investing – Paul Maunders

A new way to find furniture

In February of this year we invested in a startup called Furnish.co.uk, and I’m pleased to say that as of yesterday they have now gone live with their sleek new website.

furnish screenshot

Furnish.co.uk, as it’s name suggests, is a new way to find and buy luxury home furniture online. The site acts as a shop window for a variety of boutique stores and exclusive designers, allowing you to compare a huge range of options in one place. So if you were decorating a new bedroom, and wanted to find the perfect bedside lamp, Furnish.co.uk would let you drill down to the exact style you wanted – you can filter by price, colour, material, and size.

Furnish is aimed at the mid to high end of the furniture market and includes products you won’t typically find in the major high street retailers. They are adding more products every day, and hope to include over 100 stores over the course of the next few months, so keep checking back!

Fubra Investment Roundup Feb 09

Since the summer of 2008, we’ve invested in a number of start-up companies. We’ve been looking for businesses that compliment our own, and specifically where we could leverage our existing assets and benefit from the economies of scale. As I’ve mentioned before, we look for people with a unique idea, who are prepared to work hard and who can build the product/service themselves. All of the following companies met that criteria:

Clear Books Limited

Clear Books is an online accounting software service run by Tim Fouracre. He’s a chartered accountant, entrepreneur and programmer and has been working on the system for 6 months now. We’ve been beta testing it for our Fubra Accounts, and we’re really happy with its progress. The intelligent bank statement import feature has already helped us cut down the amount of time we spend book keeping from 10 days a month, to 2 days a month! We’ve also used it to complete our quarterly VAT returns, and our 6 monthly FSA regulatory reporting.

Screenshot of Clear Books home page.

UMPC Media Limited

UMPC Media is a joint venture between Fubra, Matthew Dunham and Steve Whiteley. The company aims to develop a number of web based communities, mainly in the area of Ultra Mobile PCs. The first site in the portfolio is a forum about Dell Mini PCs called MyDellMini.com

Niggle Limited

Niggle specialises in providing customer feedback systems for businesses. They offer a comprehensive service which spans both the online and offline worlds, with everything from paper based postal feedback cards, to mobile / SMS and online feedback forms. In a recession consumers will be especially picky as to where they spend their hard earned cash, and we believe the best placed companies will be those that listen to their customers.

Bytewire Limited

Bytewire is a games development company run by Dave Heward and Elliot Reeve. They are working on a number of online multiplayer browser based games, the first of which is a Mafia type game called Street Crime. The game has been running for just over a month now, and already has 2000 players!

Renegade Games Limited

Renegade Games is another games development company run by Pete Zaborszky. The company is in the early stages of developing a number of projects, so watch this space for more information.

How to invest in a UK Limited Company

Once you’ve found a limited company to invest in, the next step is to complete the legal work required. So what’s involved? Generally the process is as follows (where company refers to the company receiving investment):

Agree the terms of investment, and make a contract / shareholders agreement based on this.
Check through the company’s Articles and Memorandum of Association.
The company should pass an ordinary resolution issuing new share capital if the company does not have enough unallocated shares to complete the desired transaction.
All parties sign the contract, and then the investor and investee should swap any monetary consideration for a share certificate.
Finally, the company should inform Companies House of the updated share structure by filling form 123 – increasing nominal share capital (if necessary) and form 88(2) – allocation of shares.

Contract / Shareholders agreement

The contract / shareholders agreement could include:

Clarity on the ownership of assets. If any company assets are registered personally to the Directors, then they should be transferred to the new company.
Pre-emption rights to take part in any new share issues on the same terms as other share holders.
Commitment guarantees from the Directors, e.g. they will work on the project for at least x months, or will relinquish some shares as a penalty if they wish to leave early.
Details of when the investor expects to be able to take a dividend, e.g. the current Shareholders / Directors can take a remuneration package of up to £x per year, after which the investor may take a dividend.
Full disclosure of all company assets and liabilities.

Web Filing with Companies House

WebFiling is a secure and reliable way to file your company information. As well as saving you money on your Annual Return (£15), WebFiling allows you to file most of your company information free of charge. This includes changes to your registered office address (form 287) director and secretary changes.

To use Web-Filing you need to follow 2 steps.

Register for a web filing account, and a security code – this will be emailed to you.
Apply for an authentication code. A company may already have one if it was set up online, otherwise it will be sent out by post to the registered address.

Great British Businesses

With all the bankruptcies and job losses of recent months, and as we watch sterling slide against all major currencies, you’d be forgiven for thinking that UK plc is heading for the economic scrap heap. And in many ways it is – just look at our total government and personal debt, and the predicted budget deficits over the next few years. Yet, despite all this doom and gloom, there are some areas of the economy that have a bright future.

It may seem that all the UK has exported in the past few years is an army of borrow-to-let investors, but rather than focus on everything that was wrong with that, I’d like to look at what we’ve done right – and to celebrate some of the successful businesses that have been created by the real entrepreneurial spirit that exists in our country.

So, here are some world class companies that I’m proud to say are British:

Dyson – Reinvented the Vacuum Cleaner.
Imagine Technologies – Makes graphics chips for mobile devices, including the iPhone.
ARM – Makes microprocessors. Has gone from powering the humble Acorn computer, to nearly a quarter of all electronic devices in the world, including the iPhone.
HSBC – Although a multi-national bank, they are headquartered and listed in the UK, and have British heritage (founded by a Scot). The only major UK bank not to need bailing out as a result of the financial crisis. They even sold their Canary Warf offices at the peak of the boom, and bought them back recently for alleged £250 million profit.
Tesco – Like marmite, you’ll either love them or hate them, but there is no doubt they are good at what they do! Now the world’s ~~fourth~~ third biggest retailer, they have led the way in analysing their customer data (club card scheme) and retailing via the Internet. Watch out Wal-Mart!.
BBC – Although owned by the British tax payer, and some might say a little on the bloated side, they certainly produce some world leading content (Top Gear, Blue Planet, BBC News Online) and have pushed out some innovative technology over the years (BBC Micro, BBC iPlayer, Dirac Codec).
Rolls Royce – Have mastered manufacturing as a service by leasing their engines by the hour, and providing lucrative maintenance and repair contracts.

The list is going to start small, so please send me your suggestions and I’ll try to add them. I’d like to stick to British firms who have been truly innovative in recent years, rather than just listing out the FTSE 100.

Business Angel Investments

Part of our strategy at Fubra is to invest a portion of our cash in business start-ups. In this post, I’m going to give you a few inside “secrets” as to our thinking when companies approach us for funding. If, after reading this, you think we sound like a good match then you should get in touch.

What we look for in an investment opportunity…

An amazing unique product.
Backed by a team of competent, motivated and hard working people who can deliver.
The ability to build your product yourself. For web sites, this means you need a developer in your team as an equity partner. We’re not interested in ideas that someone else has to build, as costs will quickly escalate and we may as well do it ourselves.

What we can provide…

Cash.
Marketing assistance – We have a network of well over 100 websites, 6 million visitors per month and 3 million subscribers – so plenty of scope for cross promotion. We can advise on all aspects of online marketing e.g. PPC and SEO.
PR assistance – We have an in-house PR team and press contacts database. Our sites regularly feature in the mainstream press; printed, radio and TV.
Development assistance. We have Linux, PHP, MySQL and JavaScript gurus who can assist with complicated bits of coding.
Data mining – We have web spider experts who can help analyse and extract data from around the web.
Hosting – We have racks in several data centres, including our own 14 rack private DC at our head office in Aldershot. We have also developed a hosting cloud infrastructure to help scale web applications to meet demand and this would be available to you.
First line customer support – When your product takes off, we can integrate it into our support system and provide first line customer service.
Office space – We have a 4000 sq ft office in Aldershot, which has a few rooms to spare.
Mentoring and advice – Fubra has been around since 2000 so we know a thing or two about building web businesses. We would make this knowledge available to you as needed.

What we ask for, from an investment…

A Realistic Valuation – You shouldn’t be looking to get rich from the investment round itself. The cash is there to help the business succeed, and that’s the point where you will be financially rewarded. How is your business worth half a million pounds with no sales or customers?
Thrift! – You should keep your overheads as low as possible for as long as possible. Do you really need to hire a PR agency? If you’re product is that good it should sell itself. Can you justify paying yourself a “market” salary? If you are paid a full market salary, what risk are you taking to justify your equity stake?
Hard work and delivering on promises.

It could be argued that now is a better time than ever to start up a business. While established firms are more focused on cutting costs than delivering new products, start ups can seize the opportunities they miss.

Cash is king (and always was in my opinion!)

There is an interesting article in this week’s Economist, All you need is cash, which talks about the new rush by businesses to accumulate cash in contrast to the massive leveraging that has taken place over the past few years. Of course, not all companies took on huge loans to expand, and the ones who hoarded cash are now in a much stronger position relative to their debt-laden counterparts. Just to look to Japan where their cash rich companies are on target to make a record year in acquisitions. So far they have spent $78 billion on foreign takeovers, as they snap up other firms at knock down prices.

It has always been my view that companies should aim to keep a reasonably large cash buffer. It means that other people will want to deal with you as you have a strong credit rating and you can pay your bills on time, that there’s money in the pot for a rainy day, but most of all, it means that you can be ready to invest in value opportunities when they occur, without piling debt on to your balance sheet and being at the mercy of the credit markets. As Warren Buffet says, be fearful when others are greedy and be greedy when others are fearful.

At my company, Fubra, we prefer to leverage our knowledge and intangible assets rather than our balance sheet by seeking investments where we can add a lot of value for both parties at little marginal cost to our existing commitments. We look for companies who are a good fit to our current operations, and who have realistic valuation expectations, but if they meet those criteria we can act fast. This is the advantage of having strong working capital.

Of course, having cash has some downfalls. While Barclays are happy to pay Abu Dhabi and Qatar 14% interest on their cash, they only pay their sterling business savers 2.5%! All the more reason why you need to be ready to spend it when the right opportunities arise.

The Obama Apollo Project

Although I’m fundamentally a capitalist, and a strong believer in the power of free markets to allocate capital effectively, I’m not an absolute market libertarian. So whilst I’m convinced that an economy based on competition and creative destruction is far more able to generate productivity growth and technological advance than one that’s centrally planned, I do recognise that there are certain areas of industry that are often neglected or even avoided by the private sector.

Companies are bound by their shareholders to seek a profit, and so they are less inclined to invest in areas of ambitious scientific research where returns are neither immediate nor guaranteed, or in blue sky projects where the route to profit is not even apparent. It is in these areas, where the private sector is unwilling or unable to invest, that a government can in a way that’s beneficial to the long term success of an economy.

Although there have no doubt been many failures, there are numerous examples of government-led research projects that have changed society for the better, e.g.

The Internet (US Government – DARPA)
Moon Landings (US Government – Apollo Program)
Radar (British Air Ministry in World War 2)
GPS (US Government – Department of Defense)

It’s because of this, that I’m optimistic that if (when?) Barack Obama becomes President he is going to support a government-led, apollo-like, energy project to rapidly accelerate the world’s transition to renewable fuels, whilst turbo charging the economy and weaning us off our dependancy for cheap credit at the same time. And I’m optimistic that it could succeed.

According to Time Magazine:

He wants to launch an “Apollo project” to build a new alternative-energy economy. His rationale for doing so includes some hard truths about the current economic mess: “The engine of economic growth for the past 20 years is not going to be there for the next 20. That was consumer spending. Basically, we turbocharged this economy based on cheap credit.” But the days of easy credit are over, Obama said, “because there is too much deleveraging taking place, too much debt.” A new economic turbocharger is going to have to be found, and “there is no better potential driver that pervades all aspects of our economy than a new energy economy … That’s going to be my No. 1 priority when I get into office.”

If Obama really does make it his number one priority when he gets into office, and he has the electoral mandate behind him, then that political will could make a huge impact.

The New Apollo Program from the Apollo Alliance

The idea for a new Apollo program to build a new energy economy has been around since the Apollo Alliance was founded in 2004. According to their website, the program calls for investing $500 billion over 10 years on steps to:

Generate clean power (25% from renewable sources by 2025)
Improve energy conservation and efficiency
Cut energy bills
Improve US technological and industrial capabilities
Create 5 million green-collar jobs

These are pretty ambitious targets, particularly as they want to cut energy bills at the same time as raising the amount of power from renewable sources, but so was putting a man on the moon!

So how much is $50 billion a year?

10 Years, $500 Billion, 5 Million Jobs
The program would generate and invest $500 billion over 10 years. An annual investment of about $50 billion a year, the Alliance notes, is a smaller share of the gross domestic product than what was spent on the Apollo space program, about one-third of current spending in Iraq, and roughly half of what was just lent by the federal government to insurance giant AIG.

Could it be that by backing this project, Obama has the answers to see us out of the financial crisis and solve global warming simultaneously? If we can put a man on the moon, we can certainly hope so.

References:

– Time.com: Why Barack Obama is Winning

– Apollo Alliance: The New Apollo Program

Microsoft pays a premium to get some Facebook

OK so this is old news now, but it just dawned on me how much Microsoft (NASDAQ: MSFT) paid for a bit of the Facebook pie. First, let’s put things into perspective:

Investor	Site	Unique visitors (GigaOM Sep 2007)	Traffic Growth On previous month	Purchase Price
News Corp	MySpace	68,449,000	+0.1%	$580 million
Google	YouTube	47,486,000	+5.8%	$1.65 billion
Microsoft	Facebook	30,601,000	-9.3%	$15 billion ($240 million for 1.6%)

These figures are from Comscore, and I believe they cover US traffic only, yet they illustrate the sort of value that Microsoft got when compared to other similar acquisitions by News Corp and Google.

Facebook is definitely growing faster in some places such as the UK where it is now nearly the size of MySpace, however I think a lot of that growth could be from the novelty factor; when you first sign up you’re addicted for a few weeks whilst you add all your old school friends, but then the novelty wears off. Personally, I used Facebook a lot more initially and now that has tapered off such that I now check it once per week or less.

It’s clear to me that Microsoft has paid well over the odds to stop Google getting yet another gain in ad inventory as it did by buying into AOL, YouTube and DoubleClick and by striking an advertising deal with MySpace. What’s not clear is how well Microsoft will be able to sell Facebook’s audience to their adCenter advertisers.

Whatever happens, Mark Zuckerberg is happy!