On Tuesday of last week, we had our biggest Informed Funding seminar yet, with 175 businesses registered. Our focus was on the equity market for New and Growing Companies (NGCs), and we took an in depth look at the different options available, from Angel Funding through to Private Equity. As at all our events, we had an emphasis on “real-world” case studies – a chance to listen to the experience of entrepreneurs who have very recently raised equity across a range of channels.

I find it quite difficult to decide whether the UK is a good place for an NGC to raise equity finance or not – certainly there is a lot more activity and many new channels (via Crowd Funding platforms). In 2015 and 2016 to date, there was clear growth in the level of investment (circa 30% annually) – with £2.4Bn raised in 2015 (this excludes deals that were “friends and family” only). Of that, some £0.3Bn came from Crowd Funding Platforms, £0.9Bn from Angels and £1.2Bn from VCs. It shouldn’t be ignored that Equity Crowd Funding did not exist just 5 years ago. According to Government statistics, there were 3,245 deals in Tax Year 2014/15 that utilised SEIS or EIS tax relief. My estimate is that there were circa 5,000 NGC Equity deals in the year, once those with no tax relief application are included.

But, is this good? At the simplest level, 5,000 companies raising equity from external sources is not many in the context of the Government claiming there are now 5.4million businesses registered in the UK. If we just stick with those that employ people, then we get 1.3million as a more relevant figure – so surely more than 1 in 260 of those might look for equity finance?! Also worth highlighting that, while we are ahead of most of Europe (ex-Scandinavia), we remain well behind the US in terms of appetite for investing in risky but ambitious young companies (the US Venture Capital market is, proportionate to GDP, some 7 times more active than the UK). And a final concern – just 5% of all SEIS/EIS approved investment goes to companies that manufacture something. When the Government talks about “re-balancing the economy” perhaps they need to look at grass roots activity rather more.

Of course there are two sides to this Equity market – supply and demand. Most suppliers of equity will say that they struggle to find a sufficient number of “good” businesses to invest. All of our panel of Funders last Tuesday quoted very high rejection rates – averaging 100 rejections to 1 successful fund raise. Given the availability of finance, perhaps we need to improve our rate of creating investment ready businesses? Certainly the Government seems very quiet on this front!

As ever, please drop me a line at [email protected] if you wish to discuss any matters pertinent to SME finance.
 

Chris Dines

CEO, Informed Funding