Dragons’ Den is a worldwide TV phenomenon where entrepreneurs and inventors queue up to pitch their ideas to millionaires ready and willing to invest their own cash in worthwhile projects.
The nervous business people step into the spotlights and have to outline their proposal and business plan in an effort to win funding.
Some get their cash, but many are disappointed and some even ridiculed for their naïve ideas and optimism.
Unfortunately, the concept is out-of-date for modern start-ups as crowdfunding and, in the UK, huge tax breaks like the seed enterprise investment scheme (SEIS) have overtaken traditional business angels.
The business funding market is changing fast because banks are unwilling to invest in any project that has a whiff of risk as they gather up cash to protect their fragile balance sheets.
Investment options
So what are the current options for businesses?
- Crowdfunding – a simple idea where a group of investors pool their cash to finance a business or a specific project. Crowdfunding generally takes place online. Out of an estimated 700 crowdfunding web sites, many are UK-based or have a British off shoot
- SEIS – Launched in April 2012, SEIS offers a range of tax incentives for investors willing to put up to £100,000 in start-up businesses. To benefit, the companies and investors must be UK resident. The tax breaks reduce risk by offering a £50,000 reduction on income tax paid and capital gains tax relief on assets sold to raise money for a SEIS investment in the same tax year
- Enterprise Investment Scheme (EIS) – Another British tax incentive for corporate investors run on the same lines but on a larger scale than SEIS. Aimed mainly at raising £1 million plus investments for growth rather than start ups
- Venture Capital Trusts (VCT) – A long-running British tax incentive for business angels targeted at larger start-ups and funding raising for business expansion
Projects for each kind of funding tend to vary.
Ubuntu Blade
Crowdfunding has dipped into raising £1 million plus funding – the largest call being the recent Ubuntu Blade phone, which sought £20 million, but despite tipping a record £12 million, failed to hit the target.
Most crowdfunding projects are small scale creative ideas involving videos, books, movies and music.
SEIS takes the funding up a notch. Many of the companies are either media or technology based, especially medical programs.
EIS and VCT investors also like technology projects, but are keen on manufacturing.
For investors, due diligence is the key to match with return – and never forget to hitch a lifeboat as an exit strategy.
