Now’s the Time to Back Britain
Despite the looming spectre of Brexit, VC investment in innovative tech-enabled companies has continued to flow into the UK.
Rajeev Saxena, Managing Director of Velocity Capital Advisors, explains why the country needs high-growth tech businesses now more than ever, and why Britain needs investors to back them through the Enterprise Investment Scheme.
With the seemingly interminable Brexit negotiations, you could forgive investors for being more than a little tentative at the moment. However, it has never been more important to back new British companies through investment.
Doing so will give Britain the best chance to thrive going forward, whatever the fallout from Brexit. It will help to bolster the economy when it needs it most and create valuable jobs. Meanwhile, focusing on high-growth tech startups well positioned to thrive in a post-Brexit environment will help drive home-grown innovation across British industry, attract foreign investment and boost exports.
Of course, investors want to minimise risk, but they also want to get the best possible return on their investments. That’s why the Government launched the Enterprise Investment Scheme (EIS). By offering generous tax incentives, EIS reduces investor risk.
Meanwhile, honing the scheme to focus purely on high-growth tech companies, which the Government did last year, maximises investors’ potential returns. It also shows the confidence the Government has in these types of businesses and leaves no doubt as to where they think the future of Britain’s economy lies.
Investing in these companies through EIS enables investors to claim 30% tax relief on investments up to £2m. Plus, they can gain even more by investing through the small number of portfolio funds that also offer carryback, enabling investments to be offset against tax in the previous year.
To reduce risk further, investors should choose high-growth tech startup portfolios with strong performance records. They should select highly innovative businesses with a strong market knowledge that are producing something highly appealing to an international audience so that demand for their products and services will be there, whatever the deal with Europe is.
Any investors sceptical of EIS should take note that it was recently independently assessed as the best tax incentive investment scheme out of the 46 that currently exist across Europe. In fact, countries across the globe are interested to replicate EIS in their own economies.
Investors should also note that SMEs in the UK are bullish about the future, not cowering in the shadow of Brexit. Almost three-quarters (74%) predict revenue growth of more than 20% over the next year. This presents another reason to invest.
Overall in 2018, VC investment in Europe reached £18.9bn, surpassing 2017’s record numbers. Some 31.5% (£6bn) of this was invested in UK startups. This was more than 1.5 times the level invested in fast-growth businesses in Germany, and 2.6 times the levels of investment seen by the startup ecosystem in France. In light of these numbers, it’s not surprising that 600,000 startups launched in the UK last year, more than ever before, despite all the Brexit turmoil.
This shows that Britain is very much open for business and that high-growth startups are flourishing. This is great news for the country and for investors, and it’s vital that it continues through further investment. In short, this is no time for investors to get cold feet. They should back Britain and high-tech startups now.