Isn’t it fantastic that the business angel/private investment market for SMEs is so buoyant at present. This is something for us all to be proud of and demonstrates the entrepreneurial spirit of UK plc, with private enterprise leading the way with innovation in our investment markets, backed by generous tax incentives offered by the government.
Crowd Funding and Peer to Peer are the buzz words we see all the time. Added to this we have new social funds gaining traction, a new world social bank seeking to place capital for worthy social enterprises.
Further up the ladder Private Equity houses are also very active, well funded again and hungry for deals. More good news for our funding market.
Of course, we need new capital to flow readily into our businesses. The time when businesses most need new capital is the growth phase following the downturn, particularly one as severe as we have experienced. Balance sheets are typically weak and access to bank funding – for SMEs – very challenging. As order books grow, in many cases rapidly, businesses need working capital. And often quickly. Where do they turn when the bank says “no”, and the business needs hundreds of thousands or low millions of working capital?
There is a divergence of markets for accessing new capital, away from the banking sector. Look at this from the business owner or entrepreneur’s standpoint. Crowdfunding is great. It provides a ready platform for investment, attracts lots of media attention and is perfect for start-up business, who have EIS or SEIS, and need £150,000. You have volume investors who can take a punt on multiple investments, in the comfort that the tax breaks are so good that in the medium term they “can’t lose” and these companies are delighted to gain the publicity of raising capital and put their name in lights.
But what about the vast majority of SME’s. Existing trading businesses, mostly not sexy, not a new App. How do they obtain funding. They don’t seek publicity, in fact they require complete discretion when raising capital. They require a boutique, specialist network of investors who can deliver probably a single high net worth investor to fund their business.
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