Put another feather in Luxembourg’s cap: Hotshot, a startup that was born in the US and is quickly becoming global in focus, has decided to open-up shop here in the Grand Duchy. The company describes itself as s a messaging and collaboration system for business that is user-friendly, uniquely secure, and compliant with the swiftly changing landscape of labor laws and information-handling regulations including GDPR; potentially a huge relief to companies on this side of the Atlantic dealing with strict levels of regulation.
by: Silicon Luxembourg
photo: Anna Katina
featured: Aaron Turner
How did Hotshot end up in Luxembourg? We sat down with the two players who engineered it all, Hotshot CEO Aaron Turner and KPMG Luxembourg’s Michael Ayachi, to get the story. We also asked them about tax priorities, Luxembourg’s entrepreneurial scene, and why advisory firms are snapping up fintechs.
Setting up a new company in Luxembourg, coming from abroad, must be a challenge. What is the process like?
Aaron Turner—I’ve worked in many countries around the world, from Latin America to Southeast Asia, and Luxembourg is a place where getting business done is easier than most. For example, there are clear, well-documented, and consistent processes to get a business started. There are excellent resources available to entrepreneurs to help them get all of the legalities taken care of, giving a startup CEO like myself the ability to focus on actually growing the business. We have been fortunate to receive assistance from excellent partners like the Technoport who have helped us accelerate our journey to success here in Luxembourg.
Michael Ayachi—At KPMG, we work regularly with fintech startups setting up in the Grand Duchy. Indeed, the Fintech Awards Luxembourg, which we have hosted with a number of governmental and business associations yearly since 2016, is designed expressly to introduce young companies to our local ecosystem here. The Hotshot collaboration platform technology can have many applications in the fintech world. We have received other testimonials similar to what Aaron has said: this country is flexible, willing, and capable when it comes to welcoming new business—with a large support network built in, including the Technoport and LHoFT.
Why would a security-focused company choose Luxembourg to set up its operations?
Aaron Turner—Luxembourg is a hub for financial and professional services in the EU. It is a place where many multi-nationals have their regional headquarters and is an excellent location to quickly connect with European influencers. As an early-stage company, we have to use every opportunity we can to efficiently find prospects and convert them to customers. The business leadership that financial services companies have located in Luxembourg gives us great opportunities to quickly connect with those decision makers and show the value of our technology.
Michael Ayachi—As part of a firm specializing in advice and taxation, I must add that the Luxembourg government has worked hard to create both a strong startup ecosystem and a fair and dynamic tax environment. Several tax incentives have even been designed specifically for innovative firms, such as the recent intellectual property regime (which exempts a portion of income connected to intellectual property). Our local financial regulator, the CSSF, is additionally known for its proactivity in facilitating a competitive and responsible marketplace.
Beyond all that, Luxembourg is indeed a fabulously unique place for business: access is easy to public organizations like Luxinnovation, to our huge neighboring markets, and indeed to the entire EU. Also exceptional are the strong skillsets here in terms of languages and new technologies. This country wants to be a leader in fintech, and you can tell. And it’s happening.
How high a priority is taxation for Hotshot?
Aaron Turner—Any CEO will tell you that optimizing their company’s tax burden is key to the long- term success of a company. Every bit of revenue that can be retained can be used to grow the company and make it even more successful. We realize that taxation is key to any civil society, so we want to make sure that we contribute what we owe to do our part to build a great society. As a business leader with responsibilities to my employees and investors, I want to make sure that we pay what we are responsible for, but still optimize and minimize any tax liabilities through all legal means available to my company. When you speak with the Luxembourg officials, such as those with Luxinnovation and others, they try to minimize the fact that Luxembourg has set up an excellent tax regime for technology companies which is significantly better than most other developed countries. It is a considerable motivator for technology companies like Hotshot to setup a Luxembourg entity, get the intellectual property transferred to Luxembourg, and begin technology developments and improvements as soon as possible. This process assures that revenues received from the subsequent sale or licensing of the technology are taxed at the most optimal rate, continuing that cycle of assuring the business can retain as much revenue as possible to help the company be more successful in the future.
What are the most essential tax aspects to consider for Hotshot?
Aaron Turner—We had to consider how to optimize the assignment of our technology portfolio based upon the markets that we are targeting. For example, we expect our revenues to be roughly split between the US and the EU. Based upon KPMG’s guidance, we then set about getting our technology assignment and intra-subsidiary cross licensing structure in place. By making these decisions early in our development lifecycle, we believe we can reap significant benefits which will help Hotshot for years to come.
How did you come to work with KPMG?
Aaron Turner—We were introduced to the KPMG team by some of our Luxembourg startup mentors which we connected with through our Technoport partnership. And for full disclosure, we contacted several firms in that process, but KPMG was the only one which responded to our inquiries for help as if we were a big company. That really impressed me, that the KPMG team would see the potential of our business for what it was, not just the fact that we were a tiny startup looking for help. I’m very grateful that Michael, Sophie, and their teams took the time to treat Hotshot as if we were already a widely-established and proven company, not just a pre revenue startup. Their understanding of the growth potential within Hotshot and the respect and consideration they showed me increased my confidence in them.
Michael Ayachi—Luxembourg’s startup ecosystem is quite a vibrant one—we first heard of the company through the Technoport, with which our KPMG Hub for Entrepreneurship and Innovation, known commonly as the Khube, is closely involved. The idea is compelling: data privacy compliance in Europe is a major factor for companies, and security is a risk that looms ever bigger. We appreciate Hotshot’s business idea and Mr. Turner’s profile. A few months later, now, the move is well underway and we are fantastically pleased with how promising Hotshot is in a European context.
How do startup s and firms like KPMG benefit?
Aaron Turner—Timing is everything in business. Let’s assume that we started Hotshot and did not get KPMG’s advice relative to how to structure our intellectual property assignment, development, and commercialization. Further assume that Hotshot has a great first year of business, then it’s time to account for our success. In that situation, it is conceivable that Hotshot could turn from a profit to a loss based only upon tax liabilities. By starting with our IP assignment strategy before we had revenues, we have a much better plan to make sure that we optimize how we sell our technology, how we do business in the EU, how we coordinate business between the US and EU, and this all makes it even better for us to assure that Hotshot is a success in the future. While it is a sacrifice to spend a significant amount of startup capital with a firm like KPMG, every bit of that investment will be repaid in the future after revenues start coming in and the company can enjoy the benefits of an optimized taxation strategy.
Michael Ayachi—Startups are the lifeblood of evolution and growth. By virtue of their size, they tend to be fresh and agile—both in their attitudes and in their capabilities, both of which are extremely important to the industry. For KPMG, working with, supporting, and learning from fintechs is a no- brainer. We are in the game of staying ahead of industry curves, so where better to turn than towards creative and inventive disruptors? The Khube is our own Innovation Center of Excellence, exploring new trends, new tech, and new actors on the market. It specializes in linking the right innovative solution to the right business, helping our clients to stay on top of trends. The Khube also runs initiatives such as the Fintech Awards Luxembourg, which offers multiple awards including a grand prize of €50,000.
The article is sponsored by Hotshot and reflects only the opinion of the author.