What do businesses need to do to ensure the UK maintains its reputation as Europe’s capital of entrepreneurship in 2017?
2016 was a year that brought uncertainty to the industry. Brexit shook the economic boat and the country’s entrepreneurs still feel sailing choppy waters. Nevertheless, we asked the experts for their thoughts on how the UK can maintain their reputation as Europe’s capital of entrepreneurship in 2017.
Adam Tavener, Chairman of Clifton Asset Management who also runs their Alternative Business Funding Portal explains how the 2008 financial crisis spawned a whole new generation of small, independently-minded niche players in the SME finance market, the ‘alternative’ funders. Adam stated “From Pension-led funding, peer to peer, invoice trading and performance bond guarantee providers, over 100 new propositions suddenly appeared, giving the business owner and his advisers far more choice.” The what-seemed-bad economic environment brought the aggregator platform Alternative Business Funding into being, the UK’s largest and most successful SME funding resource, with over 90 funders listed and hundreds of businesses visiting the site every week. This leaves us thinking, could Brexit have a similar effect on the UK economy?
James Sproule, Chief Economist at the Institute of Directors made it clear that it is imperative that the UK has sufficiently attractive tax rates and tax reliefs for global entrepreneurs, key executives and the businesses themselves. James stated “The headline rate of corporation tax is typically at the top of the list for foreign direct investors and the UK must remain vigilant on this criteria; it may be necessary to reduce the rate below the 17% rate announced by the Chancellor if, for example, the US corporate tax rate is cut to 15% in 2017. The UK should also prioritise removing the, frankly ridiculous, ‘spikes’ in its income tax system which produce effective tax rates of over 60% as reliefs are clawed back and, in due course, the top rate of income tax should be reduced from 45% to 40%, the latter being the tax rate accepted by both major political parties for over twenty years.”
How will this affect entrepreneurship?
James Sproule stated “By and large, start-ups are positive about the UK’s long term prospects as the key European enterprise capital. That said, there is plenty that policy makers can do to help offset the inevitable uncertainty that will dog the footsteps of investors in 2017. Entrepreneurs will be at the coalface of changes to investor confidence and general shifts in the economic mood, and measures to boost the levels of private investment flowing to these new enterprises will therefore be welcome. The IoD has long supported opening up the criteria for those who can benefit from the EIS and SEIS tax reliefs and we would look to the government to investigate this during the two budgets we will see in 2017. However, there remains an issue of relatively low scale-up activity in the UK. In fact, we lag key European competitors in this space. The recently announced review into boosting patient capital, alongside new incentives for increasing late stage investment will be welcomed in 2017 and hopefully will go some of the way towards increasing the reputation of the UK as a scale-up destination, as well as a start-up capital.”
When asked whether there is a lack of knowledge about the sources of funding, James Sproule stated argued that on paper, there has rarely been a better time to access finance in the UK. Even though businesses may experience challenges whilst funding “Interest rates continue to sit at historic lows and the UK has one of the deepest markets for alternative finance in the world. Moreover the Government has taken steps recently to link up those who have been turned down for bank finance with some alternative finance platforms. This may go some way to increasing the perception that these new platforms are legitimate avenues for finance. Up to this point, low public trust and the general feeling that banks are still the main players in town has hampered the take-up of alternative finance”.
James highlighted that one of the key challenges for 2017 will be convincing businesses to have the confidence to invest, and therefore approach finance providers. Much will depend on how much information is available on the road ahead for the Brexit negotiations.
So how do businesses navigate the funding labyrinth?
When asked why it is important to compare sources of funding, Lex Deak, CEO of OFF3R highlighted that entrepreneurs are faced with a plethora of funding options in our new economy, which hasn’t necessarily made it easier to get funded but it has increased the burden of choice for company owners.
Lex stated “The relationship between a business and its investors is oftentimes a long one and before entering into what many define as a ‘commercial marriage’ you need to be as confident as possible in the decision. Focus your efforts on finding an investor that fits your stage of business, i.e. do not approach late stage VCs with your concept stage start-up, do not apply for a loan where you have no assets, trading history or means of underwriting the loan etc. Once you’ve found the right investor for your stage and sector you’ll want to really dig into the detail to understand your obligations and the expectations of the investor. Investment agreements can be heavy bed time reading with many clauses outlining a theoretical future, entrepreneurs can skip the detail here in favour of simply getting the funds needed to fuel the next chapter. I would advise against too much haste here, poorly thought out structures, incentives, option pools and milestones can seriously undermine the harmony of a business. Consider the worst case scenario, be honest with yourself about what keeps you and your team motivated and make sure you’re starting out with your investor/s in a transparent and aligned way.”
Tavener explained how change in the economy in 2008 made everyone, in both the industry and government, realise that one or more central resource points needed to be established where a business owner could enter some basic information, and by a process of criteria matching and sophisticated software intervention, be introduced to a small number of alternative funders that closely match their requirements and funder appetitive. He said “Trying to choose between 95 funders without such resources would be a daunting taste for even an experienced professional, which is why in the future, most SMEs will acquire the financial support they need through these type of aggregator sites. It just makes sense.”
The message is clear from Adam Tavener, James Sproule and Lex Deak, there is scope for opportunity in pressing economic times. Entrepreneurship can flourish in a time of uncertainty but it depends on the confidence of the entrepreneur to break into new water and utilise the new support available to them.
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