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Financing High Growth Companies

I have just seen the figures released by HMRC for EIS and VCT investment last year and thought they were worthy of mention.

 

A fast changing landscape

  • EIS

3,130 companies obtained a total of £1.663 Billion of which £880 Million was for first rounds, making last year a record year.

In addition, 2,185 companies received SEIS funding of £168 Million. Of these 1,715 were first rounds totalling £146 Million.

Since the EIS scheme started in 1993/94, no fewer than 24,500 companies have received investment totalling £14 Billion.

  • VCTs

VCTs raised a total of £435 Million during the year and there are currently 94 active VCTs. Although this is not a record inflow of funds, it is not far off the record and is a commendable figure given the change in the VCT rules.

  • Enterprise Capital Funds (ECFs)

About 20 ECFs have been launched since the start of this important initiative by the British Business Bank about ten years ago. BBB is now able to invest up to £50 Million in new funds which are in turn able to make investments up to £5 Million.

  • Early Stage Venture Capital Funds

There are numerous early stage Venture Capital Funds and Corporate Venturing Funds active in the market. While accurate figures are hard to come by, it looks as if the equity side of things may now be dominated by EIS.

  • Family Offices

At the risk of making a sweeping generalisation, VCTs have come to be regarded as an option for retail investors either looking for IHT shelter or a relatively secure tax-free dividend income. For this reason they have tended to favour small leveraged management buy-outs. However, as they are no longer allowed to buy “second-hand” shares they have had to start looking for new opportunities in the market where investing in high growth companies which may offer the prospect of higher returns but with greater risk and a longer time horizon.

However, the market for small-scale management buy-outs has not gone away and this offers increased opportunity for family offices and other unrestricted funds who are now becoming more visible in this market.

  • Crowdfunding

Finally, the story would not be complete without mentioning the extraordinary rise in crowdfunding over the last year as disclosed in the attached report which indicates that over £3 Billion of debt was raised through crowdfunding platforms in the UK last year. The figures for equity are much smaller but still very significant and showing a similar exponential rate of growth. It is estimated that there is about £50 Billion tied up in cash ISAs and, if a significant proportion of these funds are transferred to crowdfunding platforms, we may expect this exponential rate of growth to continue in the coming year.

For anyone involved in building a high growth company, there are now real financing choices beyond the high street banks.

http://www.nesta.org.uk/sites/default/files/pushing_boundaries_0.pdf

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