Why you should consider the Enterprise Investment Scheme (EIS)
John Cheney has secured a total of £5.4m via the EIS. He offers his top tips to small firms looking to secure angel funding
Angel investment secured through the Enterprise Investment Scheme (EIS) is serving as a lifeline for SMEs to gain access to the funds they desperately need. During these tough economic times, banks are refusing to lend and SMEs are being forced to look elsewhere for funding.
By utilising the EIS, investors are able to write off the investment and have tax-free capital gains on their investment. With more good news, from April 2012, EIS tax relief will increase from 20 to 30%, adding even more incentive to investors considering funding small and medium-sized businesses in the UK.
At the same time, the annual investor limit will also be doubled to £1m to make the prospect even more attractive. Although the idea of securing funding from prominent business people may be daunting, understanding the EIS and the best way to secure funding can revolutionise your business prospects.
Networking to find angel investors
The most difficult part is finding investors who believe in you enough to give you their money. While the EIS is a great carrot to dangle, it simply isn’t enough on its own to secure funding. Finding initial investors requires a bit of luck, but a strong financial plan with the promise of a solid return will entice them. To begin, ask around; introductions by our accountants and lawyers helped us in securing our first round of funding. It is all about who you know and who those people know as well. If you are looking for a second or third round of funding, ask previous investors if they are willing to invest again. Once you have secured one or two investors, others will feel secure about giving you their money.
Have a great investment pitch
Pretend you have 10 minutes to get their attention, that’s it. Come to the meeting prepared with a well-defined and documented plan. This should clearly articulate the financial plan, potential returns and key characteristics of the business. The plan should be robust, sound and able to stand up to any critiques. When speaking to potential investors, be clear and crisp; explain exactly why they should invest and spell out all financial aspects involved. Be mindful that for many investors it can be an emotional process. Provide them with the correct information so they are able to tick the boxes they need and help them better understand your cause.
Rely on your team
One of the most important aspects in securing investment is the credibility of the people involved in the business. This relates back to networking, but if investors feel they can trust you and believe your company is surrounded by intelligent, hard-working and seasoned business professionals, then the chances of them investing grows exponentially. Having a reliable team is not only important for investors, but a good business leader and innovator will surround themselves with others who add to the business in ways they personally cannot.
The EIS tax relief is working and can be priceless to an up-and-coming business. EIS is making it easier for SMEs to secure funding, especially in these shaky financial times, but your company should not rely on it alone. Be confident, utilise the benefits of the EIS tax relief, but also make your business plan so solid that investors are drawn to your company anyway. Begin with the basics, have a strong financial plan that you know inside and out and then go for it.
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