R&D tax relief - Curveblock
Industry: Real estate fintech Number of successful claims through SeedLegals: 2 Time taken to write the R&D claim: 3...
“Being a computer scientist, I believe most things can be solved with software”, says Stacy-Ann Sinclair, Founder of CodeREG, who has been building trading systems for multiple banks for 10 years. This now includes the work of lawyers, as her extraordinary legal tech venture oversees how banks trade, and automatically executes on legal decisions, at enormous scale. Her company is able to execute sophisticated legal checks in real time, powered by cutting-edge machine learning technology. She believes this kind of automated innovation can help governments to predict (and avoid) the next financial crisis. The current system can’t cope with all the new rules, so the robots are taking over.
Sinclair has quit a ten-year long career in investment banking to build ‘the new normal’ in
compliance – FinTech operations as a service. Her background is in building software for banks in-house. Now they are her customers, as CodeREG software is able to automate a vast range of their compliance checks in real time; far faster, far more efficiently, and far cheaper than any humans can possibly do it. The rules are complex, but there’s no getting around them. HSBC alone hired some 30,000 people for their in-house compliance department (and these are well paid jobs), separate from the City law firms, who charge £hundreds per hour for their technical advice. Sinclair believes a conservative estimate of current bank spending on regulatory compliance is $750billiion per year.
Pioneers like CodeREG are creating a new machine readable and executable regulation system. It is one of several innovative start-ups proving that machines can interpret ‘the natural language of regulation’ better and faster than the lawyers. They are able to automate and streamline the process for trillions of transactions per day. One simple example might be compliance with The Consumer Credit Act. For a bank to issue you with a credit agreement, there’s a strict process to go through before engaging you as a customer. Otherwise they can get fined or sued for a breach of the law. PPI mis-selling has cost the big UK banks £49billion to date; having to compensate millions of customers and pay vast amounts to claims management firms, of course, for their mistakes.
The trade volume for an ordinary investment bank is massive, while the viability of regulation (brought in since 2009) is under severe strain. One investment bank in a single day can execute hundreds of millions on trades. “Trade execution happens very fast, as a lot of this is already algorithmic. The efficiency gains of automated checking on this are just mind blowing.” CodeREG is able to talk directly to the systems and data; “it is a self-executing system where banks can monitor their compliance in real time, with an audit trail. It offers full traceability back to the legal obligation.” There is zero chance of humans doing this at scale. “Regulatory change should be as simple as a software update,” says Sinclair.
Sinclair is a solo founder, earning a place on the Entrepreneur First accelerator program to get started. “I knew what we wanted to build”, so she started with some business development, pitching a proof of concept project to banks, and securing initial investment from Entrepreneur First. The EF accelerator program helps Founders with preparing an investible business proposition, investor networking, and establishing a senior team to scale with. It is an opportunity for like-minded start-up founders to swap notes on best practice, and to learn through mentoring.
Sinclair first came across SeedLegals as a start-up enabler through talking with entrepreneur peers at EF, then finding herself suddenly needing to close a hire quickly when speaking with an investor. The business was able to seamlessly execute an employment contract on SeedLegals for the new CTO, adding significant value and momentum to the company, in advance of raising investment. “It was all done the same day”, as a standardised digital contract with digital signatures, once again showing how legal tasks are becoming less expensive and less clumsy through SAAS innovation. “I prefer self-check-out, and would use this every day. For management of early stage start-ups, it just makes sense. We are quite lean and it makes a lot of sense to us. Why would anyone not use it? “
A SeedFAST agreement on SeedLegals also proved to be an invaluable next step for CodeREG as it needed more cash to sustain its growth, but was not ready to fix a valuation or organise a large number of investors into a formal funding round. If you are growing fast from a cold start, it can be expensive to fix your valuation too soon. Advanced Subscription Agreements, or ASAs, allow companies to defer this until a formal round (within 6 months), and to take in a more modest amount of seed funding in the interim to keep up the momentum. ASA investors typically benefit from a discount. They are common agreements in the US, typically called ‘Safe Agreements’, and can significantly accelerate the fundraising process. An ASA can now be fully SEIS and EIS compliant in the UK because of how SeedLegals has set them up. “It helped us to move quickly without spending a lot of time or money on the administration: we wanted to focus on the product” recalls Sinclair. “It allows you to take control of your round and get the terms out”.
“A lot of investors like to sit on the fence until something is happening – why hold everything up? This changes the game quite a bit. The paradigm is founder friendly, but also investor friendly. It felt safe on my side and it also had really good terms for investors. Having SeedLegals in the middle, it feels balanced. There are reasonable terms for both sides. There was even a custom term put in for the ASA – protected existing investors on dilution.”
“I didn’t have to talk to anyone: actually, I did run it through my lawyers, as I’d a question around one bit, but there was otherwise no human involved. The legal bill for that one question was probably the same again as it was to use SeedLegals for the whole round.”
It is clear now that the business model of legal services is changing fast, switching from expensive expert labour to the exponential capabilities of machine learning and SAAS. Machine Learning technology seems certain to wipe out hundreds of thousands of boring repetitive jobs in legal services, as banks will inevitably seek out automation efficiencies like this to stay competitive. There’s a compounding effect of start-ups like this working together as technology innovators re-set the legal paradigm and power position, finding brilliant new ways for businesses to get important legal jobs done, without the lawyers.