second is that today the founder shareholders still own 100% of the business. They have backed Carbon with their own cash or by sacrificing salary to a total well in excess of £1.5 million to get to this point. But we still haven’t diluted our equity stakes. So ABF and PLF together have enabled us to fund our own business and still own 100 per cent of it. That’s really powerful to me.

“We would rather get the business further before we consider external involvement, but we didn’t want to delay growth through lack of investment. So what have ABF and PLF done? They have enabled us to get Carbon further than we would have been able to get it and prevented us from needing to rely on a new shareholder.

“I’d recommend ABF and PLF. It’s this enabling quality. It’s what you do in the absence of other sources of funding when you have a solid plan and you are backing yourself to deliver it, why wouldn’t you want to do that yourself?

“Why would you have new shareholders when you can use your own money through your pension to get the return that will probably beat the returns you will get through ordinary investments?” he said.

(Pension-led funding carries the same risks to the borrower as other commercial credit facilities)

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