The Enterprise Investment Scheme and Seed Enterprise Investment Scheme have been great successes in encouraging more and more people to start investing in small private businesses, with over 100,000 people using the schemes last year alone.
The draw is obvious, and for anyone with a bit of an appetite for risk and reward, it’s a great way to invest in growing British businesses. It allows you to back entrepreneurs in the knowledge that, on the upside, you potentially have Income Tax relief and Capital Gains Tax-free return, as well as some protection on the downside if the company isn’t successful.
But this shouldn’t be the only draw for investors looking to invest in growth companies. It’s vital that those businesses looking to fundraise are investable on their own merits, without relying on the lure of a tax relief boost. EIS shouldn’t be the only ‘hook’.
There are an increasing number of investment options available to private investors through crowdfunding platforms, angel networks and other alternative finance routes, which profile businesses ranging from start-ups looking for seed capital to larger businesses looking to further their growth trajectory through increased sales and marketing.
Every company looking to fundraise therefore needs to clearly and concisely demonstrate what it is that makes them different or unique, giving an investor the incentive to take the time to dig a bit deeper. Engaging investors is key to fundraise success.
The majority of people looking to invest don’t have the time to review every business and want to quickly spot the opportunities that stand out from the many offerings they are presented with.
A differentiator is easily identifiable for the companies we work with at VentureFounders, in that the majority are backed by institutional investors.
The opportunity to invest alongside these institutions is generally something unattainable for a private investor, unless of course you have significant funds to deploy in every deal. This can be a real draw for investors as one the one hand they can know that there must have been something about the company for the institution to invest, and also that with such a backer the company should be sufficiently capitalised with new investment to work towards its goals.
Read more about fundraising:
- Six essential steps for getting your brand investment-ready
- The 10 biggest VC investments in British history
- Funding Circle’s CEO on raising $75m and $150m from VCs in just nine months
Beyond this, we work with companies to understand further what it is about their company that will engage the investor.
Where else is the hook? For Labminds, it was as simple as the strong payback metrics for the company. With Rockabox, we saw that the management had built and sold a successful business in the past and hence had the track record. Our latest fundraising company, Brightpearl, has the opportunity to exploit the huge retail market in the UK and US and become the dominant player within their sector.
It is not always straightforward, but every company should step into an investor’s shoes to evaluate what will excite them and how they can make themselves stand out in today’s market.
Jamie Beare is investment director at VentureFounders.
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