BONUS cuts, the recession and upcoming tax hikes for high-earners are tempting more and more City folk to start their own businesses. Indeed, Sturgeon Ventures, an “incubator” firm which specialises in helping people to establish their own businesses in the financial services sector, has seen a 10-fold increase in the number of enquiries from City workers, year-on-year.
“There will always be entrepreneurialism in the City,” says Seonaid Mackenzie, managing partner of Sturgeon. “People make money, get experience in big firms and later decide they want to control their own destiny. That will never go away.”
The City might be fertile territory for start-ups, however the spectre of a more closely regulated financial sector that is causing headaches in large financial institutions also affects small businesses. Mackenzie, who helps start-ups to get the required regulation from the Financial Services Authority (FSA), says that firms need to ensure they have the right regulation in place before they start operating.
So what is needed? Investment management and corporate finance businesses require what is known as a Part IV authorization from the FSA, which can take six months to come through.
There are three things the regulatory authority is looking for, says Mackenzie: you need to prove that you have competency and integrity, systems management and control and capital adequacy. In addition to this, there is a more practical reality to deal with: the FSA’s minimum capital requirement for an investment start-up is £50,000.
For budding entrepreneurs all of these rules might be off-putting, not least the need to have £50,000 in ready cash lying around. Which is exactly why companies like Sturgeon come in.
For a fee, they will allow start-ups to temporarily trade under their name while they are waiting for to get FSA approval for their venture. This means that you don’t need to stump up the £50,000 at that early stage, and that you can get cracking straight away.
Sturgeon Ventures was the first of these firms to spring up in 2000 and since then has helped businesses such as hedge funds, venture capital funds, private equity houses and many others to get off the ground. The chief benefit for a start-up is that an incubator allows it to start work on their business straight away and also get compliance advice and help with the FSA regulation process.
But while the conditions, and the support available, are ripe for starting your own business, going it alone is a tough slog: Even with an incubator, it’s “much harder than working for a large company,” warns Mackenzie.