ENTREPRENEURS

A measure for the forward-thinking

INNOVATION DIARY
TOM WELSH

cityam.com

MONDAY 10 DECEMBER 2012

19

Annabel Palmer talks currency, Skype, and missionary work with the founders of TransferWise

NE of the most striking probusiness announcements in last weeks Autumn Statement was the increase in the tax relief afforded to company investment in plant and machinery equipment. A miserly allowance of 25,000 jumped ten-fold to a healthier 250,000. Aimed at smallish businesses, its meant to unlock cash for investment. But it comes with some provisos. Any business interested in using the relief should consider the details before splurging their capital. Firstly, what is plant and machinery? The term suggests industrial cleaners or dirty chemical vats, but the definition is actually fairly broad. Debbie Griffiths, entrepreneurial business partner at Deloitte, says it covers most fixed asset additions. Reassuringly for tech companies, it includes computer equipment and some software programmes, so you dont need to be a small-scale manufacturer to take part. There are exceptions, however. You cant claim back the cost of a company car, for instance. This links through to a second word of caution. This is obviously a break from taxation rather than a cash transfer. The 250,000 figure is the money a company can offset from its corporation tax bill, so a business must be profitable before it can be used. If youre making losses anyway, this isnt going to be a policy to help your business grow, says Griffiths. Youve also got to buy the equipment first. So factor in the costs of financing if you dont have the cash sitting in your bank account. Plant and machinery relief may be enough to persuade more forward-thinking and better capitalised businesses to accelerate their capital investments, but it wont pick a struggling firm off the floor. Even if this particular measure wont prove useful, however, the Autumn Statement might have something else for you. Fuel duty has been frozen, of course, so at least the cost of travel wont become more expensive. And better, tapered small business rates relief has been extended until 2014 hopefully giving your business a little more room to breathe. Twitter: @TWWelsh

RISTO Kaarmann and Taavet Hinrikus are the two Estonian founders of TransferWise, the peer-topeer platform for transferring money. Parallels between TransferWise and Skype abound, not least because Hinrikus was Skypes first employee. But the likenesses dont stop there: they want to make the world smaller, just as Skype has done; they want to make transfers cheaper, just as Skype made communication cheaper. Their goal is to lower the cost of transferring money, in stark contrast to banks that seek ways to make it as expensive as possible for the consumer. In 2003, both were working internationally Hinrikus at Skype, Kaarmann at Deloitte and they quickly discovered that tranferring money was expensive. Kaarmann was paid in sterling but owned property in Estonia; Hinrikus was paid in euros but needed living expenses in sterling. So they started a two-man currency transaction service (later expanded to the Skype club a handful of friends that grouped together to save on exchange rates). Simply put, banks dont use the mid-market rate when transferring your money, meaning that customers pay far more than the transaction fee. But people dont necessarily understand that banks make their money on the spread, not the transaction fee. We see ourselves as missionaries, educating people on the true cost of going through a bank. Because, they say, no more effort is required by the bank to send money abroad than is needed to send an email abroad, says Hinrikus. TransferWise charges 1 for transactions up to 300, and above that they will charge a small fee typically 0.5 per cent. A bank will usually end up taking 4.5 per cent. You get the impression that the pair genuinely want to make transferring money as cheap as possible for their customers. They want increased transparency in the industry, because it is very unlikely the government will force banks to be transparent in the near future. And theyre undercutting their competitors by a significant margin. I think my greatest achievement, grins Kaarmann, was making a transfer for the chief executive of a bank yesterday because he wanted to save money on the transaction.

Twosome transforming how we transfer money

CV TAAVET HINRIKUS
Company Name: TransferWise Job Title: Co-founder Age: 31 Studied: MBA from Insead Previous job: Director of strategy at Skype Motto: Never say that it cant be done Drinking: Anything from fermented grapes Heroes: Niklas Zennstrom, founder of Skype and Kazaa

CV KRISTO KAARMANN
Job Title: Co-founder Age: 32 Lives: London Previous job: Consulting at Deloitte and PwC Reading: Narrating People by Svend Age Madsen Talents: Iron Man triathlons Motto: Just do it Drinking: Anything from fermented tea leaves Heroes: Er, Taavet Hinrikus?
Hinrikus (left) and Kaarman (right) have a lot to smile about
TransferWise is growing at 20 to 30 per cent per month. At the start of this year, it had eight members of staff. It now has 21. In their first year of operation, they had 10m in transaction volume. But its a huge market that they are eager to dominate: banks make somewhere in the tens of billions of dollars per year just on the spread. I ask how they went about getting investor support and get an unusual response. It isnt hard to start up a website or build an online business to the first proof of concept stage. Too many entrepreneurs focus on pitching 10,000 word business plans to investors, says Hinrikus. But by the time TransferWise started fundraising, it was busy serving customers. It launched in January 2011, and 15 minutes later its first customer made a transaction of 2,000. The biggest challenge was taking the rough with the smooth. It is a roller coaster. And thats where a lot of people fail, they take it too emotionally, warns Hinrikus. So what advice would they give future entrepreneurs? If you look around us now, everyone has the potential to get a great job. So you are not risking anything by trying to be an entrepreneur. Even if you fail, you will have learnt so much that youll be a better employee afterwards, says Hinrikus. I knew many people at Deloitte who dreamed of starting their own business. And I know that theyre still dreaming of it now, adds Kaarmann. Their goal for TransferWise is simple: to see the company grow (as fast as possible) into a global sustainable business. And a business that is helping people along the way.

My recent attempt to pass on some rock solid business advice

DONT want to study rocks! My teenage son Tom looked at me like I was an ugly alien. We were discussing what he should read at university, and he was keen on economics and maths to pursue a career in finance or business.But I think the big finance boom is over, Tom. And mining is more than rocks; there are lots of opportunities for exciting work and travel. You could start by studying geology and, if you want, do an MBA later. Think of the mines as regular businesses and the rocks as their products. Its not that different. To illustrate my point, I told him about an Australian mining operation Id been following and investing in, led by a very capable man, Peter Cook. Cooky is a trained geologist with an impressive record in mining. His

of a SERIAL ENTREPRENEUR

CONFESSIONS
RICHARD FARLEIGH

successes include the sale of a gold mine for $250m (156m) that he bought for $20m. His latest passion is tin, and his company Metals X is a partner in one of the worlds largest tin mines, located in Tasmania. He says that tin is facing a perfect storm, though I prefer perfect sunshine because it sounds so good. Firstly, tin is benefiting from an increasing aversion to its competitor, lead. Lead has been blamed for the

madness of Caravaggio, the death of Beethoven, and (spuriously) for the infertility and decline of the Roman Empire. In the last few years, theres been increasing legislation against its use and tin is being used as leads replacement. Perhaps youd call it lead led demand. Secondly, there are expected problems with supply. For example, the worlds biggest tin mine in Peru is headed for depletion by 2017. Thirdly, theres a bunch of newlydiscovered uses for tin, such as improving solar panels

Lead may be to blame for the fall of Rome

and tripling the life of lithium batteries. Tin will be the Viagra for the hybrid car industry, says Cooky. So mining is even sexy. Now you would think that with the China story of industrialisation and urbanisation, the mining sector would be booming. But that party was a few years ago and now the sector has a horrid hangover. Everywhere there are unstarted and unfinished projects scrambling for funding, and company valuations are desperately down, including for Metals X. But Metals has actually done well; the tin has made it profitable

and generated a cash pile. So rather than whinge about the cycle, Cooky has used the opportunity to buy cheap gold and nickel assets that could generate enormous value. So, Tom, mining has everything. Competing products, cycles, funding issues, strategyyou name it. Its exciting I would guess that more money has been made and lost in mining than in any other activity. And what did Tom do when I passed on this invaluable insight? He did what every sensible teenager should do listened to the advice and chose his own destiny. It wont be rocks. Richard Farleigh has operated as a business angel for many years, backing more early-stage companies than anyone else in the UK. www.farleigh.com