Britain’s small businesses, particularly in the tech sector, proved an attractive proposition in 2021, with equity investment hitting a record £18.1 billion.
The figure, an increase of 88 per cent, was almost double that of COVID-affected 2020, with a total of 2,616 deals.
The boom continued into the first quarter of 2022 with a total of £7.6 billion, which in itself is the highest recorded in a single quarter, according to the British Business Bank’s annual Small Business Equity Tracker.
Investment in UK tech companies, a driving force for the economy, doubled, rising to £8.2 billion in 2021 and up from £4.1 billion the previous year.
The report added that investment in the sector is crucial for building the future economy and strengthening its position as a tech hub in Europe.
The bank itself supported around one in five (18 per cent) deals last year, with emphasis on those more likely to invest in technology and IP-based businesses.
Is an investor right for my business?
Investment is usually a longer-term commitment of money and support with the hope of eventually reaping a profit.
If you are looking to attract investment in these areas, it might be an idea to look at the main types of investors:
Traditional banking: Banks provide businesses, companies, and individual loans that act as an investment, which receives a fixed monthly return which is increased by the interest rate charged.
Angel investors: These are usually very wealthy individuals who invest primarily in first-time business companies and start-ups by buying their shares in exchange for convertible debt or ownership equity.
Peer to Peer Lenders: P2P lenders often personally fund the ventures of small businesses and purchase their shares. The lender receives interest and gets the money back when the loan is repaid. It’s a way for borrowers to get funding without going to the traditional sources of finance.
Personal Investor: As the name implies, a personal investor invests in a business company, or any investment opportunity. Investment often focuses on creating a secure financial cushion for use in later years.
Venture Capitalists: This is a form of private equity financing provided by venture capital firms or funds to start-ups, early-stage, and emerging companies thought to have high growth potential or have demonstrated high growth.
SEIS investments: A new business can obtain up to £150,000 through SEIS investments. These investments are not completely tax free but there is a lot of tax relief available for investors. For the investor, there must an issue of “full risk” ordinary shares and a maximum investment limit of £100,000 pa for individuals. Plus, investors cannot hold more than 30 per cent of the shares in the company.
EIS investments: Under EIS, up to £5 million can be raised every year, up to a maximum of £12 million over the lifetime of a company and there is a 30 per cent income tax relief for the investor (current or prior tax year).
Employee Ownership Trust (EOT): This trust allows a firm to become owned by its workers and can be set up by a company’s existing owners or by founders starting a new business.
How do I get an investor?
Below are a few basic tips on how to pitch to investors.
As there are different types of investors, it is crucial to find out what they need and want. For example, what will be their professional status in your company, the average check size, preferred funding rounds, deal structure equity, and voting interest.
Some potential investors will give you more time than others, so it is vital that you include every necessary point in your presentation, no matter the time limit. If your allocated time is around ten minutes, keep it short and straight to the point. And remember to include a Q&A slot within your presentation time.
Before preparing your pitch, investigate the investor. What start-ups have they invested in before, what makes them say yes and no, and what kind of questions do they ask? Try reaching out to previous companies they have invested in to get an idea for these answers.
Be clear on how much investment you are looking for and how you will you use it. An investor wants to be confident in investing in your business.
Thinking of ways to grow your business? For investment and funding advice, speak to Glyn Jones. For EOT planning, speak to Andy Wilson.
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