BELFAST BRIEFING:Could wealthy individuals with cash to spare be persuaded to back aspiring businesses in Northern Ireland to take advantage of attractive tax breaks that have just come into play?
Alan Watts, for one, is hoping they will, ensuring that the UK’s new “tax advantage” Seed Enterprise Investment Scheme (SEIS), which went live last week, will more than triple business angel investments in the North.
Watts is the director of Halo, the Northern Ireland business angel network. If you have never heard of it, just think of it as something like a dating agency for people with money who want to develop relationships with “ambitious fast-growth businesses”.
The network has more than 100 active angels – people who have invested some £3 million in local start ups since 2009.
According to Watts, the new UK government-backed SEIS might just be the incentive needed to inspire more “angels” to use their cash to help local entrepreneurs.
Watts believes the new scheme has benefits – particularly in relation to “attractive tax incentives” – that might just sway potential angels to come on board. The SEIS will give investors 50 per cent tax relief on their first £100,000 investment in a firm, an incentive that kicks in irrespective of the investor’s own personal rate of income tax.
During the first year of the new scheme, there is also a potential capital gains tax (CGT) holiday for investors. Any gains made on an asset sold during the 2012/2013 financial year will be exempt from CGT if reinvested through SEIS in the same year – on the face of it a win-win outcome. Investors get their incentive and start-ups get their hands on the money they desperately need for their business.
Watts estimates the new scheme has the potential to deliver an estimated £18 million in additional angel funding every year for the North.
He says the scheme is particularly suited to knowledge economy companies, which typically need less capital investment than conventional companies.
But the SEIS is not the only option for entrepreneurs and fledgling businesses trying to find cash. There is a potential new force to be reckoned with in the venture capital market – and it is one that is government backed.
Invest NI says it has developed and is putting in place a venture capital and loan funds – as much as £113 million of possible funding options – to ensure early stage companies are not held back due to a lack of finance.
It claims these “access to finance initiatives” – which leverage substantial government investment in one shape or another – will provide the funding needed to support deals from start-up to development capital demands.
Invest NI stresses that the initiatives are designed to “stimulate the market, rather than generate a profit”.
Five key funds form the backbone of its initiative.
In terms of size, the largest is the £50 million Growth Loan Fund, a debt financing initiative which will lend between £50,000 and £500,000 to local companies. Invest NI has invested £25 million in this fund matched by private funding from Nilgosc, the group which administers the local government pension scheme.
Loans will be unsecured and will not require personal guarantees, but any recipient must accept interest rates of between 8 to 12 per cent, and possibly “an additional profit share arrangement”.
A separate Development Fund – details of which have not been finalised – is likely to be a £30 million resource with a 10-year term. It is expected to invest between £450,000 and £2 million per deal and it will comprise public and private equity funding.
Then there is Co-Fund NI, a equity fund with resources of up to £16 million, which aims to co-invest in small to medium sized local businesses in co-operation with business angels and other private investors. So far Invest NI has provided £7.2 million to the fund, which is designed to co-invest in deals valued between £250,000 and £450,000.
A fourth option is the Northern Ireland Spin Out Funds (Nispo), which encompasses a range of funding supports for start-up and early stage businesses totalling £12 million. Nispo is normally involved in funding rounds with values averaging £50,000 to £250,000.
Finally, there is a Small Business Loan Fund in the pipeline. Invest NI says this will be a £5 million debt financing initiative that will provide loans from £1,000 to £50,000 to small and micro businesses.
All told, it would appear that the North will soon be awash with cash – at least as far as entrepreneurs or start-ups are concerned. But will it? Or are these “access to finance initiatives” little more than Northern Ireland’s own version of a government-backed monopoly game?
According to one of the first entrepreneurs to receive funding under one of the initiatives, they could be vitally important but only if they deliver what they promise.
Hugh Cormican, chief executive of Cirdan Imaging, believes there is a “dearth” of funding options in the North and that without government intervention there is no chance of improvement. In his opinion there are “more ideas than cash available” at the moment.
Co-Fund NI has invested £163,875 in Cirdan Imaging as part of an equity investment round led by the Queen’s University spin out company, Qubis, which raised £540,000.
Cormican has a proven track record as one of the founders of Andor Technology, the market-listed maker of high-performance scientific digital cameras. Cormican’s new Lisburn-based venture is developing products to help radiologists and pathologists with the diagnosis and treatment of cancer. He says the funding investment represented a “key milestone” in his company’s growth plan. But Cormican says the fact remains that the founders of Cirdan Imaging initially put in the majority of the equity to fund the business in the first place.
“Start-up companies on the whole have very little access to finance here. If we hadn’t been able to raise the equity among ourselves . . . we would have gone to the United States or the Republic. We have projected that Cirdan will grow sales to around £10 million within five years. This investment is another step on the way.”
