The implementation of the SEIS and EIS schemes by HMRC has resulted in a groundswell of UK-based startups receiving early stage investment and has helped to make the UK the number one place to raise equity capital in Europe. It has helped to bring more capital into the market through Angel investors who would otherwise have stayed away from tech investment and vehicles like Venture Capital Trusts (VCT's) have seen a further influx in volume. Changes by the Chancellor earlier this year to ensure that capital is being invested in riskier investments should be a welcome adjustment that will continue to stimulate deployment of growth capital. Finally, the popularity of investment programs like Dragon's Den have also helped to unearth more budding entrepreneurs looking to build growth businesses.
So is it time to take that business idea you have always been thinking about and turn it into the next tech Unicorn? The answer is probably not. Just because there is more capital in the market than there was 10 years ago does not mean that investors are simply going to part with their money on a whim. In fact, the opposite is more likely to occur, as new investors looking to benefit from tax incentives are tending to join clubs like the S100 to partner on investment with sophisticated Angel investors that have been doing this for years. Along with professionally-managed VCT's there has been a continuous improvement in Angel investing over the past 5 years.
However if you are a budding entrepreneur, don't be discouraged. Starting a company isn't easy and growing a successful startup takes a lot of graft and a bit of luck, but it can be done. If you do decide to turn that idea into a reality, there are a few things that you really need to be consider before trying to raise capital. Ask yourself:
- Have I uncovered an opportunity or am I solving a problem that someone someone is willing to pay for?
- Are there enough people willing to pay for it that I can turn this idea into a business?
- Am I doing something unique, better or cheaper than anyone else in the market?
- Do I have the right people, strategy and means to see this to fruition?
- Why am I doing this?
The last point is the one I would ponder on the longest. Most startups don't bounce from success, they crawl from graft to graft and once you are in it is hard to get out. So if your reason for starting a business is champagne wishes and caviar dreams (a tribute to the recently deceased Robin Leach) be prepared for the long haul.