This morning sees the launch of a campaign by a group called Certified Halo.
Certified Halo are a group of London based startup entrepreneurs in tech who are on a campaign to raise awareness of startups and the opportunities to invest in them. I met with the founder of Certified Halo Rayhan Rafiq Omar and his colleagues a few weeks ago when they contacted me about the campaign. I listened to their objectives which are borne out frustrations that many startup entrepreneurs face and with which I empathise. I thought I would share some of those (and mine) here. Today and tomorrow Rayhan and his colleagues, who are all founders of new enterprises in digital media and tech, are flyering the City and Canary Wharf as the launch of the campaign to raise awareness of startups and the opportunities for individuals to invest in new and early stage enterprises, which have been given a boost by the Seed Enterprise Investment Scheme (SEIS). One problem they cite is that many people aren’t even aware of the SEIS, which is something we have found since we launched the first SEIS fund in the market – our ASCEND SEIS Fund. Raising awareness of the SEIS is one of the objectives of the campaign and we have got behind Certified Halo to help raise that awareness.
Awareness of new enterprises and how to access them
This is a big issue. A lot of people are aware of Silicon Roundabout but very few people have any idea how to access investment opportunities emanating from the creative entrepreneurs setting up new enterprises there. So far there are a few VC firms that have backed companies in the sector but these are not open to most private investors and in the main, VC funds invest at a later stage than seed stage (which for us doesn’t necessarily mean as early as a person and an idea, but can be a business that is up to two years old, with a product or service built and ready to take to the market or may already be in the market and now looking to scale).
Awareness of the SEIS
Another problem. The Government introduced the SEIS scheme in December 2011 to take effect from 6 April 2012 (subject to the formality of Royal Assent which is expected in July 2012) and still very few people know anything about it. The idea behind the SEIS is sound – it is to encourage investment in new enterprises which otherwise fall into the equity gap and should lead to employment, earnings on which tax is paid, exports and growth for UK plc. But it won’t lead to anything if no one knows anything about it. Even many IFAs I have been speaking to know very little about it or had not understood it, and had already formed the view that it is not something they will be considering for their clients. In part that’s also a result of a wider cultural issue which is another problem for start ups in the UK.
Culture and education
As Certified Halo note in their flyer, the US has a culture that allows companies like Google, Apple, Cisco and others to start up, innovate and deliver outsize returns to investors. There are two reasons why: 1. It is as normal to invest in start ups as it is to invest in exchange traded stocks and funds; and 2. Investor love business and innovation and want to be part of the story and share in the rewards. It’s different here.
I agree with that. There is a real cultural issue in the UK where entrepreneurship is little understood and rarely supported. Not everyone can be a entrepreneur, nor should they be, but if more people understood entrepreneurship then this would lead in my view to two things. Firstly more people would be more entrepreneurial, which is not the same as being an entrepreneur, but has ramifications for entrepreneurs (I’ll explain why below) and secondly there would be more investment available from private individuals for entrepreneurs as a culture of allocating a small portion of one’s portfolio into new enterprises, perhaps through SEIS/EIS/VCT funds, as an asset class would develop.
More entrepreneurial people in industry is a good thing for entrepreneurs. Take for example an entrepreneur who has a new product to bring to the market and who wishes to obtain retail distribution via a major high street retailer. He has to persuade the buyer at that retailer to take the product, which being new, carries a risk. It doesn’t matter how good that product is, how much better or cheaper than existing products it might be, if the buyer is not entrepreneurial he or she simply won’t take that risk.
This is something that needs to be examined in education. Education in the UK is focussed on preparing people for employment. It does this by preparing people to become equipped with qualifications which serve as signals which they take into the employment market in order to attract employers’ attention for interview and employment. If the focus of education policy were to equip people with the skills to make a living as opposed to obtaining a job, if enterprise and entrepreneurship were taught in schools, we would have better equipped entrepreneurs and a better understanding and appreciation of it amongst the employed (and many private investors). That would be good for everybody.
Complexity of the Seed Enterprise Investment Scheme
The SEIS rules are complex. Unfortunately they need to be, because tax incentives have a habit of being abused. See my post here about Project Finance v Company Investment in the Creative Industries. The rules are new and we will be reviewing how they work in practice and offering our ideas to Government to simplify it without making it more vulnerable to widespread abuse, so the costs of compliance borne by companies and new enterprises reduce. At Ascension we can manage these costs as we have been studying the legislation ever since it was published and we have many years’ expertise in tax and experience in EIS and VCT compliance – but to an entrepreneur on his or her own, the costs of compliance can be a very significant portion of the available finance.
Good luck Rayhan and Certified Halo!
The Certified Halo website is here: www.certifiedhalo.com.