Blue Scorpion

A business with the potential to generate £1 million a month of gross margin is an extremely attractive proposition.

And when that is based on a single figure percentage of market penetration, the potential is, to quote Tony Kensington, CFO, “incredible”.

Blue Scorpion provide payment card network security and segregation, helping businesses meet a set of Payment Card Industry standards, otherwise known as PCI. In simple language, that means providing security around customer card details when they make a payment.

A subsidiary company, EIT, provides installation and roll-out services to the retail sector, such as secure installations for Chip & PIN machines.

Tony, an accountant by profession, Nigel Tanner, CEO, who has a significant background in the card payments industry, and Nigel Storer, CCO, also with an extensive payments background, spotted a gap in the market to provide network security and segregation to small businesses.

Primarily this was aimed at those card present merchants who were receiving monthly fines for PCI non-compliance; however, acquirers are now realising the benefit of the Blue Scorpion solution even in their compliant merchant portfolios, and a broader remit is now being suggested to speak with all SME merchants to encourage network segregation generally.

The challenge of funding product development and the roll-out to customers is faced by all businesses but the potential payoff of working with the major banks meant getting the right financing in place was critical.

Private equity houses “liked the drive and passion of the people behind the business” but Blue Scorpion were looking for between £700,000-£1.5 million and not the £2.5 million-£3 million deals the private equity firms were suggesting they like to invest.

But a referral to the Alternative Business Funding portal led to an introduction to Pension-led funding and the opportunity to access the £750,000 sitting in their pension pots.

Accountant Tony was aware of the possibility of using a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS) to invest in a business but it was the first he had heard of the company Pension-led funding.

We used a SSAS to put the funding in place in two ways, using a straightforward five-year loan and also a sale and leaseback of the intangible assets of the business.

Tony said: “We were able to use HMRC rules to value an asset that all businesses have but are not typically on the balance sheet and not typically considered when looking at security.

“We all thought it was a very innovative way of doing the finance and that really appealed to us.”

The partners used the injection of funds to buy their EIT subsidiary and recruit a sales director and tele-sales team for Blue Scorpion.

“We have 50,000 more opportunities than we would have otherwise. The potential of that is probably a £1/4 million of gross margin a month, absolutely huge,” Tony said.

“Our plan over the next three years is to have 150,000 monthly licences signed up. That would mean somewhere around £1 million a month of gross margin.

“We hope to get a business valuation of £50 million-£100 million in five years.”

Blue Scorpion are 12-18 months ahead of the rivals in a rapidly expanding market place, which includes the need educate traders and the general public. “They have absolutely no idea of how at risk, their card data can be. It’s a real problem,” said Nigel, their CEO.

That is a message that Blue Scorpion is taking into Europe, the Middle East, Africa and further afield into markets where Nigel, their CCO, has relationships with numerous payments institutions through former roles, such as Turkey where payments generally is very advanced. The US roll-out kicks off at the beginning of 2018.

Tony also has a message for business owners considering using their pension to fund their business growth.

“The attraction initially was that the pension funds were seen as dead money. Its use to us was a long way into the future. Through the PLF option we could actually make use of those funds now,” Tony said.

“Whilst we were putting them at risk, there was no more risk than a normal business risk.
We are actually going to make some use of that money to help grow and develop our business.

When we repay that money, we make bigger contributions and end up with a bigger pot. We are borrowing our own money – ‘The Bank of Us’.

It’s like a warm, reassuring feature. It might be borrowing at a touch higher than commercial rates, but it doesn’t matter because it is going back to ourselves.”

Looking to the future with Blue Scorpion and EIT, Tony said: “This opportunity is ours exploit fully, we are doing all of this with our own money. The opportunity PLF has given us is absolutely immense.”

Investor Connected

Entrepreneurs with the “big idea” have a host of skills but pitching to investors is not always among them.

Thierry Clarke should know. He spent more than 15 years in investment management, working with central banks, pension funds and insurance companies with responsibility for 23 countries.

“I was pitching to investors so I have a pretty good understanding of what it takes to make a good pitch.” he said.

What he also recognised was a “disconnect” between the two sides.

“Entrepreneurs are passionate about their product but don’t necessarily know how to communicate effectively with investors. They are two very different skill sets.”

Five years ago, Thierry co-founded a company to bridge that divide with a cost-effective tech solution providing a comprehensive set of tools to showcase businesses to potential investors or lenders – and a punchy pitch of his own.

The InvestorConnected platform promises solutions for start-ups, scale-ups and investors.

“At the core of what we do is helping entrepreneurs get investment ready and helping investors on the other side get better data information on businesses allowing them to make better business decisions.”

Users register for free pitching services which include creating business plans and comprehensive financials. Two years ago, Thierry and his business partner Jeremy Hunt developed a business valuation tool to help standardise the data available, streamline the due diligence process and potentially speed up a match. Think of it as internet dating for entrepreneurs and investors.

Initial investment in InvestorConnected came from closer to home, Thierry’s pension. He had already pumped his savings into the project but wanted to get the business to a more advanced stage before looking to attract external investors.

An internet search to discover if he could access money from his pot pointed him in the direction of Pension-led funding.

“I was lucky enough to have a fairly substantial pension. I had an asset and I wanted to see if I could exploit it,” Thierry said.

Turning to his pension has provided Thierry with two rounds of funding. His existing pension was transferred into a Self-Invested Personal Pension (SIPP) and used to purchase ordinary shares in InvestorConnected to provide working capital. He returned to his pension pot two years later to purchase further ordinary shares and provide more working capital.

Thierry said: “The problem with small businesses is cash flow. The ability to use Pension-led funding to bridge that is really useful. It’s a great way of being able to access capital to be able to grow.

“Pension-led funding is a great way of being able to self-fund your business.”

InvestorConnected now has more than 1,200 users, an investors’ portfolio of £170 million ready to invest in eligible business and 130 pitches created.

In next five years Thierry is confidently predicting user numbers upwards of 125,000 and 5,000 businesses with finance secured with help from the platform.

InvestorConnected is already looking to expand into Europe and the US challenging rivals who provide business plan and valuation services.

Thierry said: “There is no one that does both together – that provides a lot of power. Very few provide the holistic experience you get on InvestorConnected.”

Simpson Booth

When the oil price collapsed practically overnight consumers and businesses alike were celebrating.

Russell Stewart and Nina El-Imad were not among them. They had worked tirelessly to build a recruitment and HR consultancy businesses serving the oil and gas industry that was turning over £6 million within three years of inception.

For many in the industry, recruitment stopped and the redundancy process started and Russell and Nina’s business, Simpson Booth, was caught up in the fallout from the oil price crash.

Luckily for them, several strands of their business were robust enough to withstand the downturn; their outsourced recruitment model for clients was equally attractive in a down-market and they also offered wider HR services.

They quickly set about diversifying their business, but recognised that such a step would require finance.

“If we had been a recruitment business that was solely working on a contingent basis, it would have been even more difficult for us to continue through the downturn. We were reasonably well protected but still suffered from what happened to the industry,” said Nina.

“Our diversification strategy has seen us set up additional divisions which focused on recruitment in the IT and Professional Services sectors, amongst others.”

Nina was looking for ways in which this diversification could be suitably financed. Could Pension-led funding work for them and was it possible to finance against their intangible assets?

“I was initially sceptical about whether it could really work – we had only been going for a short while, but the Pension-led funding profile fitted us quite well. We both had pensions that had accumulated following years of working for large corporates and were able to access that cash to enable us to support the business through the oil & gas downturn,” she said.

Nina and Russell have turned to their pension pots twice to inject finance into Simpson Booth, first with a loan back in 2015 secured against their trademark and database and more recently Nina’s pension was used to purchase preference shares in Simpson Booth.

Nina said: “Pension-led funding has been an excellent source of finance for our business, enabling us to fund Simpson Booth during a period of diversification. Our alternative would have been to either sell equity in our business, or to provide a personal asset, such as a house, to provide security against a bank loan. We were not keen on either of those options!”

The finance has been used to invest in new sectors and markets, recruit senior staff and has helped Simpson Booth to build a much more stable business going forward.

Having weathered the storm, Nina and Russell are planning for strong growth by building volume with a much more diversified portfolio of clients. They are due to complete the acquisition of an IT recruitment business on 1st February 2018, which will further strengthen their presence in that sector.

Simpson Booth prides itself on understanding businesses and what they are looking for and with the help of Pension-led funding, Nina and Russell have transformed the company into one offering state-of-the-art recruitment and HR solutions across multiple sectors in the UK and overseas.

(Pension-led funding carries financial risk to the borrower like any other commercial credit facility)

Carbon Law Partners

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)

The Winning Box

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The call has gone out to British business to embrace new global markets, set their sights on new horizons and look beyond the Euro zone.

One office space company with an international flavour has turned that on its head and is set to help boost the economy by targeting foreign businesses wanting to set up in Britain.

The Winning Box is brainchild of a former Italian lawyer from Pescara who fell in love with London while organising study breaks for foreign students.

Sergio Piazza and his wife Camilla have brought their Italian flair to office rental backed by a team of International interns with language skills that wouldn’t be out of place in the United Nations.

“We are currently targeting the Russian market,” said Sergio. “The interns work in different departments in our business and some work for our clients.”

Start ups looking to establish a foothold in the United Kingdom can take advantage of “360 degrees” of support including customer service and call centre assistance, graphic design, IT and social media expertise and a restaurant which reflects the multi-cultural nature of the business with cuisine from different countries on the menu each day of the week.

“We provide everything. We help with the language, culture, everything. Our clients like the atmosphere here, it is like a family business,” said Sergio, who is also keen to attract British SMEs looking for a base near the capital.

A programme of refurbishments is in full swing and when completed 42 rented offices, from shared space to room for eight people, will be available to rent. The first clients have moved in heralding a major milestone for the business which is set to generate income of £50,000 per month.

The Hayes location has enviable transport links for international businesses, five minutes from Heathrow Airport, 16 minutes from London’s Paddington Station and just over half an hour from Canary Wharf.

That could have been a million miles away when the original estimate for refurbishment work to the former Playboy TV offices proved wide of the mark and Sergio was faced with closing down.

“The only money I had left was in my pension and I thought I couldn’t withdraw that until I was 55,” the 49-year-old said.

“We needed to spend more money. We were kind of stuck. We couldn’t go ahead. If we couldn’t have raised the money, we would have to close down and give the place back.”

The breakthrough came with a broker recommendation to contact but the opportunity also meant going against the advice of a financial professional friend who cautioned again taking the money from his pension.

Sergio said: “I said I need the money now. I had never heard of Pension-led funding. We had two options and took a risk with something we didn’t know. But it was essential for us or we would lose everything.”

The first meeting was set for June, a month after the refurbishment had started. “By the middle of August we had all the money, £73,000. We paid everything we had to pay. That was a key point for us. Now we have started to rent out space and the money is coming in.”

We helped transfer Sergio’s existing pension pots into a Self-Invested Personal Pension (SIPP). The scheme then purchased preference shares in the parent company London Services Offices Ltd. This enabled Sergio to access the funds he desperately needed.

Sergio will repay the dividend with 12% interest over five years and the preference shares will be bought back at a later stage, further swelling the pension fund.

Looking back Sergio, who had already seen one business fall victim when the economic crisis hit Italy, was not prepared to give up without a fight.

He said the injection of funds from his pension “was like a miracle”. “It came out of the blue, completely unexpected,” he said.

“All companies that come here seem to enjoy the atmosphere so much. We do everything possible to help them grow.”

And when you offer clients the opportunity to employ the skills of staff from the Czech Republic, Italy, Spain, Turkey, Germany and Poland you are providing a vital link to home on a Hayes High Street.