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Technology seems to dominate media coverage given to start-up businesses. Unicorns (the term given to a start-up valued at more than a billion dollars) of the tech world are the obsession of every commentator. Even more so when it’s when they go public (e.g. Snap), why they are not (Uber) or when they might (AirBnB). But even beyond the unicorns, the column inches are often breathless with hope and expectation.
The UK is a leader in Europe when it comes to technology investment, with £28bn invested since 2011, compared to £11bn in France and £9.3bn in Germany. This UK figure has meant that the digital economy is growing at twice the rate of the UK economy, contributing £97bn a year. There are some interesting businesses around with investment potential, if, and it’s a big if, the valuations are sensible for incoming investors.
Some of the sectors which they had seen the most investment in 2017 so far include fintech, mobile and software as a service, robotics and drones – highlighting the trend for investment into tech and the digital industry.
At Worth Capital, instead of focusing on whether we do, or do not, seek companies who are tech based, we instead look to find well-architected solutions which search for a problem to solve. Whether they are technology based or not is irrelevant. As we want to ensure that the business idea has a solid base of consumer insight, and clearly identifies a consumer pain to be solved, or something for them to gain.
However, beyond tech, there are also a wealth of investment opportunities. And an investor is more likely to get a good valuation upon which to buy into the business. From food and drink brands which end up on supermarket shelves, to new dining experiences or the movies we watch, there are plenty of sectors to get excited about, even if the products themselves aren’t that exciting.
The latter is a prime example which has seen huge investment over the past 12 months, as it raised £200m under the Enterprise Investment Scheme set up by the government in the early 1990s, as a means to encourage investment. Providing income tax relief of 30 per cent, an investor receives 30p back for every £1 invested. The film industry is further supported by the film production tax credit, which returns 20 per cent of costs back to filmmakers through a rebate system.
The world of mattresses has seen interest rise, with Eve Sleep raising £375,000 worth of investment in 2015 at a valuation of £891,000, and then £22m at valuations in the following two years. Having just completed an IPO, it has a market capitalisation of £132m. With a competitor raising £17.5m during the first two years, the world of mattresses is one to watch.
Despite the fact that it accounts for 10 per cent of the economy, manufacturing is currently facing a six-year low in investment. Although Brexit caused uncertainty it has also caused a radical fall in Sterling that makes exports that much more attractive – making investments more affordable to those who want to invest a low sum.
Farming is another industry which has also seen investment attraction from investors, worth $8.2bn to the UK, as it’s an industry which is integral to the economy as Britain remains an important food exporter. With consumers becoming more concerned about what they eat, there is a great opportunity for growth in the food market, and it provides a promising investment for investors.
The car industry is another which has become challenged since the decision to leave the EU, with investment in 2016 down by more than 30 per cent from 2015, with just £1.66bn invested last year, compared to £2.5bn in 2015. Figures from the year to date so far, according to the Society of Motor Manufacturers and Traders, show that investment has continued to fall in the first six months of the year, and if the same levels continue, annual spend in the industry would equate to £644m, just a quarter of the amount invested two years ago.
The Seed Enterprise Investment Scheme (SEIS), established in 2012, was designed to provide support for both investors and those seeking investment. A company can raise its first £150,000 of equity investment under SEIS, with investors eligible for income tax relief of 50 per cent of the investment, meaning that the risk is halved once an investment is made. Capital gains tax relief and inheritance tax relief provide further incentives and there is even further loss relief should an investment fail.
The £150,000 a company can raise under SEIS generally provides early stage businesses with enough cash to get their concept off the ground and create proof points for further investment at a higher valuation. Being an investor at such as early stage is high risk but the valuations are such that if the business does grow the returns are highly attractive.
Matthew Cushen is an innovation consultant, entrepreneur and successful angel investor. He is Co-founder of Worth Capital.
The Start-Up Series SEIS Fund One, created by Worth Capital and managed by Amersham Investment Management, is a £2.1m fund investing in 12 monthly winners of the Start-ups Series, along with 2 other discretionary investments. The minimum investment is £10,000. Find out more here: www.worthcapital.uk