The funding business

The age cap on the Government’s start-up loans scheme should be raised in recognition of the fact that people in their 30s, 40s and 50s are more likely to start up and run successful businesses, according to serial entrepreneur and investor Doug Richard.

Speaking at a free education session on business finance run by Business in You, Richard said the age cap which means funding is confined to those under 30 was “contentious” and that he anticipated that it may well be raised in the next few months. “Lots of people in their 30s, 40s and 50s are looking for a fresh start and they are so much more likely to be successful,” he says. “Many are parents. Nothing prepares you for running a business than having kids. Older entrepreneurs bring a huge amount of diligence, care and thoroughness to their business.”

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Richard has been touring the country with the business finance sessions over the last six months and spreading the word in particular about the Seed Equity Investment Scheme which was launched last October. The scheme substantially reduces the risk for investors in start-ups, but leaves the rewards in place, making it an attractive option. This is because the Government guarantees half of the money, investors do not have to pay capital gains tax on their investment and they can write off the loan against income.

“It’s the most radical tax programme in the world. It’s amazing that there is not much take-up,” says Richard. There are certain rules attached to who can benefit from the SEIS and there is a cap of £150,000, but Richard added that those who used the scheme could also apply for other forms of finance, such as start-up loans.

Richard says that word about the scheme is growing, but the process of publicising it is hampered by the fact that the Department for Business, Innovation and Skills has a moratorium on marketing.

“It’s a simple awareness issues and there are a lot of people who could be investors who have no idea that is an option,” he says.

He believes the workshops have been a success – the first one in London drew 1,000 people. Many are women. Richard says at the School for Start-Up events he runs around the country and in his work with young entrepreneurs he has seen “a big change” in terms of the growth of interest from women. “The ratio of men and women has tilted profoundly towards women and there is a slight majority of women across all our activities,” he says. In groups of young entrepreneurs he reckons women make up two thirds of the audience and in a group of young entrepreneurs from the creative sector he thinks it could be as high as 75 per cent.

The workshops cover equity investment such as SEIS and crowd funding and loans. Richard says crowd funding organisations like Seedrs which was represented at the London workshop are doing “a marvellous job” and “enfranchising very small investors”. By doing so they are also spreading financial knowledge to a more diverse group of people.

Michael Fallon, the minister for enterprise and business, introduced the workshop and, on the day after reports that bank lending to small business had fallen in 2012, he outlined what the Government was doing to try and help with financing. He said they needs much greater credit for “the vital role they provide in creating wealth”. He said Britain was rated second in Europe by the World Bank for its business-friendly environment. However, he admitted there was a long way to go to genuinely embed an enterprise culture among the young.

Fallon spoke about initiatives such as the start up loan scheme, the setting up of the Business Bank and the SEIS and said conventional funding channels “could only reach so far”.

Richard said equity investment was a good option for start-ups because by their nature they were risky ventures and banks tended to fund low risk entities. “Banks cannot afford for even one out of 10 businesses they loan to to go bad, but angel investors on average only make returns on one in 10,” he said. But the potential returns are huge as they have a significant stake in the business.

Another speaker was the angel investor Dale Murray who spoke about her experiences of investing in companies and the dangers of being drawn too deep into a business. Jeff Lynn from Seedrs outlined how his business worked and added that the UK had become “the most exciting place in the world to build high growth global-facing businesses”.

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