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Downing Street Business Angel Consultation


Lisa McLean, partner in Laytons' IPT&M Group, attended a meeting of leading UK business angels and entrepreneurs chaired by the Prime Minister and Lord Young on 10 February 2011

The purpose of the meeting was to share views on issues affecting the angel investment sector and to discuss methods of improving conditions for new enterprise in the UK.

David Cameron confirmed that it is a priority for the Government to make it easier for smaller and start-up businesses to access finance and to encourage more people to invest in new business start-ups. 

As well as promoting the changes to the EIS scheme ["Seed Enterprise Scheme (SEIS) in Summary"], the Prime Minister recognised that the job of encouraging angel investment is never done and requested specific ideas or proposals to support this agenda: we invite you to join the debate at

In the course of the meeting, the Prime Minister and Lord Young were questioned on:

  • New online opportunities to raise finance and the risks of the Government seeming to support illegal crowd funding activities, particularly in comparison to the regulatory and compliance burden borne by funds and intermediaries.
  • Suggestions for bridging the funding gap to enable small businesses to develop from seed funding and angel investment rounds to become medium sized enterprises capable of shouldering the burden of business rates, competitive salaries and taxation.
  • The opportunities for Government to help small businesses grow through procurement, by encouraging larger businesses to do more business with them.
  • The possibility of a specialist helpline (run on a pro bono basis by a large accountancy firm) to assist investors in understanding the requirements for EIS and Seed EIS.
  • The lack of support for smaller investment networks and intermediaries who are disincentivised to broker EIS deals.
  • The difficulties of raising additional rounds of funding and in finding angel investors prepared to follow several subsequent rounds of funding where the Business Growth Fund is not available.
  • Systemic biases against start-up businesses in the system for public procurement.
  • The complexities raised by the number of share option schemes available and the disadvantages of options not being available to non-executive directors who are often angel investors whose experience may be as valuable as their investment.
  • Whether the requirements for qualification for EIS are too restrictive and could be relaxed for business angels without leading to a system used for tax avoidance rather than to support small business development.  
  • The possibility - and potential disadvantages - of preference shares being available to EIS investors.

Prior to the meeting, Laytons conducted its own consultation of experienced investors, entrepreneurs and intermediaries, asking them to suggest ways in which the climate for angel investment and small, entrepreneurially-driven businesses could be improved.

There have been three key threads to the overwhelming number of responses we received:

  1. Enable angel investors to collaborate and support those who facilitate that collaboration
  2. Further simplify and improve EIS
  3. Provide more effective practical support to entrepreneur-led businesses.

The following quotes are just a sample of the suggestions and comments received during our consultation:

  • "Angels tend to suffer from the preconditions required by later round investors for a preferred return. This attitude is prevalent in the Venture Capital industry where investors require that they get their money out with a preferred return, typically at least twice their investment on an exit or liquidation event before angel investors or the company's entrepreneurial founders get any return at all. This acts as a massive disincentive to company start ups and to the angel investors who back them. Angels are not investing if there is any danger that VCs will do the next round. As a result a lot of good prospects don't get financed"
  • "The key message I would want to input is that, in order to be effective, angel investors need to come together in well-organised groupings, professionally managed and with committed funds to invest.  [There is a] need, from both companies and angels, for an institutional intermediary, to manage the money and the investees."
  • "The Government should set up several regional electronic registers for companies seeking funds and business angels to meet. The problem is that it is difficult for companies to advertise they want funds and for would-be investors to find them. Also investors often like to work with other investors delegating key tasks to each other.  A well-organised register could accommodate this too. It may have already been tried but if so it is not well advertised!"
  • "Dedicated EIS funds are quite difficult to do, for a raft of legal and tax reasons.  Lord Young should tweak the budget to include an approved structure for EIS funds."
  • "EIS investment is far more lightly regulated on the continent. It is not feasible to regulate small corporate finance boutiques who do not approach ‘retail' customers as if they were a major clearing bank. We desperately need new fund managers in the EIS fund market, yet it seems to be impossible for them to approach the IFA distribution channel.  New EIS investors are therefore forced either to invest in the existing funds or into individual companies, which is obviously far more risky."
  • "I think that tax breaks should apply at the other end to make it easier for the entrepreneur to pay off the investor. Buying out an investor usually requires finding a replacement. If there was tax relief for the company it would have an incentive to buy out the angel which is what the real angel really wants (as opposed to the tax scammer)."
  • "My main beef is the inability to gain EIS when protecting a position when a VC comes in with, for them, fairly standard terms. EIS is an important aspect for many angels so knowing it will likely not be available in a further rounds, or a CLN for a bridge, is a big disincentive for many."
  • "The EIS share limit is too low. Once you have found a good angel to limit their EIS to 30%, it means that others have to be found. A single good angel would save start-ups a lot of angst and time finding more."
  • "[EIS] is over-complicated, has changed rather often, and limits investors to ordinary shares. This rule puts them at a disadvantage when VCs become investors in a company at a later round, usually bringing in various preferences, and often driving the share price down. If angels come into the round, sticking to EIS investing with ordinary shares, they may later suffer dilution and less than proportionate returns at an exit."
  • "Re the SEIS scheme, the taxation relief is encouraging but limiting the CGT tax holiday to one year seems bizarre. If one backs a successful company then the CGT relief is worth considerably more than the taxation relief on the way in."
  • "There is relatively little grant money available and many of the other finance schemes such as Finance Southeast have been largely stopped - a few £k supplied with good advice can make a big difference to a small business."
  • "Most of the other/existing early stage Govt assistance/support network is now (from 2012) focusing on existing businesses not early stage or start-ups i.e. British Library (IGT), Manufacturing Advisory Service and UKTI - [it is] easier to get money from international governments to attend shows where UK products would be shown than from the UK government."
  • "The biggest and most frustrating issue I think we face in funding early stage companies, particularly technology-based companies, is the lack of independent due diligence expertise available among the angel community. Very few angels have the time/interest/inclination required to undertake the necessary research to make informed investment decisions and therein lies the biggest problem for the tech/medtech sector."
  • "The main issue is the lack of available mentoring by persons experienced in business for those starting up a business. The individuals available through organisations such as Business Link tend not to be commercially attuned and there are too few persons with the right capability and experience to perform this role."
  • "Many individuals with a good idea which they have turned into a fledgling business are not commercially skilled and they need commercially experienced people to provide this. Rather than the government paying directly for such mentoring it would be better to have a tax system that encouraged mentoring and similar support behaviour. Perhaps there could be a "service EIS" under which experienced individuals receive tax advantages for providing appropriate services."
  • "There needs to be a framework within the tax and fiscal environment in order to reward and encourage individuals to start and develop businesses we need a low tax economy, and particularly a CT / NIC holiday for early stage businesses, perhaps for the first five years, either as a complete holiday or as a deferral until later profitability."
  • "My view is that poor investment performance in SME's, which are typically Angel investment recipients, is nearly always down to management failings, rather than a lack of cash. And I think it is here that HMG should focus its attention. I would encourage the need to continue to educate the SME sector as regards the benefits of equity funding, and the merits of Board Non-executive Representation."

The Government has indicated that it is listening at the highest level to those with experience of the difficulties faced by entrepreneurs, angel investors and those who support them and we urge you to contribute to the discussion if you have not already done so.

February 2012

Please click here to view a PDF of this report.