Is this a good way to raise capital (kit car manufacturing)?

[singlecoil]

Sorry for the long post, hoping to pre-answer some of the questions that people might otherwise ask

I currently have a small business in which I repair and modify existing kit cars, and help people finish cars on which the build has stalled. I started this business as a lead in to becoming a kit manufacturer.

For some time now I, and two talented engineers, have been designing a mid engined kit car which I believe will do very well at its intended price point. The bodywork has turned out to be particularly attractive, and has been designed with careful attention to the aerodynamics. The body and the chassis have been designed in Solidworks, and I expect to have an 1/8 scale laser sintered model of the bodywork very soon.

I’ve done some forecasts based on sales from 1 unit per month to 4 units per month, and the results have been very encouraging. The sales figures are guesses based on anecdotal information on what sort of sales are achieved by the competition in the intended part of the market (B, where A is the cheapest and E the most expensive).

The actual manufacturing would be sub-contracted to specialists, as it is with many kit manufacturers, leaving me, and an eventual employee, free to build cars for those customers that didn’t wish to do that for themselves.

I have little financial resources of my own, and am not easily able to simply borrow the money needed, and so I have been giving intense thought to how this project can best be financed, and have come up with the following-

That a private limited company should be formed and shares sold to between maybe 5 and 10 investors. I would retain a minority of the shares for myself. The money raised would be used to have moulds and other production tooling made, and to develop a prototype/demonstrator. I would run the company and my remuneration would be part (quite small) wage and part dividend. This would ensure I could keep going during the start up period, and also ensure that I would work hard to keep the profits up.

I would hope the investors would be au fait with kit cars, and would want to be involved with the running of the company, help out on the stand at kit car shows, that sort of thing.

I started a thread a few months ago on a similar theme, and it was apparent from the replies I had then that although many people were interested, they weren’t looking for full time involvement, hence the idea of offering shares.

So the question is, is this the best way to proceed? And if so, where should I advertise for shareholders?

[Glassman]

I can't give you any business advice which will help you in this instance, but it's so refreshing to see such enterprise - well done and good luck with your venture.


ETA: Just had a peek at your website; does the Fiat/Lancia 2000 DOHC engine still feature quite strongly in kitcars?

Edited by Glassman on Thursday 10th December 09:05

[singlecoil]

Glassman said:

ETA: Just had a peek at your website; does the Fiat/Lancia 2000 DOHC engine still feature quite strongly in kitcars?

I've not seen any myself, one does hear of them being used but nothing much recently. Thanks for the positive tone of your reply, BTW

[Glassman]

I'm going back a few years now, but just as the last of 'em were crumbling away, the Fiat Mirafiori and Lancia Betas were being snapped up by kitcar enthusiasts.

AFAIK, very popular in the late eighties / early nineties. I broke three Mirafioris and sold their engines and axles. I still get the occasional call now from guys looking for inlet manifolds (to convert up/down to twin/single carburettor).

[Eric Mc]

If you can find the right people, there is nothing wrong with this strategy.

By having a minority sharehiolding, however, you do not have overall control over your own business as you could be outvoted by the other shareholders. This could cause problems for you later.

You might want to look at issuuing "non-voting" shares to the outside investors are just taking loans from them rather than offering shares in the first place.

Obviously, whatever path you go down, make sure that an iron clad shareholders' or loan agreement is in place as the investors must be totally aware of the risk involved in investing in such an operation.

Good luck.

[TheDetailDoctor]

singlecoil said:

The bodywork has turned out to be particularly attractive, and has been designed with careful attention to the aerodynamics.

I thank you.........

[singlecoil]

TheDetailDoctor said:

singlecoil said:

The bodywork has turned out to be particularly attractive, and has been designed with careful attention to the aerodynamics.

I thank you.........

You are welcome. Are we nearly ready for the laser sintering?

[singlecoil]

Eric Mc said:

Obviously, whatever path you go down, make sure that an iron clad shareholders' or loan agreement is in place as the investors must be totally aware of the risk involved in investing in such an operation.

Is that the kind of thing one would get an accountant to do, or would a solicitor be better?

[Eric Mc]

It's essentially a legal matter so a solicitor would be best. However, I would assume that you have an accountant anyway so you should also keep him up to speed with what you intend to do and allow him some input - particularly if you go down some sort of complicated share issue plan.

Hope for success.

Plan for disaster.

Edited by Eric Mc on Thursday 10th December 10:18

[TheDetailDoctor]

singlecoil said:

TheDetailDoctor said:

singlecoil said:

The bodywork has turned out to be particularly attractive, and has been designed with careful attention to the aerodynamics.

I thank you.........

You are welcome. Are we nearly ready for the laser sintering?

Hopefully, need to sort out the high pressure area under the nose at the moment (without resorting to a huge splitter, apart from that it looks pretty stable.

Should have something final by mid next week, then I can sort out the panel joins etc for you.

[Carsie]

Now this sounds like a lot of fun and a lot of hard work!- just what I like be glad to offer any support you need.

I wouldn't like to comment at this stage regarding share strategy without having seen sight of the capital requirements and the likely ROCE

Despite the doom and gloom in the press I regularly talk to banks who are willing to loan if the sector and proposition is right; there are of course the Private Equity Partners who are members of the BVCA (www etc and its .co.uk)and thats before you explore any synergy partners

Drop me a line,

[Eric Mc]

What's a "synergie partner"?

[TooLateForAName]

Eric Mc said:

What's a "synergie partner"?

Girlie in a Citroen MPV?

[TooLateForAName]

singlecoil said:

That a private limited company should be formed and shares sold to between maybe 5 and 10 investors. I would retain a minority of the shares for myself. The money raised would be used to have moulds and other production tooling made, and to develop a prototype/demonstrator. I would run the company and my remuneration would be part (quite small) wage and part dividend. This would ensure I could keep going during the start up period, and also ensure that I would work hard to keep the profits up.

You really need to have profits before you start paying dividends, plus in general dividends go to each shareholder (unless you want to start getting into different classes of shares, but then you may find legal costs and arguments about stuff getting out of hand)

How much are you talking about? You may do better with a larger number of shareholders (because then you are not so exposed to them dumping you).

[singlecoil]

TooLateForAName said:

singlecoil said:

That a private limited company should be formed and shares sold to between maybe 5 and 10 investors. I would retain a minority of the shares for myself. The money raised would be used to have moulds and other production tooling made, and to develop a prototype/demonstrator. I would run the company and my remuneration would be part (quite small) wage and part dividend. This would ensure I could keep going during the start up period, and also ensure that I would work hard to keep the profits up.

You really need to have profits before you start paying dividends, plus in general dividends go to each shareholder

That's pretty much how I saw it, no dividends until there are some profits, and each shareholder could expect a share (when there are some)

TooLateForAName said:

How much are you talking about? You may do better with a larger number of shareholders (because then you are not so exposed to them dumping you).

Also means I need to find more people too. I've no objection to having more, though, or less for that matter. I'll have to do what I can to retain my position through merit

[Gargamel]

Eric Mc said:

What's a "synergie partner"?

Say the new kit car uses a Honda Vtec engine, and you are sourcing these from Honda UK.
You could invite Honda UK to become a shareholder in the business.

[singlecoil]

TooLateForAName said:

How much are you talking about?

Until the design is finalised (it's always the minor details that hold things up) I won't be able to get quotes for the production tooling and moulds. There are also various ways of setting things up, but if, for instance, it was felt that £35K was needed to get to the demonstrator stage and to be ready to take orders, then one scenario would be 7 shareholders at £5K each, and to value my input at £15K (3 shares).

[therealpigdog]

TooLateForAName said:

How much are you talking about? You may do better with a larger number of shareholders (because then you are not so exposed to them dumping you).

Too many shareholders and if you're not careful it becomes difficult to get anything done - particularly if there are certain things where shareholders have a power of veto.

Get a lawyer to advise you on the terms of the investment once you do get investors lined up - might seem expensive now, but far cheaper than a dispute - there aer plenty of posts on here to verify that. I'm happy to chat through the process with you if you PM me your details - sounds a very interesting project.

Consider looking at Business Angels for investment - you aren't asking for a huge amount of money in the grand scheme of things and a petrlhead investor might see it as worth a punt as a bit of a hobby.

Also speak to your local business link as they might be able to help you with grant funding and the like - there seems to be a bit more kicking around at the moment and this would class as manufacturing so it ticks the right boxes.

Have you considered offering shares/discounts to people who pre-order their cars and pay up front?

Best of luck with it, and post up details as I'm looking forward to seeing this one progress - unfortunately don't have any capital to invest but can always offer advice.

[dozen]

At 5K I think there are a few people who would be interested. What sort of timescale are you looking at for both needing the cash and producing the demonstrator?

Dozen

[Vixpy1]

Providing you could supply me with a detailed business plan, I would be interested in going 5 or 10K in.