Angels4Angels and its associated Investor syndicates operate in the world of funding early stage entrepreneurial business ventures. As such, it follows in a long tradition of high net worth parties backing ventures that could not otherwise be undertaken. That world is characterised by very high potential returns but an associated high level of risk. From history, Queen Isabella and Columbus, Merchant Venturers and tea clippers, Joint Stock Companies and Railways and Silicon Valley Venture Capitalists come readily to mind.
In recent years, investment returns from stock markets and elsewhere in mature economies have offered limited returns causing investors to look elsewhere for better prospects. At the same time, Governments have realised that innovation and entrepreneurial activity are vital to creating employment and finding international competitiveness. In the UK, one result is that the Treasury has introduced a number of schemes that give investors tax breaks for supporting entrepreneurial activity.
In combination, these trends mean that there is now a flourishing Business Angel eco-system in the UK increasingly characterised by being well organised and having more visibility of opportunities, investment levels and performance that ever before.
Although still a very long way from the levels of quoted Stock Markets, there has been a significant upturn in the visibility of Business Angel investing activity, investment performance and consensus ideas of how to improve the odds.
Prominent amongst the evidence available is a report ‘Siding with the Angels’ written by a distinguished American Professor and based on a study of over 1,000 UK investments. This research was funded and published by NESTA (National Endowment for Science, Technology and the Arts). It confirmed generally held anecdotal views that in aggregate good returns are achievable from Angel Investing. The report shows an average of 22% p.a. return over all investments with 9% investments yielding super returns of 10 times or more money back. It also confirms high risk in the form of 56% of cases failing to return the capital provided to them with most of those being complete write offs. Returns quoted in this report are before the favourable impact of tax benefits.
‘Siding with the Angels’ points to four ideas likely to enhance Angels investment performance each of which is in incorporated in the principles and practices of Angels4Angels.
Angels4Angels operates in a sphere where specific and attractive tax breaks are available and securing them for our investors is central to our objectives. The two schemes that apply and their principal benefits are:
Enterprise Investment Scheme (EIS)
For up to £1 million into eligible companies (In qualifying business sectors, < 250 staff; < £15 million Assets)
- 30% income tax relief in year of investment
- Deferral of Capital Gains Tax payable on previous transactions
- No Capital Gains Tax to pay on winners; Losses offset against Income tax or Capital Gains Tax
Up to £1 million per investor p.a.; must be less than 30% share of each investee
Seed Enterprise Investment Scheme (SEIS)
For up to £150k into eligible companies (In qualifying business sectors, < 2years old, < 25 staff; < £200k Assets)
- 50% income tax relief in year on investment
- Full relief of Capital Gains Tax payable on previous transactions (2012/13 only)
- No Capital Gains tax to pay on winners; Losses offset against Income tax or Capital Gains tax
Up to £100k per investor p.a.; must be less than 30% share of each investee
The above is only an indicative summary; Tax is a complicated area. There are other factors that determine eligibility in each case and readers should take professional advice in this area.