Business Angels
Angel Investors are high net worth individuals who invest money in return for an equity stake in a business. They often bring expertise and knowledge as well as funding. Whilst angel investment tends to be used in early stage businesses, it can also be used for established ones. Both investors and businesses can benefit from the SEIS and EIS government tax schemes.
Who are Business Angels?
Angel investors are the largest source of investment in start-ups and early-stage businesses looking to grow in the UK.
They tend to be entrepreneurs themselves and can invest individually, or as part of a syndicate or group of angels where experience as well as money is pooled together.
Business angels invest their own money in businesses in exchange for a minority stake (usually between 10% and 25%). Some take on a ‘hands-on’ approach, offering mentoring and support during the time of the investment (5+ years) with investments typically ranging from £5k up to £500k.
They tend to invest in early stage businesses (turnover < £5m) and can look at most sectors, the main factor of interest is scaleability.
Venture Capital Schemes
Venture capital schemes, run by the UK government, are designed to encourage angel investors to engage with businesses seeking investment by offering generous tax incentives. There are two main schemes to be aware of, the SEIS (Seed Enterprise Investment Scheme) and the EIS (Enterprise Investment Scheme).
SEIS Scheme
- Businesses up to 3 years old from their first commercial sale
- Company can raise up to £250k
- Individual can invest up to £200k and receive 50% of their investment as an offset to their personal tax bill
- If shares held for 3 years then no capital gains tax
- If the company failed the investor would receive loss relief that could lead up to 72.5% of total investment being recouped.
EIS Scheme
- Established business up to 7 years old from first commercial sale
- Company can raise up to £5m per annum
- Individual can invest up to £1m per annum
- Same benefits as SEIS apart from initial tax releif is 30% and not 50%
- If the company failed the investor would also receive loss relief
- If shares held for 3 years no capital gains tax
FAQs
What is Advanced Assurance?
Asking HMRC if they agree that an investment would meet the conditions of a venture capital scheme is called advance assurance.
Snowball has advised on over 100 of these schemes and can produce the package that needs to go to HMRC for an Advanced Assurance Certificate, whereby HMRC confirm your proposals and eligibility and you can can show this certificate to potential investors.
What sort of amounts would business angels invest?
Typically, angel investors can invest sums ranging from £5,000 to £500,000 in any one business for a minority stake (which tends to be less than 30% if complying with SEIS rules).
What type of businesses are eligible?
Angel Investors look for early-stage businesses, who have the potential to grow quickly and provide a high return to investors. They do not rule out specific business sectors, but focuses are product, market opportunity, scale, business model and revenue.
How long is the investment for?
The duration of the investment can be anything from 3 years upwards depending on the business trajectory, as this is equity rather than debt finance and the exit will generally be by sale. The investment prupose can be anything from working capital, product development, entry into new markets, to build teams, and to increase sales.
Next Steps
With access to a myriad of equity and debt funders Snowball can provide idependent specialist help for your specific business circumstances.
We have produced over 100 applications to HMRC for Advanced Assurance achemes with an unrivalled success rate so if you require assistance and for an initial no obligation call or meeting, please contact us to arrange.