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I don't think that's right - HMRC imply otherwise.
However, there's also some stuff about holding shares for 3 years, and only being able to claim relief once the company has been trading for 4 months (or has spent 70% of the funds raised) ... not sure how that all works in practice.
There are a few rules about qualifying for the scheme. After set up HMRC look at it all and if it is OK they issue certificates that allow the 50% offset against tax. This could take a few months, pushing the tax benefit into next year not this.
Microcosm has to keep to the rules for 3 years and we have to keep the shares for 3 years otherwise the deal collapses and HRMC could ask for some/all of the tax benefit to be returned - or add it to your next tax bill. -
^You sound like a numbers man.
sadly I think I'm going to miss the investment window as I will need to go through their manual identity check before I can deposit any funds and currently I'm not on the electoral role at new place yet, my passport just expired, no driving license, basically I'm living off the grid it seems.
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patron.. I'm at the other side of the globe.. and this forum had help me a lot, both on and off the saddle..
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Most important (can't believe that nobody has brought this up) will we still be allowed to swear on the forum?
Of course, building a machine that builds and hosts forums would in no way mean that I censor you.
More to the point, in terms of running forums it's been far more successful for me to be hands off and let the people within a forum establish their own lines for such things and police it themselves.
If you're in a forum where everyone is cool with swearing, then go ahead. If you're in a forum where people prefer not to, expect to be taken to task by other forumengers.
But... there isn't going to be automated censorship and bleeping.
Not least because there is no technical solution to someone posting C u N t. Especially if they mix in a bit of unicode.
So... heading for £75k voted. Anyone want to bet on £100k potential?
We've debated on what to do here. Due diligence would estimate a half million valuation as being fair and reasonable, so £50k = 10%. If we took more money we'd give out greater equity... but if we did that we would be at risk in the long-term of having brought in extra investment that wasn't needed, when that same equity could have been issued later for a much high number.
That is... if it's feasible that in 12-18 months we could get a Series A round that invested £200k for 10% to allow key hires... then wouldn't we be fools to have issued that 10% today for £50k.
Whilst we could dilute... you lose a lot of faith if you dilute unreasonably. And it is something that is watched closely. There are only typically expected to be 5 rounds maximum... angel, seed, A, B and possibly C. Each issuing 10% at a time (and diluting the prior rounds).
On top of that employee options are typically 5-10% blocks that are allocated in the first 5 years at the rate of one block per year (you aim to exit in that timeframe unless growth is such that you hang on a bit more).
And the founders are expected to hold onto 50%.
All in, if you've followed the math we'd have issued 150%... and with dilution that means in a clean calculation that employees hold a non-voting chunk, investors hold a voting preference third, and founders hold a third (which if you look at Facebook you'll note that Zuck is just below a third).
Whilst that all is fine, it means that % is finite and should be preserved in the company for future investment or employee incentive. In effect... whilst it is wise to raise more than we need because everything always works out more costly, we should also avoid issuing excessively as we'll start killing off future potential.
The short of it: We're likely to limit the investment possible to £50k.
Out of this comes another question. Why not raise the price, so £75k buys 10%. And the answer is due diligence and fair valuation. Just because there is demand to invest £75-100k it does not mean that it's true that the company has suddenly had an increase in value to £750k that would satisfy the due diligence of Seedrs and future investors.
If Seedr approve too quickly I won't be ready...
Seedrs won't, we've been advised by lawyers to wait a few days... details in the post I will write after this.
at some point in the future (years) Microcosm may be a profitable company.
You MAY then receive dividend payments.It is also possible that a company would want to buy Microcosm at some point and if that were to happen then you would receive some money for your shares - depending on how much it were purchased for would determine how much you got for you shares.
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None of the above is in any way guaranteed to happen
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Another possibilty is that Microcosm would become a publicly traded company - in which case you would also be able to sell your sharesYou've described 2 of the 3 types of exit that investors should look for.
The first being M&A (Mergers & Acquisition... or takeover), the second being IPO (Initial Public Offering... or float on stock exchange and sell your shares)... but the third being bankruptcy.
Thankfully SEIS takes care of small investors to minimise the risk of bankruptcy if you are a UK taxpayer or something. It is up to you to read up on this, I cannot advise you in this element... actually, this is beyond what I'm allowed to do.
WHAT?!?!? what's all this may stuff? I fully expect Microcosm to be as big as Microsoft, Apple and Facebook combined within 6 months at the outside. I expect a £1,000,000 dividend each week thereafter.
I'm beginning to wonder how I passed that questionnaire.
Seriously though danb puts it well. No relection on David but be prepared to lose all the money.
Exactly.
And whilst I may have the ambition and dream of a billion dollar company... the reality is that I might end up just accommodating a few cycling forums in the UK and for a couple of organisations.
Thread TL:DR...
Isn't the concept exactly the same as what google wave was?
Hah, yeah... you could view it that way.
Perhaps in 10 years that's where we end up. Was Wave ahead of it's time? Is the time now?
More importantly, if Wave was packaged up to look and feel like something so familiar as a forum... would it have achieved greater traction? If it was targeted at hobbies/pastimes, would it have achieved growth?
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I'd like to invest but am currently buying my first flat so it seems unlikely. Will see what happens. I'd like to be involved because this is a cracking community.
When the site migrates to the new platform will the old site be deleted? Will old posts be copied over? What about existing wall messages, rep, etc? Will I still be Sparky if I don't donate? I've been posting on here since 2007 - seems like a shame if it all gets wiped clean...
Just curious.
Most of all, good luck!
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David, any update on how this is going along? I've opened my seedrs account, and can't say any of the others are tempting me at the moment.
Certainly not the one that wants to challange Ann Summers...
YES!
tl:dr We have to wait a few days to hear about YC before acting on Seedrs and opening for investment. Additionally there are very hard decisions we (myself, the developer and 6pt) need to answer regarding structure of the company that has to be finalised before Seedrs or YC.
I sought legal advice on Monday from two firms, utilising the free hour they give you. The firms are Orrick and Taylor Wessing.
The simple question to them: This is where we are, here are our options, is there anything that needs to be done, and that requires me to instruct legal representation or advice, prior to raising money through Seedrs or participating in YCombinator (should we get it)?
The answers were very lengthy and thankfully don't require that we instruct a firm, but they could be boiled down to:
We cannot proceed with Seedrs whilst there is a possibility of getting on YCombinator. We must delay Seedrs until we hear from YC in a way that is final.
That is, YC will demand the establishment of a new Delaware registered corporate entity.
As such, this would add great complexity if you were to issue equity against a UK corporation that was no longer the primary corporate entity.
If it's possible to wait a few days to avoid creating this problem then do so, as you might find yourself in breach of Seedrs investment rules, or have created a very complex situation that will cost a lot to unravel.
We were due to hear back from YCombinator on Monday this week, but they have delayed ( http://news.ycombinator.com/item?id=4774288 ) and will now start issuing notifications Thursday, late PST time I guess.
Which means we hear Friday morning.
The YCombinator process is roughly:
1) Apply (end of Oct)
2) Get notified of interview (mid Nov)
3) Get interviewed in San Francisco (late Nov to beginning of Dec)
4) Start YC (early Jan)As soon as we are rejected (if that happens), then we can start with Seedrs... but for now I'm very frustrated by having to wait, but the lawyers were unanimous on waiting to see.
We must re-visit the shares within the company today
Today we have 2 shares, nominal (fake) value of £1 each.
To create shares to issue 10% to Seedrs we would need to basically go and re-write how many shares we have.
But there is an issue. If we create 98 shares, such that there are now 100 shares... then we have just created value of £98 and HMRC don't really care whether this is real money or not... they want their tax. For £98 that isn't a problem... but...
Once we receive investment the shares have a real (and not nominal) value. At the proposed rate of £50k for 10%, 1 share would effectively be £5k.
Now imagine what happens if we create the shares after starting the Seedrs process. Yup, 98 x £5k in potential tax liability (specific circumstances determine which tax, and who pays... but if they were held by founders then it is Capital Gains Tax).
Also imagine that at some point we might have an investor come in and want to plop down £1m. Great, but what if the share price said that this amounted to 17.3246%? How do you split 100 shares into fractions?
The answer is to create, say, 1 million shares.
But then, the nominal value of £1 makes that hard too.
So... we need to sub-divide/split our 2 shares now, such that the nominal value is a fraction of a penny per share, and we end up with 1 million shares. Then, and only then, do we offer Seedrs 100,000 shares for the £50k.
This helps us avoid tax on invented numbers, allows us to handle fractions and complex issuing in future.
We must re-work the existing equity split between the founders/early employee
This is the really hard one.
To date I'd been modelling the split based on experience from the music industry. I'd witnessed time and again that bands would rip themselves apart because this person earned more than that person.
I'd seen in some bands that peace was achieved by an equal split. Blur, Belle & Sebastian and other bands I've worked really closely with did this, and it achieved a lot of good even though there have always been arguments externally that Damon Albarn, Graham Coxon and Stuart Murdoch gave up too much.
To me, this was a good and fair thing to do.
However, it turns out the music industry is not the tech startup world. And literally every person I've spoken to (both law firms, 2 investors, 3 founders, 1 early emp at another company) have been aghast.
The investor view is that equal split rings alarm bells. There can be no easy to way to resolve conflict. It's an indication that we aren't willing to confront difficult questions. It shows weakness in leadership. If they invest £Xm in future, they want to know that the people most likely to make good on that investment are rewarded and inventivised in relation to what they brought into the company and how they will use that in future for the benefit of the company: all of the equity should be justifiable based on what that individual is bringing to the business.
Simply: Investors are put off, to the point of not investing, if they don't see a very realistic and hard split of equity amongst those in the business they're investing in.
The founder view was that no matter how you plan it, nothing goes to plan. Almost everyone will leave, and you need to deal with that as best you can. You can't have anyone (self included) with an already vested x% of the company. As that opens the door to someone leaving (for whatever reason) and then not contributing whilst everyone else still slogs it out for 5 years, before appearing again and then expecting their share.
The founder view is that not only do you need to say: You only get this if you put in the sweat and hardship. But you also need to be in the position that should someone leave, then whatever % of their allocation hasn't vested is available to the business to be re-allocated such that one can attract talent in to replace it.
The early employee view surprised me. In the valley the standard rate is 0.25%-1% if you receive any salary at all, much lower than I would've guessed. I shouldn't disclose other people's terms, but the founders I spoke to all shared their splits in the past and the early emp I spoke to discussed his. It varied between 1% and 15% with 5% being the average for the first employee or three depending on precisely what they were bringing in (had to be something the business didn't have to be higher) and whether they were being paid. The guy I spoke to was on 5% and didn't get a salary yet was full-time, the highest rate of 15% was being paid in a 2 person company that had no investment and no investment leads.
What this means is that I fucked up the first and biggest decision. I thought the only angle was internal politics for the company and that to make this happen it is worth the sacrifice of my (as the potential biggest shareholder) slice.
What I didn't bear in mind is that large investors simply won't invest if this isn't realistic, and that everything that can go wrong probably will and I need to be thinking in the interest of the business and not any individual (including me) for the vesting schedule and splits.
Which basically means that you now have two introverted geeks who prefer to avoid politics having to have very hard conversations about who gets what and why.
And of course, as we need to resolve this before we can sub-divide the stock and allocate, and that needs to be done before we can go to Seedrs... then in this few day gap pre-YC decision we are having to work this out which isn't comfortable for either of us.
The long story short: A few days for YC news, we have a load of very stressful decisions to make and some admin in preparation. If YC reject us on Friday then we can finally submit the Seedrs proposal, otherwise we carry on waiting until post-YC interview.
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I'd like to invest but am currently buying my first flat so it seems unlikely. Will see what happens. I'd like to be involved because this is a cracking community.
When the site migrates to the new platform will the old site be deleted? Will old posts be copied over? What about existing wall messages, rep, etc? Will I still be Sparky if I don't donate? I've been posting on here since 2007 - seems like a shame if it all gets wiped clean...
Just curious.
Most of all, good luck!
Yes.
The plan is that LFGSS will be exported from the current platform and then imported into Microcosm.
In the design for the new system, nearly all data can be moved across. Only reputation doesn't yet have a place in the new design... but of course nothing in the new stuff is yet fixed.
All PMs, posts, threads, forums will be migrated.
Also, what happens if - heaven forbid - this venture goes bankrupt? Will LFGSS still be able to operate? And in what capacity? If the site's moved over to the new platform and the company goes bust, what happens to it?
A grace period will be offered to allow site admins to export the data, and then import that into some traditional forum software.
This will lose some of the features in the process, but the data will be intact.
Don't worry, I don't intend to burn bridges in the process of doing this. I actually think that I would not be able to encourage other forums to try our platform if we did not provide the ability to U-turn. In fact, I think most would try it and be comfortable, precisely because they would have the ability to choose to leave. It means that the business has to ensure it works for you, not against you... because we'll make leaving easy.
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^ I would assume that users/content would be assigned a unique ID to tie stuff together, and then chose a username. If no-one else had the username sparky, then it's yours, but if someone else did, then you'd be given options (i.e. being Sparky531)
^^^^ At least you are having this difficult conversation now, rather than finding out 6 months down the line, and being effectively shafted.
It seems like this is like having a kid – lots of advice, but no manual – and you pretty much have to sort it out as you go, and frankly I think the main reason a lot of people are committed to contributing is that we've seen what you've done here, and are pretty good at sorting things out.
Also glad to see you've got a designer on board.
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Sparky, what Branwen said.
The patronage to reserve username is literally to get a line in a hard-coded file that works out that Sparky can only ever belong to the person with the email address blah@blah.com
Then when LFGSS, or perhaps YACF, get imported... the import system would say "We have a user called Sparky I want imported", and the platform would either allow or prohibit it. In the case of the later you would get some temporary ID and encouraged to change the name when you logged in.
Why all this complexity?
The mechanics forum today... why is it that all that knowledge isn't on the Glasgow FGSS site? Why is it that it's duplicated?
If you consider that a microcosm could actually appear on multiple sites (depending on permissions, privacy settings, etc)... then you realise that users from one site can appear on another. Effectively allowing a pre-existing Sparky from LFGSS to appear on the Glasgow site if they chose to make the Mechanics microcosm visible there... but what if Glasgow imported data after creating their site and choosing to have the Mechanics microcosm and there existed a totally different fellow named Sparky on the Glasgow site?
So there is already a small outside chance of username clashes in the design. It's a small chance, but it exists.
Hence, before it's created I can make a file that overrides such clashes and determines the outcome. And the criteria is simply preference given to those who helped fund the creation of the system.
Someone asked me at LMNH "Couldn't I just donate and reserve 'Velocio'?"... the answer is yes, you really could. And I would honour it too. On the new platform the import of LFGSS happens after the platform has launched into beta and undergone testing. If it's first-come first-served it truly means that you can only guarantee your username by being first to reserve it via a donation.
And in case people are thinking: I'm going to donate hundreds of times and buy everyone's username!.. We wouldn't honour that. 1 reserved username per patron, not per patronage.
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Would I need to be both an investor and a patron to be able to reserve my username?
Quite happy to be both, but just wanting to know what I need to do :)
I'm not sure at all if Seedrs would expose to me the details of who invested. In fact, I think it likely they wouldn't.
I was not going to say, but I planned to simply look at the votes in this poll and offer username reservation to the investors who declared themselves via that poll (or alternatively those who later could show that they had invested).
You would obviously get a reserved username... it's just that Seedrs doesn't do that for me, and should someone invest via Seedrs whom I do not know then they would not have that perk.
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This is all very exciting and I'm sad I'm not in a position to invest. I will for sure be a patron, just for the potential awesome user name when the site has 10 million users in 5 years time.
I was describing it to my wife and trying to convince her that this new site would be better for her parenting forum than facebook.
She was most unconvinced, mainly as she likes facebook and the group is a private/secret one that you need to be invited to, you cannot request to join.
How would you sell microcosm to this group and why would it be better there than on facebook?
I ended going on the idea that it would much easier for the group admins and not necessarily the users. I can see microcosm being amazing for freecycle. Most freecycle websites are awful, especially southwark freecycle.
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I know I'm relatively new here but this is a fascinating idea, or exploration of an idea. Two questions ...
Have you thought about Kickstarter rather than the traditional investment route, esp. if YC doesn't work out? It seems like the model you have is very close to theirs and wouldn't prevent outside investment in the future. You'd probably break your first goal with the money offered by users here, while also eliciting outside investment too.
There seem to be a lot of people on this forum with skills that might prove useful. If you were to offer equity, would you do it in return for work done? I'd be much happier offering my skill-set over my money. But then I like making stuff.
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I think kickstarter was looked at but they rejected it "as they don't do websites" despite microcosm being a forum platform...
I also think that kickstarter works better where there is some kind of physical product that can be delivered once its funded, but that's just my thoughts on the matter -
This project sounds very exciting. Not sure if Microcosm is a sound investment or not, but I like the way you think and the way you operate, and that, as far as I’m concerned, is always worth investing in. In my experience, business plans aside, when you invest in people, with no immediate expectation of capital gain, you nearly always get a return for your money no matter what.
Having said that, going for accredited venture capital, is very probably the way forward. You need to look for an investor/investors who in addition to capital can provide you with the necessary expertise and support network to see you succeed. In that respect Y Combinator is the perfect place to start. It would be fun though, getting in on the action, even with a small stake, but in any event I wish you the very best of luck.
Lynch
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Crowdfunding the creation of the next version of LFGSS
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@Velocio
WHAT?!?!? what's all this may stuff? I fully expect Microcosm to be as big as Microsoft, Apple and Facebook combined within 6 months at the outside. I expect a £1,000,000 dividend each week thereafter.
I'm beginning to wonder how I passed that questionnaire.
Seriously though danb puts it well. No relection on David but be prepared to lose all the money.