Luke Morris, corporate finance partner at Scrutton Bland, discusses how the trend towards start-up investment is evolving.
One of the most common queries our Corporate Finance team receives is around raising finance to support early-stage or pre-revenue businesses. In providing a platform for this, we have been really happy to work in strategic partnership with Anglia Capital Group, and announced a formal tie up with them at our most recent event a few weeks ago.
Much has been written in these pages about “Angel Investing”, this idea of subscribing modest sums of cash for small equity stakes in exciting, high-growth, high-potential businesses. Often pre-revenue. Many of our investors comment that they are investing in the entrepreneur, as much as the business idea.
So what we are looking to help build is a self-sustaining “Business Angel” group that will become the go-to organisation in Suffolk and North Essex. We want to encourage impactful investments in to the region’s best start-up businesses that will ultimately bring investment, jobs and wealth to the region. That’s where Scrutton Bland’s interest really lies.
Not just Dragons…
I recall a report by the IoD policy unit from a few years ago, about democratising the equity economy. Entrepreneurship and investing are on more peoples’ radars than ever before so it is important that the benefits of this disruption, innovation and creativity are spread as far across Britain as possible, and that they are as open to as many people as possible. The report concluded that the UK’s biggest weakness, on various measures of entrepreneurship, is on our attitude to risk capital and how two vital but under utilised government initiatives, the Enterprise Investment Scheme (EIS) and its younger sibling, the Seed Enterprise Investment Scheme (SEIS), are still to unlock a wave of new investors. In a nutshell, the EIS is designed to help smaller, higher-risk companies raise finance by offering tax relief on new shares in those companies that qualify. For the investor, it’s a tax efficient way to invest in small companies. The EIS is aimed at the wealthier, sophisticated investors and people can invest up to £1,000,000 in any tax year and receive 30% tax relief. However, they are locked into the scheme for a minimum of three years.
The SEIS is an incredibly generous derivative of the EIS and was introduced in April 2012. Its aim is to encourage seed investment in early stage companies. Investors, including directors, can receive initial tax relief of 50% on investments up to £100,000 and Capital Gains Tax (CGT) exemption for any gains on the SEIS shares. The maximum amount to be raised for each company is £150,000.
We have seen utilisation of those schemes open up a little since the report was published, and initiatives such as our partnership with the Anglia Capital Group are essential to bring new, perhaps smaller, investors in to the world of small company minority equity ownership. Being a dragon is not as scary as it sounds or aggressive as it is portrayed. That’s why Angel is a far more suitable word.
We believe that investing in a company should not be the preserve of those who have the time, resources and connections to do so and there is no reason why the existing strong base of UK investors cannot be complemented by a network of smaller groups, putting a portion of their investment into a company which qualifies for EIS/SEIS. We are now starting to see our first ISA millionaires – and whilst of course it is not without risk, just imagine how much more diverse our economy could be if there was a similar culture of EIS/SEIS investment. That is what we, with Anglia Capital Group, are looking to do in a small way. To build up equity finance in the UK and help cement its position as one of the best places in the world to start, set-up, run and invest in a business.
Scrutton Bland regularly work with businesses across the region to support management teams in the financial aspects of running their business operations. If you would like professional advice in any area of tax, accounting, audit, insurance or corporate financial matters, or you would like to find out more about Business Angel investing please contact Luke Morris.