Authors: Nevil Shute
The important point about a prospectus is that it has to be an honest document. The directors of a private or public limited company have little to fear if the enterprise fails, provided they have been honest and truthful and have done their best; their personal liability in such a case, I think, is limited to about ten pounds. If there has been dishonesty or deceit, then the managing director, or the whole Board if it can be shown that they have been involved, may well go to prison for a considerable number of years. I shall have occasion to return to this point later on.
With Cobham and Hewitt energetically behind us, the venture was now beginning to achieve some momentum. It is necessary for those who wish to start a new company to have
some
money of their own, if only to pay the preliminary expenses; I had about a thousand pounds and Tiltman had rather less. Greatly daring, we now took an office at a rent of fifteen shillings a week in a building near the market in York, and here Tiltman set up a drawing
board and a desk and commenced the design of the small monoplane. A name had to be given to the new company, of course; we considered a dozen alternatives and finally decided upon Airspeed Ltd as being short, euphonious, and indicative of what we wanted to do.
One of the first men that I approached to take an investment interest in Airspeed Ltd was Lord Grimthorpe. could not have approached a better man. At that time Lord Grimthorpe was a relatively young man and a large landowner in the East Riding of Yorkshire; he was Master of the local hounds and hunted twice a week in season; he was a keen performer on the Cresta Run, a pilot and the owner of a private aeroplane, and chairman of a large firm of motor car agents in London. It is fashionable today to disparage the part that the titled aristocracy can play in industry; I can only say that my experience is otherwise. Lord Grimthorpe became the first chairman of Airspeed Ltd and supported the company throughout its early financial difficulties to an extent which would have been a heavy burden to the wealthiest of men. Without his support initially I do not think the company could have started; without his continuous financial support in the years that followed it would certainly have come to grief.
Years later I was told by one of his close friends why he did this. At a time about a year after the company began operations when he was becoming very deeply involved, his friend asked him why he did not cut his loss and get out of so unprofitable a speculation. His reply was that the business interested him and he thought it would do well in the end. As regards the money side of it, he said that he realised the likelihood that he might lose the whole of his investment. The money was, however, being wholly spent in wages in his district of Yorkshire, where there was then a great deal of unemployment. In times of depression he felt it to be his duty to hazard his money in
an effort to create employment in his part of the country; if finally the money was lost he would take satisfaction from the fact that through his agency nearly a hundred working men had had employment through the years of the depression.
From what I have heard of the preliminary struggles of small businesses during the early years of the present century I do not think that Lord Grimthorpe was exceptional in the altruistic view he took of his investment in our company. I think his conduct could be paralleled in many other little companies with many other wealthy chairmen. I have no doubt that the inheritance of great fortunes has led in the past to much money being spent frivolously and foolishly and in a way which irritates less fortunate men, but it has also led to much money being spent generously and wisely for the benefit of the same men. If Lord Grimthorpe was one of a long line of wealthy men who helped pre-war British industry to come into being he was also one of the last, because death duties and high taxation have now so reduced the resources of these people that they can no longer function as they used to.
When a small company is initiated and commences operations on risk capital, capital which may well all be lost if the venture proves unsuccessful, very special qualities are demanded of the chairman. He must be one with the investors, which means that he himself must hold a considerable block of shares in the company. This money he must personally be prepared to lose if things go badly, which means that he must himself be of a speculative turn of mind. He must be bold and adventurous and capable of quick decisions in matters of policy, because at that stage a policy of caution may be fatal. I can imagine no worse chairman for a company in its difficult early days than a banker.
The qualities that I have outlined are precisely those
which are developed by leisured people in the hunting field and on the Cresta Run, who in between these activities breed racehorses and bet on them. Other sports, such as amateur yacht racing, produce the same qualities no doubt, but all of them demand a fairly leisured life. I do not know of any working career that produces these qualities; they are not found developed to the same extent in politicians or in civil servants or in those who work on salary for any boss. I think that by excessive taxation in the higher brackets the British people have destroyed a class of chairmen for small companies without whom much industry in Britain could hardly have come in to being, and without whom fresh industry in England is unlikely to be initiated again. A man’s views, I say again, are coloured by his own experience. I shall have something to say about the source of risk capital a little later on, but here and now I say that if the risk capital were available it would be difficult in modern conditions in England to find chairmen with the qualities needed to administer it to the best advantage.
The Board of Directors of Airspeed Ltd was now taking shape; in the draft prospectus of this time the tentative board consisted of Lord Grimthorpe, Sir Alan Cobham, Hewitt, Tiltman, and myself. In Yorkshire circles that was a strong team, and in ordinary times there would have been little difficulty in finding money to back it. Times were not ordinary, however. The depression in America had been going for well over a year and its repercussions in England were serious; unemployment was mounting daily, trade was falling, and everywhere investors were reducing their commitments, pulling in their horns.
I now learned that there is only one way in which to find risk capital, and that is to go round asking people to invest. There is no royal road to risk capital, no tap that can be turned on by any bank, no agent who will serve a
useful purpose. The man who believes in the company and wants to see it started must take the draft prospectus in his hand and go around to people that he thinks have money, generally total strangers and tough guys in business matters, and try to talk them into putting money into the new company. In 1931 one had to talk quite hard.
I had a friend in York whose unhappy business was to try to sell Rolls Royce motor cars in that time of depression; I think he had a worse job than I had, but not much. The rebuffs that we both got were of much the same quality. My own routine was to go as inexpensively as possible to some city in the north of England, say Newcastle or Leeds, and go into conference with a local stockbroker, who would give me names and details of wealthy people in the district who would be likely to invest in such a company as ours. The depression was hardly realised in England at that time even by the stockbrokers; it was something new that had developed after eighty years of industrial prosperity and free investment. It was regarded as something very temporary that would quickly pass; if things were difficult today, in three months’ time investment would be flowing easily again.
Sometimes the stockbroker would make an appointment for me to see the client; at other times he would say cautiously that perhaps I had better approach him myself. This meant an uphill telephone conversation with a worried, short tempered man to try to induce him to see me in order that I might sell him something that he didn’t want to buy. There was nobody to teach me this part of the job, and I soon learned by experience to write off prospects of this sort. It was very soon apparent that if Airspeed Ltd got started at all it would start with tenuous capital, which meant that the risk of the investment would be much increased. Unless the investors could afford to lose their money if the venture failed, unless they were in
the mood to risk their money on the chance of big profits if the venture should succeed, it would be better not to get them into it even though this should mean that Airspeed Ltd would never start. Even in those days I sensed the intolerable situation that would be created for the management if shareholders were induced to subscribe on any pretence that the venture was a safe one. What we wanted was a crowd of cheerful gamblers as our shareholders.
I found a considerable number of people of this type in Yorkshire and the north of England. These men would give me an attentive and a sympathetic hearing; they would show evident interest, take a copy of my draft prospectus to read in detail, and ask for a copy of the final prospectus and invitation to subscribe when the time came. I do not think that one of them ever took up shares. They would have been subscribers, no doubt, in times of normal prosperity; no doubt they were in secret difficulties themselves due to the depression, which was novel to them and which they hardly comprehended. They probably anticipated, as we all did, that in a month or two things would improve; in that case they would have been glad to take up shares in the new venture. However, the improvement didn’t come.
This trying, unremunerative work went on for two or three months during the winter of 1930/31, a period of travelling to bleak, grey cities, of waiting for telephone calls in very cheap hotels, of frustrations and disappointments. I was lucky in having the hobby of writing to turn to in the evenings, to take my mind off the troubles of the day. I was living, as I have said, in the St. Leonards Club in York, and in that club there were one or two restless men whose minds were turned back to the glamour of the war, such as are found in many men’s clubs all the world over. The novel that I began to write was
Lonely Road
.
At the conclusion of this difficult time we arrived at the position when we had a number of potential subscribers for shares in the new company, and we had covered the area within a hundred miles of York as well as we were able. We had firm promises from members of the Board totalling about four thousand pounds. This situation could not be described as rosy, but having got so far there seemed nothing to be done but to issue the final prospectus and invitations to subscribe, and see what happened.
An unpleasant and illuminating little incident marred the final drafting of the document. We had discussed the company with the manager of one of the banks known as the Big Five, and had received his consent to the use of his bank’s name as the company’s bankers. We now received a letter from the bank asking for a fee of a hundred guineas for the use of their name on the prospectus. Hewitt was furious, for a hundred guineas looked like being quite an appreciable percentage of the capital that we were likely to raise. The manager said he had no option—’it was always done’. Hewitt approached another bank of the Big Five, who waived all claim to a prospectus fee, and we transferred the account. We hadn’t enough money to permit the rats to get at it like that. That was over twenty years ago, but still whenever I read an urbane statement by a banker about the assistance that banks give to industry it raises a wry smile.
Accordingly we issued the final and formal prospectus for subscription. I forget how many days our potential shareholders were given in which to subscribe their money; as they didn’t do it the point is only of an academic importance. Probably it was a fortnight, in which we were all working like beavers; I myself was engaged in an abortive negotiation with the city of Hull to set up our industry upon their aerodrome if a reasonable subscription of capital were to be forthcoming from their district. As
the days went on it became apparent that our issue was to be a failure, and the only bright spot in a grey scene was the arrival of Tom Laing.
Tom Laing was a man of about forty-five, a burly, cheerful individual who limped heavily upon a stick, the result of an aircraft crash. He was the son of a Sunderland shipbuilder. In his youth he had been to Oxford, had served a three years’ apprenticeship with Metropolitan Vickers in an engineering shop, and had inherited ten thousand pounds. He told me once that such an inheritance was the worst thing in the world for any young man, for the income was sufficient in those days to relieve a bachelor from the necessity of working though insufficient for a married man. In the first world war he served in the Army Service Corps and in the Royal Flying Corps, where he rose to the rank of captain, flying Bristol Fighters. After that war he went to Canada with his brother, fruit farmed for a time, and finally started up a passenger service of Chris Craft speedboats running from end to end of Lake Okanagan. That finished his money.
When a wealthy man comes to the end of his patrimony he shows the world what he is made of. Tom Laing ‘jumped the border’ into the United States riding the buffers of a freight train, and set out to look for work. He was a powerful and self-reliant man, and he became the chargehand of a platelaying gang on the Santa Fé railroad. He held the job of strawboss for two years, became a signalman for a short time, refused promotion into the railroad office, and left to go back to aviation barnstorming as the pilot of a joyride Curtiss J.N.4. When winter brought that to an end he got a job as a chargehand in the Ford Aircraft factory at Detroit, installing the wing engines into Ford Trimotors. He left that next year to go back to flying, this time as an instructor. He was crashed by a woman pupil in a Fleet trainer and suffered a crushed foot,
so that he walked heavily upon a stick for the remainder of his life. When he came out of hospital he went home to his mother in Scotland, and when he heard about Airspeed Ltd he came to see us. His proposal was that his mother would invest a thousand pounds in the company and he would work for us as works manager on a salary of three hundred a year, about the wage of a skilled woodworker or fitter in those days.