Byline: Dylan Jones-Evans
FOR many small growing firms, individual informal investors play a vital role in supporting their development. These so-called 'business angels" are defined as individuals, acting alone or in a formal or informal syndicate, who invest their own money directly in unquoted businesses in which there is no family connection in the hope of financial gain. They also, after making the investment, take an active involvement in the business either as a mentor, adviser or member of the board.
They are therefore important additions to the funding market for early stage businesses and potentially, given the reluctance of banks to lend to such firms, have a critical role to play in ensuring a strong private sector-led recovery within the UK economy.
Unfortunately, there is very little data available on business angels and their investments on a regional level. The best proxy for this, at least in terms of informal investment by individuals into SMEs, is the Enterprise Investment Scheme (EIS).
This initiative, which applies to individuals investing in companies of less than 250 employees with assets of less than PS15 million, has been designed to help small higher risk trading companies raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.
In this case, investors can invest up to PS1 million in qualifying shares and receive 30% of the cost of the investment as a relief against income tax as well as deferral of some capital gains tax liability.
So where are business angels to be found? The latest data from the tax authorities show a concentration of investments in companies registered in London (48%) and the South East (17%) between 2008 and 2011.
In contrast, there have been only 146 EIS investments in Wales during the same period, raising a total of PS23 million. This represents 2.5% of the number of investments in the UK and only 1.4%of the value of investment. …