Interviews with business angels at the London Investment Fair yesterday showed that the coming increase in capital gains tax is making them more likely to invest in early-stage businesses. It also showed that they believe they are doing the works banks refuse to in loaning money to young companies.
by Josh Spero
Interviews with business angels at the London Investment Fair yesterday (18.5.10) showed that the forecast increase in capital gains tax is making them more likely to invest in early-stage businesses. It also showed that they believe they are doing the works banks refuse to in loaning money to young companies.
Peter Fergusson, a former partner with Norton Rose and former MD of Norsk Hydro UK, said: ‘If they retain the EIS rules, certainly it will not have a negative effect’ on early-stage investment. He said it was ‘a privileged investment’ both because of tax saved and because losses could be offset against other tax liabilities.
The Government has made it clear it intends to raise the rate of Capital Gains Tax from 18% to 40%, although they may retain relief for entrepreneurs. Beer & Partners CEO Michael Weaver said it was ‘astonishing’ that the newspapers weren’t covering the CGT change in greater depth, and added that it made this sort of investing much more attractive.
Martin Stephenson, who runs his own property and construction company, said: ‘My feeling is that two-thirds are more likely to invest,’ although his decisions, he stressed, were based on the right opportunity, with tax stucturing second. The feeling among other investors spoken to was that the CGT changes were likely to bring greater investment into the businesses represented at the fair, young companies from a variety of sectors.
There was also a clear mood that banks were not playing their traditional role in supporting young companies. Roy Anderson, who was representing a private investment company, said that angel investors ‘are fulfilling a vital role: the banks won’t touch companies like these, particularly for the scale of investment that’s required.’
Peter Fergusson concurred, saying: ‘The banks aren’t in this space – they’re absolutely out. These companies won’t even have an overdraft – three or four years ago they would have been able to raise a substantial portion of what they need.’
The London Investment Fair is run biannually by Beer & Partners, a business angel network which entrepreneur Luke Johnson has recently invested in.