Diversicon | Updates

By Team Diversicon

Diversicon addresses frequently asked questions about the impact loan

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Dear Companists,

When we set out to create the content for the Diversicon Impact Loan we made sure to put a lot of effort into the process and display our business model in a comprehensive way. However, it wasn't possible for us to foresee all questions in advanced – what may appear as detailed to one person may seem lacking in detail to another.

Based on the discussions we've had with our Companists since our campaign began, it's become apparent which topics are most frequently inquired after. Given that we're the first company with a socially-oriented business model on Companisto, we received many questions directed to this topic and, by extension to this, our business plan. Additionally, some questions were directed at auticon GmbH, which Dirk Müller-Remus founded in 2011.

We hope to clarify some of these topics with our FAQ and in doing so answer some of your questions. The answers to questions aimed at auticon GmbH are also included here.

 

A. Questions about auticon GmbH

A.1. What is the difference between Diversicon and auticon?

auticon is a consulting company for IT solutions whose consultants are permanently employed at auticon. The consultants on the autism spectrum are placed with IT projects onsite with customers. They have special interests in computer science. In this regard, Diversicon complements auticon. Our aim is to take care of the target group of individuals with autism who have skills to offer outside of the IT sector. Given that we expect to deal with people from a diverse range of different professions and career tracks, we developed the Diversicon model.

We enroll in unemployed individuals with autism into the Diversicon academy, teach them career-specific competencies, and then either pair them directly with customers or place them in a temporary position. After three to nine months, these customers are to then become their permanent employers. If they're then hired, then a job has been created.

 

A.2. What do you have in common with auticon?

We share the goal of permanently integrating individuals with autism into the labor market. One the one hand, this is achieved through training and onsite job coaching while on the other it's achieved through informing and educating the future employer. This approach is also the practical implementation of a recommendation from leading German autism researchers (Publication in English)

 

A.3. Is Diversicon competing with auticon?

No. Both companies complement each other's meaningful work to permanently integrate people on the autism spectrum into the labor market: If we notice that a Diversicon participant has special IT skills, then we would notify auticon of this individual, and in this case, auticon would be the customer. Conversely, if auticon has an applicant that doesn't fulfill the necessary requirements of an IT consultant, then this individual can be forwarded to us and placed elsewhere.

 

A.4. In contrast to Diversicon, why is auticon a normal limited liability company (GmbH)?

With its outstanding services in the IT sector, auticon competes with notable IT consultancy firms and does so with its own generated financial means. We have received many questions on the reasoning behind our decision to declare Diversicon as a company with social benefit.

 

B. Questions regarding the topic of social benefit

B.1 Can any company declare itself as a business with a social benefit?

No. There's a catalogue of company purposes, which are recognized as having social benefits (see §52 German fiscal code). A company with social benefit must exclusively dedicate itself to promoting one or more of these goals (§56 AO). The following points apply to our business model: "Promoting public and occupational education" and "promoting the aid of disabled persons".

 

B.2 What are the advantages and disadvantages of this type of business model?

Business with social benefits are exempted from both commercial and corporate tax. What's more, such companies are also allowed to receive donations and issue tax-deductible donation receipts. Many funding programs from institutes and the public sector are also exclusively geared towards companies with social benefits.

The strict regulations associated with this business model present a disadvantage: Administrative expenses are high and there is much monitoring from the tax office. Also, it is difficult to change the business purpose.

 

B.3 Are companies with social benefits permitted to make profits?

Yes, as no company can be sustained in the long-run by running losses. The difference between this business model and a commercial business model lies in the way in which funds are used: Generally, profits are earmarked for specific use and are utilized in a timely matter. What's more, profits may not be distributed as stipulated by §55 of the German fiscal code.

 

B.4 How would you officially outline the reimbursement of the impact loan?

The impact loan will be balanced as a long-term liability. The savings from the repayment amount will be managed in the same way as a commercial limited liability company (GmbH)

 

B.5. Why did you decide to use this business model?

Despite their competencies, individuals on the autism spectrum are unemployed at a disproportionately high rate. To help solve this societal problem, we'd like to make a positive contribution through our entrepreneurial approach. To this end, we could have founded a "normal" limited liability company. Throughout many preliminary talks, however, we were able to determine that only a company with social benefit would be able to offer the necessary credibility for this particular subject area.

What's more, we want the Diversicon's societal goal to be pursued in a sustainable way and avoid a situation that would put profits in the forefront at the expense of those that we aim to help. In other words: It's our goal to remain profitable without pursuing a profit-maximization strategy at the expense of our founding principles. The social benefit aspect of the company provides a legal and business framework that ensures a meaningful, long-term balance between the company's goals and profit.

 

C. Questions on the financing model

C.1. Why don't you offer any equity capital investments or any other profit sharing options, like other start-ups?

According to §55 of the German fiscal code, all social benefit companies are prohibited from distributing their profits. For this reason, shareholders don't receive any profit shares, unlike with other start-ups. We're also not allowed to offer profit participation loans, which have performance-based interest components. In other words: We could issue equity capital contributions – however, new shareholders wouldn't be able to participate in the company's success and would only be allowed to get back their contributions (return of capital contribution)

Given that this option wouldn't be attractive to most investors, we decided to take the path of the Impact Loan: A fixed interest loan serves as a substitute for an equity investment.

 

C.2. Why don't you get your financing from banks / KfW (German government-owned development banks) / state-sponsored start-up support programs?

Due to their inherent institutional guidelines (Basel III), banks have to carry out a risk evaluation and collateralize their credit accordingly. In general, start-ups are associated with many risks and little collateral. For this reason, very few start-ups are financed by banks. This is why Germany has the state-owned KfW Bank: It offers special funding programs and relieves commercial banks of credit risk. Simply put: The sate acts as a guarantor for start-ups in order to allow new, innovative companies to exist. Other forms of this kind of safeguarding include guarantor banks as well as the BBB

Problem: Lending programs are only designed for collateralized investments, like real estate, machines, and inventories. And financing programs for new companies are all based on performance-based models, like equity investment shares or profit participation loans, which, according to §55 of the German fiscal code, is forbidden for us. As a result, the state's own laws exclude companies with social benefits from its programs for start-up support.

Thus, a loan from borrowed capital with fixed interest rates (in addition to donations and non-interest bearing deposits) remains the only financing option for businesses with social benefits. Following this, the Impact Loan offers us a replacement for equity investments, which in turns allows us to start our business operations. For this, we'd like to once again thank all of the Companists involved with the impact loan!

 

C.3. How would you financially outline the impact loan?

The Impact Loan acts as a start-up round of financing for taking on an operational activity. After this step, we're allowed to - unlike conventional for-profit businesses - to take advantage of subsidies. The fact that ongoing business operations of the three Diversicon modules are profitable over the long-term has been presented in our financial projection. Here, we've always made sure to take a conservative approach. Through our scaling measures (additional locations, including individuals with other disorders), we believe that we'll be able to expand our revenue after the break-even in 2020. Even if lower return rates are achieved, the required reserves for final repayments should be built up by 2023.

All in all, the high fixed costs associated with service providers makes it important to quickly scale up the business operation in order to achieve optimal profitability through maximum utilization of the available capacities. Even if we've prepared Diversicon well and are convinced by its business model, there still remains an investment risk, like with every start-up. For more details on this matter, please consult the details of our financial projection.

 

C.4. Why don't you pay more / less interest?

On the one hand, investors want a fair return on the risk they've taken. On the other, the tax office pays attention to companies with social benefits and wants to see that the interest rate is at market rate so as to ensure that no hidden profit distribution takes place. Furthermore, in the framework of our business model, the interest rate needs to be economically manageable. Against this backdrop, we made sure to educate ourselves on this topic and spoke to many tax advisers.

With Companisto and the Impact Laon, we're certain that we've developed an offer that equally addresses all of these concerns.

 

We hope we could sufficiently clarify all your questions with this update. Lets keep on working together for a successful future of Diversicon! We are happy about any further investments aswell as more feedback and advice from you.

 

Kind regards,

Your Diversicon Team

Dirk Müller-Remus and René Kuhlemann



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