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Stop Press: 31 March 2011
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Stop Press 31 March 2011
Current Market Conditions and the Budget There are always more reasons not to invest than to invest. Over the last 12 months, new investors have continued to join our database at the rate of one per working day, keen to look at opportunities invest in early stage and expanding businesses and preferring a direct investment approach. We believe that this growing trend of direct investment and away from investing through VCT and SIPP funds is due to relatively poor returns by these types of vehicle over the last 5 years and the uncomfortably high management charges they levy. In the last month we have seen a 50% increase in new funding rounds concluded compared with January and February with an acceleration in the immediate aftermath of last week’s Budget . However investors are more cautious than before and only the very best businesses now attract investment. Pendulums swing. In the past we had early stage companies reluctant to accept a realistic valuation for incoming investment into their business. Generally this has improved considerably over the last year with a necessary realism by entrepreneurs. We are now rather concerned that investors who pay too much attention to Dragon’s Den may themselves undervalue investment opportunities. A sensible valuation is one that allows a good return for the investor whilst ensuring that the founders and management retain the incentive to grow and nurture the business. Luke Johnson, who became our major shareholder last year, is a hugely successful entrepreneur running Risk Capital Partners and perhaps best known as co- founder of Pizza Express. He recently wrote in his column in the Financial Times that “equity has infinite upside- if you are to devote your life for years to a venture you want appropriate rewards if it succeeds”. He writes more in his column about how partners should not always be equal and equity being about value and control and comments “that management who are so greedy that they judge investors exclusively on how much equity they receive often regret their choice”. Click here http://www.ft.com/uk/management to see full article on FT.com The Budget In a fiscally neutral budget, in which the Chancellor had little room for manoeuvre, we were pleasantly surprised by the positive approach to business generally and to the SME sector and angel investors in particular. We hope that this Budget with measures to encourage investment into small businesses will prove to be the pivotal point in the economic recovery. The key changes were as follows: EIS
These measures will encourage investment into growing businesses and reduce downside risk to investors to 35% of the amount invested for top rate taxpayer with full CGT protection on upside and allow larger companies to attract investment and removing the restraint on individual investors wishing to invest larger amounts in any one tax year. Entrepreneurs relief
R&D Subject to EU approval (expected 2012) increases are planned for deductions for R&D to rise to 225% of expenditure which can of course be set off against PAYE as well as Corporation tax or in some cases result in a cheque from HMRC! These moves will clearly encourage those who can build growing businesses, and those who have the ability to invest in them. This is all good news for business and will we believe move the economy to supporting and nurturing small businesses. |
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