Could business angels answer your funding prayers?

By Desmond High, EMC Kent Director

In the 2011 Budget, the Chancellor quietly increased the incentives for individuals – so-called ‘business angels’ – to make investments in small private companies.

The Enterprise Investment Scheme has been around in different forms, and under different labels, since the early 1980s. In short, with the usual caveats, this provides assorted tax reliefs for minority shareholdings in private companies – a cocktail of tax-free capital gains and income tax deductions in the year of investment.

It’s an attractive mix, albeit that these investments are inherently risky. But following the Budget changes, if the investment fails a 50% taxpayer would be able to claim tax reliefs amounting to a 65% safety net, so the downside is significantly protected.

In the UK banks are usually seen as the prime source of risk capital to early-stage businesses. But banks have never really done risk, particularly in the SME world, and will always want security.

However, we haven’t really developed an alternative ‘business angel’ culture. Business people who have made money tend to pile it into property rather than recycling into other ventures. And those who have been involved in business angel investing know that it isn’t without its challenges. Investor personality is a key factor, and many business owners are reluctant to dilute ownership even if it gives them a better long-term result. 

That said there are many high net worth individuals living in the South East – a lot of ‘old money’ and some new. Most are discreet, for understandable reasons. But wouldn’t it be good to see an increasing proportion of that wealth being used to help fuel growth in small businesses – a practical manifestation of the Big Society perhaps?

EMC is a member of the Kent Corporate Finance Alliance, a who’s who of our major law, accounting and corporate finance firms. The client base of those firms and in the region covers a great many of those high net worth individuals.

So if you are an ambitious business, and in need of cash to fund genuine growth, talk to the professionals, tell them that you want business angel capital, and challenge them to use their network of clients and contacts to help you find it!

July 2011