Setting up and investing in a new business

My group is playing in the Triamore saga, and recently my players managed to strike a deal with the Duke, that frees them from having to pay taxes to the Count of Namur. In the Triamore setting it is stated that were it not for the (unlawful) taxes imposed by the Count, Triamore would be a quite prosperous place. I have chosen to take this to mean that when freed from the taxes and the fake debt incurred from not having paid tax in the past there is a considerable surplus of money in the covenant finances.

As a consequence for suddenly having a lot of money available I figure that opportunities to spend that money will manifest very quickly.

One of these opportunities is the opportunity to fund a business. Which is what this thread is about.

The very first story we played was the "New Deal" story from the Hooks supplement. In that story the usual laboratory equipment supplier (Charles) of the covenant dies in debt. As part of the resolution of that story the characters offered sanctuary to the widow of Charles (Anne) with the understanding that given the opportunity they would help her reestablish her husband's business. Now that there is money to go around she wants to use some of it to start her business over again. That raises the question, how does starting a business work?

I have decided that Charles' business was originally a Lesser source of income/business and that he had the Poor flaw (he was struggling for money), and that because of some stories that have happened Anne will be able to start her business as a Minor business with half of the points necessary to upgrade to a Lesser business.

I have read through City and Guild for information on how to start a business but as far as I can tell there is only information about how to run an already existing business. Is there some information on starting a business that I have missed?

How does it a constant injection of cash affect the ability of a business to grow? Essentially how many labor points does one get from getting a regular donation of cash?

At what point is it reasonable to decided that the business breaks even and that the investors (the players) can start receiving payouts from their investment into the business?

How long does it take from a group makes a decision to set up a business until the business is up and running? Previous stories have already gotten a pledge from a magus of Oculus Septentrionalis to start a venture together and the players have also acquired the rights to a plot of land in Antwerp where they can build a warehouse.

As a follow up I should probably specify that I have made a table for the players to roll on. The table will determine exactly how skilled at running a business their prospective business partner will be. Depending on what the players roll Anne's Communication+Profession(Merchant) can range between 3 and 9.

I have run some simulations by projecting labor point gain and assuming that Anne would need to reach an income of average wealth and a lesser income source it will take between 26 years and 40+ years (my projections dont run beyond 40 years) before the players will see any return on their investment. This feels kind of wrong.

Are there any others on this forum who have experience trying to do something similar to what I am trying to do?

I would ask, do you need to go so deep into the crunch? Rather than trying to hammer out what the nitty gritty details of the return on investment after tax might be, I would just have an arbitrary number of "successful business ventures" and when the players hit that mark their life quality would increase by 1.

Starting a business takes a couple of seasons and a bit of capital to start up (tools, workshop, housing etc), though noble's parma, I don't have the book on hand.

But for short, I'd hand wave it.

I dont need to go so deep into the crunch. I did so because 1) I like to analyze numbers and 2) I wanted to have an idea about how long it would take before the covenant would start to see dividends off their investment into sponsoring and NPC starting up a business.

Once I have a good idea about how long it should take using the rules I am going to handwave things after that point. But I would like to have some idea. My current projections put the point at which the covenant could start to see dividends pretty far out into the future. So it is nice to know if that is a feature of the system or a bug.

Generally I keep a pretty detailed budget of the covenant, but I use it to give the rest of the group a general feeling for how they are doing economically so that we can all have an idea about how capable our characters are of splurging when we are on adventure. Apart from determining the availability of luxuries the state of covenant finances also puts a limit on what components are available for usage in crafting magic items and for spell components such as the wolf pelt needed to cast "Shape of the woodland prowler".

p. 65 on workshops covers this- labratory equipment (lapidary, glass bower, etc) as expensive goods, and thus a minor income as a base- which is 5 pounds investment. Growing this to a lesser income requires 1440 labor points above and beyond what is required to maintain the business- these can bepurchased with investment of money- from average to poor as a minor income requires 360 labor points at 5 lbs per 12 labor points (p. 40), so you can buy the business up to wealthy for 150 MP. Once you are wealthy the same 5 lbs will buy 36 labor points, and getting to poor at the next income level requires 1080 labor points, which is another 150 MP. If you want to purchase their way up to normal from poor this would be 10 pounds for 6 labor points, requiring 120 labor points for 200 MP to purchase the advance.

It depends on the business! Starting a business out of nothing but silver can be immensely challenging. But if you assume that Anne already has many of the contacts of her late husband -- so it's more of a REstarting the business -- I'd treat its requirements as those of upgrading to a different bracket of income, described on C&G p.38:

Moving to a higher income
band costs the Labor Points noted
above, but also costs a season of
time. This reflects the arrangements
required for a character to purchase
the vehicles, hire the employees,
and secure the premises suited to
a merchant of the higher status.
Moving to a Greater or Legendary
source of income also requires suc-
cess in explanatory stories, in which
the merchant is the main character.
Some troupes may require multiple
stories for advancement.

So, I'd say: a minimum of a season, plus possibly stories. That's up to you, and in particular how much storytelling you want to have around the issue.

For establishing a network of clients, suppliers, etc. see above (also, you might want to check out the stories for Factors "setting up a factory" and "young talent" on p. 128, though they may not be exactly what you ask). Once that's done, and it seems that the circumstances of Anne already provide for that, mechanically you just start earning labor points at the Poor level. Poor represents the fact that you need to devote extra effort (three seasons/year) to make sure the last few "startup" problems are taken care of; and it also represents the fact that you have fewer contacts/opportunities than an established businessman, so putting in an extra season will provide fewer extra labor points.

For a rough translation of cash into labor points, see Money and Investment on p.40. But keep in mind that it's not obvious at all that you can convert an arbitrarily large amount of money into labor points. So p.40 gives a rough idea of how many labor points a mythic pound buys you, not how many pounds you can spend and how many labor points you can buy. Finding ways to effectively deploy capital is not trivial, in general; and once you find them, it's often not that hard to find investors willing to put the capital in ...

I'd adapt two basic mechanics. from C&G. First, if you want to run a story about it, I'd treat it as the Finding Investors story on p.120, except it's more like "finding a business opportunity": gaining Anne one-and-a-half seasons of labor points, of which up to one season's worth are really the player's capital and its fruits (leave them into Anne's labor pool, but mark them down as technically belonging to the players).

If you want to run it without a story, I'd just borrow the mechanics of commodity speculation: you can "risk" 10 labor points in exchange for 1 labor point of yearly return. So, I'd just look at how many labor points Anne earns in a year, and say that if the characters are "backing" her, their investment adds 10% to those labor points. Normally, it would be immediately theirs to cash in. But if they want to help Anne, they can leave that in her labor pool, making her progress (10%) faster towards the next stage.

Generally, investors want (and have a right to ask!) their money back soon, with interest, within the year! Though of course they can then renogotiate another loan. The mechanics above should work in this sense: the players can immediately (within a year) cash in the labor points that their investment is netting Anne; but if they leave it into her labor pool, she'll become prosperous sooner, and then she'lll be able to pay them back more lavishly.

You have to decide what it means "up and running". I think it should mean "improving prospects of future earnings", in which case the answer is right away. Ok, maybe after a season, but that's irrelevant if you track labor points seasonally. In this sense keep in mind that labor points earned are not necessarily physical stuff. They might also just mean having worked a good deal with half of the folks on your supply chain. Which has "value", in the sense that it will generate profits later on, that it can be sold (with some effort, but that's true of material goods too), and that modern accounting indeed records it as value in the books (it's called "goodwill").

no, nobody investing in a business expects their money back within a year. That would be considered a short term loan, not an investment, in any era, and is expressly forbidden by the laws against usury unless you are Jewish.

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That is not correct.

If I invest in the cargo of a ship, I fully expect to recoup the money invested plus a profit by the time the cargo is sold (plus, possibly, the time for the ship to come back). Well, assuming the mercantile venture is a success, of course :slight_smile: In Mythic Europe, this is often a few months.

Or I can invest in an agricultural business -- providing the field and the seed, while the farmer provides the labor, and we split the profits at the end of the year (when I also get back the field, and the amount of seed originally provided). If I am not mistaken, in English it's called "sharecropping", and at least in some parts of the Mythic Europe it was quite popular in 1220.

Similarly, I can invest in an artisan's business, by providing (part of) the raw materials and/or tools and/or premises. I agree to share the profit with the artisan. At the end of the year, I gain the profit and I am entitled to regain whatever materials, tools or premises I provided. Of course, I'll likely renew my investment if I am happy.

None of these investments qualify as loans. Profiting from them does not count as usury; in fact, they are the standard way to earn money from capital in lands where usury is forbidden (this includes the Muslim lands).

First of all, if you invest in a ships cargo you are not investing in a business, you are doing the medieval/renaissance equivalent of day trading.
That is not sharecropping- sharecropping is where you own the land and lease it to a farmer for a fraction of the crops, and sometimes this would include you fronting them starter seed. It was often used as a long term investment to keep the farmer dependent on the senior partner.
3) If you invest in an artisans business you will get a share of the profits at the end of the year, but these will not be equal to your initial investment. However this arrangement is not limited to one year ether, it lasts until your partnership is bought out, the same as it works in the modern world.

My point is not that you cannot profit from an investment, my point is, and please read every word so you aren't arguing against something I didn't say, like the last argument- If you invest in a business you do not expect to get a full repayment within a year, doing so would be a short term loan, not an investment in the business, and would be forbidden under the usury laws of the church at the time.
Long term loans could be arranged as annuities in which an interest rate is not mentioned, and in fact getting around usury laws was the main reason annuities were developed, but again these were contracts which spanned multiple years, not full repayment plus interest within a year.

Also, as a footnote, the idea of investing in cargo for grand returns really wasn't a thing until the 16th century and trans-oceanic cargos, but once again Am is a bit anachronistic about such things because of what people think they know. It certainly might have happened at the time, but in general it would have been in the interest of their trading families and companies to keep information about ther cargo secret rather than invite financial speculation, especially given the degree of politics involved in international trade at the time.

I am not sure what you mean with this, but what I said still stands: you place your capital at risk, and within a year you gain back the principal plus the profit.

Again, at the end of the year you gain back what you invested, plus a profit. It's crucial to observe that in the middle ages sharecropping was often a long-term affair, but just because people were happy to renew the contacts from year to year. The contracts were mostly yearly ones, because a year is the "natural" cycle of agriculture. As a side note, a short-term duration actually increases the power of the stronger party i.e. the landholder, so landholders favored short-term durations with sharecroppers (as far as I know, that was still true at the beginning of the 20th century).

This depended widely. But in very few cases did people simply lend money over several years. In most cases, the investor would buy and own the material property, and rent it/lend it to the artisan on relatively short term, renewable contracts. In this case, at the end of the year, the investor would have "back" his own investment, plus the profits. I do agree that, unlike the previous two cases, in this one sometimes the leases were longer term.

This is incorrect. Many Venetian families made their fortune by sea trade well before Columbus' famous navigation error, mostly within the Mediterranean. And no, while there were exceptions, the families did not generally keep information about their cargoes overly secret (which would have been too difficult anyways):in fact, they tended to share carats of their cargoes (1 carat = 1/24th) with each other as a way of sharing risk and strengthening alliances.

I'm seeing this go full in this medieval-realism terms highly clenched by strict rules from here and there so I just thought it may be worthy going in the opposite direction. This is Ars Magica in Mythic Europe, not Ars Economica in Mythic Business School, after all. What would meant setting and investing in a new business for the I'd-already-spent-too-much-time-with-rules-to-make-even-more-for-this SG?

The window wants to set up a business: ok, what set-up rules do we have? Labs? Labs are full of things, business are too, specially business about lab equipment. So I'd say she can spend one season setting her business again and operate it with a -3 penalty, or spend another season and here it is, a business.

What about investing? Well, it's a source of income. Sure, things can go up and down and the income, realistically, would vary, and then there are the City & Guild rules, and the inflation, and actually all the same things that go under the hood of any source of income in Covenants. They simplified these to the max because the accounting system for covenants is just enough as it is. So we could say it's just another source of income.

And that would be all!

@ezzalino, once again you are writing responses to things I didn't claim. my point regarding ship investing is that 1) investing in a cargo specifically is not investing in a business, not what the turn around rate was, and not that shipping wouldn't be profitable in the 13th century but that that form of investing was not really a common vehicle. You aren't refuting my points, only displaying your own ignorance, and apparently the inability to read th meaning in my points.
and no, you did not get back the initial investment plus a profit within a year by sharecropping, the ROI was positive, yes, but the period of investment to recoup your initial investment was closer to 20 years.
similarly with artisans, if someone is leasing property to the artisan it will require multiple years to gain the asset, not a single year, and in fact in a medieval economy the asset is likely not even available for purchase with a long term rental agreement that is not able to be broken for decades being more the standard- one of the many things about the medieval economy which was quite dysfunctional from a modern perpective.
However, Ouoboros has a very good point- trying to simulate even modern investments would be incredibly complicated, and medieval ones even more so with effectively alien rules to our modern way of thinking. ars Magic economics is itself dysfunctional, but my central point is that no, people did not ever invest in a business (excluding other forms of investing) and expect to get their initial investment back in a year.