London calling disruptive finance
We’ve all heard about the contrasts between the venture and entrepreneurial scenes in the USA and UK/Europe.
The view has traditionally been that the US, especially West coast, has been a more vibrant hotbed of enterprise and disruption than the UK and Europe. As a result pools of venture money grew largest there, along with greater birth numbers of start-ups and a more compelling roster of Google like successes.
A sector growing outside of the USA
As certain niches and silos within venture and enterprise evolved, I feel a certain niche has grown more mature and attractive outside of the US, largely focused around London – disruptive financial service businesses.
Disruptive financial services businesses seeking to revolutionise the way we change and move money, save and invest, trade and speculate, and generally consume financial services, find London a more fertile environment to launch and grow.
Apart from crowd-funding and P2P lending, which are established in the US, there are a range of start-ups and established businesses in London that would find, or have found, doing business in America very difficult. Examples include Zopa, Market Invoice, Transfer Wise and BetFair, whilst sectors like spread-betting are based almost solely in London.
Online gambling and trading has been one of the biggest winners of the internet so far, and a lot of the knowledge and success has grown in London. In the next stage of growing financial disruption, London is now best placed to nurture it and benefit from it.
There are many reasons for this potential trend; the SECs heavy handedness, London’s financial infrastructure, London’s talent pool of finance professionals, but recent tax incentives have added more fuel to the fire.
UK government directing money to start-ups
Entrepreneur’s tax relief in the UK has been around for a number of years, but new tax incentives aimed at directing private money into venture are now having a significant impact.
The recent SEIS and EIS schemes in the UK allow individuals with tax liabilities to offset these against investments in qualifying businesses. The angel is able to invest in start-ups at a more attractive cost per share, reducing their risks, whilst entrepreneurs suddenly have a growing pool of eager angel capital to tap, making early stage fundraising far easier.
I won’t go into the full tax details here, but the SEIS scheme is so generous that individuals are almost gaining risk free options on start-ups. It is also interesting to note the investment industry now further helping direct private money into these schemes – IFAs and tax advisers in the UK increasingly offer SEIS/EIS products to their clients.
Private equity holdings as a percentage of private portfolios will likely grow as a result; all good for UK plc and venture over here.
Seeing the money hitting the ground
I and a small team in London and Europe run a business called The Real Asset Company, a growing platform enabling individuals to efficiently buy gold and bullion. In our funding rounds we found EIS a real carrot for angels. SEIS/EIS has become like a badge – pinning it on yourself noticeably improves your ability to raise money.
Disruptive finance can bloom in London going forward, and the sector is receiving vital lifeblood via Her Majesty’s Revenue & Customs.