I was interested to read an article in yesterday’s Herald indicating a significant drop in the number of EIS authorisation forms in the Scottish market over the past year. I do not yet have the figures for the UK as a whole but the drop in the number of certificates certainly does not tell the whole story.
According to LINC Scotland, investment by their members, typically through syndicates in partnership with the Scottish Co-investment Fund, remains at or around the levels seen in previous years and Young Company Financeis not reporting any significant drop in the number of transactions. The Page One produced by Ascendant also indicates that investment is holding up.
The Enterprise Capital Fund programme has been (and continues to be) very successful andCapital for Enterprise has recently launched the Angel CoFund for England and Wales, based closely on the model of the Scottish Co-investment Fund. This ought to lead to more co-ordinated investment activity by business angel syndicates in England and Wales.
I understand that the quantative easing programme has created about £350 Billion of new money and we currently have about £750 Billion lying on corporate deposit accounts in the UK. One of the biggest challenges for investors is that it now typically takes about eight years to get from first round of finance to exit and technology companies typically require four or five rounds of financing, with each round getting bigger. The issue therefore is not just a number of EIS Certificates but the amount of money which is being invested in the market.
There are numerous maturing technology companies which could be acquired by big corporates today at attractive prices. More M&A activity would free up more cash for investment and, if cash started to circulate more freely, the economy would soon start growing again.
Earlier this year I had the privilege ofattending a business breakfast at 10 Downing Street for a number of participants in the early stage finance market. The Prime Minister spoke in some detail about the importance of new and growing businesses to the overall economy and the importance of having the right financing mechanisms. The Government would like to see the amount of Business Angel activity trebled over the next three years which would then bring us up to about half the American level. As a starting point, the Be An Angel portal has been created at the request of Lord Young, the Prime Minister’s Enterprise Guru.
We enjoy more attractive tax reliefs for this type of investment than anywhere else in the world. The Government has done all that it can by creating a benign environment for this type of investment. It is up to those of us involved in the market to ensure that investors are aware of the opportunity represented by this asset class and that we are doing everything that we can to bring together those with capital to invest and those who require it to build their businesses.
There is a very simple formula:-
Capital + Innovation = Wealth Creation
0131 226 8202