Without question, Vince Cable’s drive to stimulate the SME economy through the Business Bank initiative will be welcomed by the UK’s four and a half million small businesses. However, despite the government’s best efforts, a significant gap will remain between funding available from traditional sources and the amount of financial support required by business owners; in particular entrepreneurs. This highlights the importance of alternatives such as pension-led funding.
The greatest challenge for business owners is the ability to source the most appropriate funding without these same owners and directors losing total control of their business. Government initiatives are just part of the picture. The broader funding landscape requires a departure from the traditional, with businesses looking to help themselves and that, in turn, requires innovate funding solutions.
For inventor and entrepreneur, Tony Curtis, departure from the traditional started on the touchline of a freezing rugby pitch as he watched a match involving his 12-year old son, with the team’s ball handling skills rapidly deteriorating. “The game had been a tough one,” Tony states, “not because of the opposition, but because of the weather. I said to my son ‘what you need is heated gloves’!”
Tony’s sudden flash of simple genius led to early development, with the kitchen table as a test-bench and the family as guinea pigs. With a working prototype finally developed, Tony sought designers to take his heated gloves to the next stage, while wrapping his invention in patent protection. However, the step from development to mass production is both significant and costly and Tony had reached the point where additional funding was essential to get his gloves to market.
Tony’s ‘light bulb moment’ was the sudden flash of simple genius that strikes the best inventors. Early development began with the kitchen table as a test-bench and the family as guinea pigs. With a working prototype finally developed, Tony sought designers to take his heated gloves to the next stage, while wrapping his invention in patent protection. “From my initial idea, to having the glove ready for market, took five years. In that time I spoke with a huge number of sports players, athletes, sailors, gardeners and triathletes.”
“I hadn’t spoken to the bank at all as I knew that they would only lend us the money if it was secured against our home,” Tony explains. “The one thing that we had was the house – and this was the family safety net. We wouldn’t use this unless we exhausted every other avenue.”
Not scared of a challenge, Tony turned to BBC TV’s Dragon’s Den. In 2010, having set up his new company, Alago Ltd, Tony appeared in front of the Dragons with the aim of raising £100,000. The response was a fire-breathing ‘no’! But this simply fired-up Tony’s determination to prove the Dragons wrong.
Around the same time as his visit to the Dragons, Tony was introduced to Clifton Asset Management. Clifton is no stranger to innovation, having created the Optimise product which specifically focuses on pension-led funding and, in particular, funding based on Intellectual Property (IP).
Around the same time as his visit to the Dragons, Tony was introduced to Anthony Malcolm at Clifton Asset Management. Malcolm outlined pension-led funding and, in particular, funding based on Intellectual Property (IP).
In fact, another Clifton client, Planit Products Ltd, had also visited the Dragon’s Den. In Planit’s case, it was the company that said ‘no!’ to the Dragons, instead turning to Optimise as the solution to fund their now-thriving re-useable “Toastabag” business.
Tony also decided to take the pension-led funding route after a considered look at Optimise, using his existing pension pot as the source of finance for Alago. “I felt that I needed to make my pension work harder for me” Tony comments. “By choosing pension-led funding, I can finally invest in something that I have control over, take my own risks and make the money work for both my company and my pension.”
Because of Optimise’s innovative flexible structure, Tony had choice and control, making a clear strategic decision based on the Optimise Team’s advice: “We decided to take the loan-back option as our projected figures showed that we would make a rapid profit and this would allow us to pay the loan back to the pension more quickly.”
Tony’s £60,000 pension was transferred to a Clifton Small Self-Administered Scheme, established under sponsorship of Alago. This allowed Tony to release £27,000 of his total pension by way of a self-invested loan. He chose to secure the loan through a general debenture but, crucially, from a collateral perspective, a portion of the company’s IP (the pending UK patent) was independently valued to supplement the business’s balance sheet and this facilitated the loan.
“The whole process was really good. I met with Clifton regularly and he couldn’t do enough for us. There was absolutely nothing that I wasn’t made aware of. Once we signed the paperwork, the money arrived in our account in just a couple of weeks.”
By the summer of 2012, Alago had received its first batch of heated gloves – the manufacturing and delivery totally financed by funds from the Director’s own pension. Demand accelerated and a second manufacturing run was soon underway, a boost in moving Alago towards its first year turnover target of £200,000. All Alago products are currently stocked online (www.alago.co.uk), with a number of major specialist retailers already looking to sell product.
As if that wasn’t enough, Alago won the 2012 Guardian “Startup Company of the Year” Award and is nominated for an equestrian industry innovation award, having developed a new riding glove with EFI Westgate, the UK’s largest distributor of equestrian products.
While IP-based pension-led funding clearly has the potential to slay dragons, it has no magical properties. It is, simply, a common sense, regulated, but non-traditional funding approach that allows business owners to take control of their businesses and back their own success. That, in itself, is an important – and ingenious – advance in pension methodology.