Raising Angel Funding via the Enterprise Investment Scheme
As you may have seen from our recent press release we successfully completed a 2nd round of funding for Workbooks, raising another £2m in Angel finance. This takes the total amount of funding we have raised over the last 2 years to £4.1m.
As I spend a lot of my time talking to other owners of UK businesses, the topic of external funding comes up quite a bit in discussion. The question that comes up most often is – How did you raise the money?
So let me provide some answers.
How did you raise Angel Finance?
Simply put, we were able to identify a group of ‘high net worth’ individuals (Angel Investors) who believed that our vision and business plan is compelling and as such were prepared to invest their cash.
Also the UK Government helps quite a bit through the Enterprise Investment Scheme.
The EIS Scheme is a Government scheme to promote investment into UK Business. If your business qualifies under this scheme(and many do), it provides tax incentives for investors including 20% Income Tax relief, potentially 40% Capital Gains Tax (CGT) deferral relief and any gain that is made from the investment will be completely free of Capital Gains Tax.
So if an investor is investing £100k, they can claim back £20K in income tax relief. If they have any capital gains bills to pay the HMRC, they can defer up to another £40k, so the cash flow impact of investing £100k can be as low as £40k. This combined with the potential of significant tax free returns can be very appealing to angel investors.
(Editors Note: At Workbooks we provide SaaS CRM systems not tax advice so best you get your own & speak to a professional advisor)
Where does an Angel put their money?
When we founded the business back in 2007, the credit crunch hadn’t really taken hold. So when it hit, one of our concerns was how easy would it be to raise investment money during the recession.
However the collapse of the banks created some very interesting issues for high net worth individuals: All of a sudden keeping all their money with high street or investment banks seemed a lot more risky than ever before and the current returns were not attractive to say the least . So many of the Angel investors we have spoken to over the last 12 months have been much more willing to look at EIS qualifying investments as an alternative home for their money.
Whilst we are big fans of the EIS scheme here at Workbooks, I would like to see it extended and some of the rules relaxed to make it more effective.
For example there is a limit of £2m which can be raised in any one funding round. I have no idea why it’s £2m, I would have thought £10m would be much more sensible. That way not only start-ups, but medium-sized businesses looking for additional investment would benefit. Especially now, when trying to get any bank to part with cash is pretty tough.
Clearly having tax incentives from the government isn’t enough on its own to get Angels to invest their money. You need a compelling story too, but using the EIS scheme can be a real benefit.
Comments
5 Comments on Raising Angel Funding via the Enterprise Investment Scheme
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Allen Taylor
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