Entrepreneurs could be set to reap the benefits of the decisive general election with the release of billions of pounds worth of business investment.
Some industry commentators predict an investment bonanza for start-ups and scale-ups now there’s greater political certainty – especially concerning the UK’s departure from the EU. But just how much money is likely to be available? And what are investors looking for – in other words, how do entrepreneurs make sure they get their share?
Tej Parikh, Chief Economist for the Institute of Directors, says the investment mood is positive: “Investors that were tightly holding on to their cash at the height of political uncertainty, may now, following the election, have a bit more confidence to take the plunge. With interest rates near historic lows, investors will certainly be looking for yield and the UK’s world-renowned and innovative start-up sector will be a draw.”
Jeff Lynn, Executive Chairman and co-founder of crowdfunding platform Seedrs, also believes investment institutions and individuals are more confident. He says: “The exact amount of funding that will be released is unclear, but in 2019 we saw just more than £10bn venture capital invested into UK tech start-ups and scale-ups. I think we could anticipate a meaningful level of growth over that in 2020, so it wouldn’t surprise me to see 20-30% growth, an extra £2-3bn.”
Alexandra Daly, investment expert and entrepreneur, and Chair of the Council for Investing in Female Entrepreneurs, says there’s “a huge amount of capital waiting to be unleashed”. She continues: “A staggering amount of growth can be achieved if start-ups and small businesses can access this capital effectively.”
On the topic of getting hold of that capital, Greg Rice, seasoned investor and founder of digital start-up accelerator Activate, says investors will continue to look for the same things in a business: “A great idea, good team and something truly different and impactful. Those that get these elements right will be of greatest interest to potential investors.”
Alexandra adds: “As ever, investors are looking for a good yield and return on their money.” However, she also highlights a more recent development in that investors are now frequently asking about impact investing and socially responsible funding opportunities. “In recognition of shifting public opinion on environmental issues and increasing pressure to act responsibly from across stakeholder groups, investors in the UK and across the globe are starting to put capital to work to proactively address these social and environmental issues.”
Greg says this should be an “opportune time” for start-ups to get their share of any extra investment capital. “Traditional UK investments such as property and shares will have challenged returns for the foreseeable future, making start-ups appear more attractive than ever, especially with tax incentives like the Seed Enterprise Investment Scheme available to investors.”
Alexandra adds: “There are brilliant and high-value opportunities for start-ups and growing businesses coming from the angel investment and venture capital (VC) sectors. Angel investment in particular can be a fantastic opportunity for launching companies.”
But she warns that these opportunities are not as accessible to some entrepreneurs as others. Research from the British Business Bank, in collaboration with Diversity VC and the British Private Equity and Venture Capital Association, shows that less than 1% of UK venture funding goes to all-female teams.
Jeff has the following advice for entrepreneurs: “Find out who’s investing in your space and think beyond pure VC because there are lots of different options. The number and different types of players – UK-based and foreign – that are investing has changed dramatically in the past 10 years. Now, there’s everything from family offices and wealth management groups to a wide range of angels, online platforms like Seedrs and larger institutions like investment banks.”
Speak to your St. James’s Place Partner to find out how the Entrepreneur Club can help make sure your business is attractive to investors.
Please note that this is unlikely to be the first option for raising finance, as there will be conditions attached to any agreement reached, which by their nature will be more onerous than those imposed by a mainstream lender. Please be aware that these schemes are only suitable for sophisticated investors willing to take a high risk with their capital as there is a risk an investor may lose some or all of their capital if the company invested in fails.
The opinions expressed by third parties are their own and not necessarily shared by St. James’s Place Wealth Management.