Digital Business: Spacehop.com - Essay Example

Digital Business Digital Business: Spacehop.com The early stage access to finances by innovative start-up companies has the potential of fostering high-growth responsive entrepreneurship in the 21st-century competitive economy. Start-ups often fail to qualify for the traditional loans from the banks due to lack of any substantial collateral and perceived high riskiness. Venture Capitalists (VCs) and Angel Investors play a critical role in bridging the existing financing gap in high-growth start-ups. Business angels are becoming an especially important source of equity capital for the seed and early set-up stages of a business. Many VCs often shy from investing in these very early stages (OECD, 2011). Angel investors have the following advantages; they increase the supply of financial capital, contribute towards a business’ ability to attract more capital, increase the value of a company through value addition activities and strengthen the entrepreneurial environment (Avdeitchikova & Landstrom, 2014). Governments also contribute to improving the growth chances of start-ups via exogenous instruments. Such instruments include tax options such as Enterprise Investment Scheme (EIS) in the UK. For an investment to qualify for income relief under the scheme, it must meet some criteria. The business must not be registered in a stock market, it must be registered and have the UK as the permanent resident. Also, its employees should be less than 250 during the financing, it should be an independent entity, engage in trade as per EIS regulations and have a gross asset base of less than £15 million before financing and £16 million after the financing (HM Revenue & Customs, 2014). Spacehop.com is a UK-London based online start-up company that launched its operations in October 2015. It is initially targeting London metropolitan area but aiming to expand its services to other areas. Professional barristers Mathew Beatty and Luke Eastwood founded the company in January 2015. The company currently consists of a team of five the two founders and three employees (Gust, nd). Spacehop.com qualifies under the EIS scheme. Therefore, an angel investor investing in the company is eligible to make a claim for income tax relief. The companys slogan is Their Home. Your Office (Gust, nd). The online based service provides homeowners with an innovative and efficient way to rent their residential properties to professionals, self-employed freelancers and small businesses during the day for working area purpose. The freelancers often seek favorable working spaces where they can access services such as good internet connects (Bell, 2015) In 2011, there were approximately 1.56 freelance workers in the UK. Experts expect this number to grow at an annual rate of 3.5% (Gust, nd). Also, in 2014 UK had 4.2 million home workers a figure that is expanding by 13.9%.The micro companies that represent 96% of the registered companies in the UK are growing rapidly. Oxford Economics also expects self-employment to grow at a rate of 15% over the next ten years reaching 5million people by 2024. CBRE argues that there is a gap in the provision of convenient, accessible and flexible working space. Many of these workers and entrepreneurs cannot afford the high commercial office spaces whose prices have increased sharply in the last five years. Besides, homeowners often have mortgages to pay need extra incomes (DTZ, nd). Spacehop is seeking to establish a responsive one-stop platform through which the office space seekers and homeowners can match their needs. People looking for space can choose from a wide variety of options in a seamless way (Bell, 2015). Despite the revolutionary nature of firms model, the company faces stiff competition from the co-working space providers. Co-working is an office model whereby independent individuals share rented workspaces for use as their place of work for a flexible period. Co-working model has gained high popularity since people pay for the office space for only the time that they are using it. Also, the model often provides other services such as video conferencing, phone reception, conference meeting, and professional support services. Besides, many co-working offices are located in highly accessible areas and often have excellent internet connections (Global Enterprise, 2012). Despite this completion, Spacehop can gain a considerable market share and remain competitive by focusing on the efficiency of their services and that of the working areas. Most of the Co-working spaces are located in high traffic areas with a lot of noises. In co-working offices, multiple people work in a common workspace resulting to interruptions. The firm hopes to capitalize on the need for a quiet working environment for individuals. Many people want to work from the proximity of their neighbourhoods but not necessarily their homes. Also, people are seeking an easy way to find a home based office a task previously undertaken through social media. People searching for offices through social media have to do a vigorous research a factor that Spacehop eliminates by providing multiple options under one stop platform (Gust, nd). By investing immediately, an angel investor will provide finances that will help the company scale its services rapidly reaching a broad market. Besides, there is no direct competitor to the Spacehop model. The firm gets its revenue from charging service charges through a model utilized by companies such as AirBnB. The company will have a charge rate of £10-20 per day. These charges are affordable for self-employed and small companies. Innovative, hardworking and ambitious founders lead the company. The pair has carried out an extensive market research on the rental home office segment. So far, the company has acquired 50 homeowners and several office renters in London area customer. Fifty customers are a substantial number considering that the short period the company has existed. The leadership has secured interviews with news agencies such as the Irish News, which has helped market the company (Bell, 2015). The operations of Spacehop face several risks. First, the company faces the threat of conflict in liability responsibility. There is a question of who should cater for the damages arising from the use rented property. The homeowner and renter’s insurance company are unlikely to provide liability coverage for commercial home uses such as the office renting. Such a circumstance may result in conflicts or litigations that may damage the firms reputation and customer’s willingness to participate in the business model. Second, the company faces the threat of balancing the varying legal requirements that are not consistent in different areas. Lastly, the online platform faces the risks of security and scaling as the number of users increase. The business can wade off the challenges by hiring a legal adviser who will advise the firm on the different legal aspects of the business. Through, strong ad campaigns, the company can foster responsibility in the use of the rented property by its customers. So as to ensure the security and scalability of its operation, the company should use cloud services provided by professional companies such as Infosys, Microsoft and Apple. Such a move is advantageous since these companies also provide other support services (Mandigo, 2012). The company will pursue rapid development and expansion strategy over the next five years. After this time, the company is planning to exit via an Initial Public Offering (IPO) or by acquisition an existing player such as Airbnb. The changes in the firm’s business should govern its exit strategy (PwC, 2012).As an angel investor; I will invest £ 100,000 in Spacehop for 10% stake equity in the company. The reason for this estimate is because experts such as Crowdcube have given the company a pre-trading valuation of £ 1 million. The company requires the amount to roll-out a nationwide marketing campaign that is critical to gaining new customers and expanding to new areas. The company has a solid income earning model, and it is already earning income from its current operations. Also, the company has a high positional of expanding in the UK market and also in international markets such as US (Bell, 2015). Companies such as Airbnb run the home renting service for accommodation purposes which is famous (Mandigo, 2012). Reference List Avdeitchikova, S., & Landstrom, H. (2014). The Economic Significance of Business Angels-Towards Comparable Indicators. Stockholm: Ratio Institute. Bell, G. (2015, September 25). Spacehop Founders Bring Affordable Office Space To London Workers. Retrieved October 20, 2015, from The Irish News: http://www.irishnews.com/business/2015/09/24/news/spacehop-founders-to-bring-affordable-office-space-to-london-workers-270929/ DTZ. (nd). The Co-Working Revolution. London: DTZ. Global Enterprise. (2012). Co-Working: Collaborative Spaces for Microentrepreneurs. Brussels: Global Enterprise. Gust. (nd). Spacehop: Company Summary. Retrieved October 20, 2015, from Gust: https://gust.com/companies/spacehop HM Revenue & Customs. (2014). Enterprise Investment Scheme-Income Tax Relief. London: HM Revenue & Customs. Retrieved October 20, 2015, from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323783/hs341.pdf Mandigo, R. (2012). Industry Report: AirBnB. Elmhurst: Horwath HTL. OECD. (2011). Financial High-Growth Firms: The Role of Agel Investors. Paris: OECD. PwC. (2012). Making Decision to Exit. New York: PwC. Read More