The economic and political uncertainty that the UK in particular has been subject to in recent years has shaken the business world in many ways, and knowing where to put funds as an investor has become more difficult to deduce. Start-ups have a number of benefits to both entrepreneurs and investors, and have proven to be fruitful routes to explore when investing in business. Having recently sifted through hundreds of applications to announce the winner of The Formations Company 2017 Entrepreneur Award, Piers Chead of The Formations Company explores some of the key advantages to investing in startups.
Benefits for Investors
Tax relief schemes such as Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are available to help startup companies. By awarding tax relief to individual investors, the financial risk attached to a business venture is decreased, meaning more funds can go directly into the business and towards reaching goals.
Buy and hold is dead. This traditional investment method was a popular character in the business world for decades, but only recently have its flaws been fully exposed. Bottom line is that buy and hold is a technique not suited to the modern business landscape, and all parties in a business are looking for much more involvement from their partners.
Secondary trading is on the rise, and is much more likely to boost the valuations of shares that investors buy, making for a stronger investment arrangement in the long term.
Direct involvement makes the investment process more exciting and engaging. By investing directly in promising young innovators, you are making a personal contribution to the success of upcoming entrepreneurs, and this involvement will make the entire journey much more compelling.
Benefits for Entrepreneurs
Expertise and reputation are huge advantages for startups who are battling to get their work recognised by the bigger names that will make or break them. Having a figurehead on their side who can not only knock on the right doors but open them too, fast-tracks a startup’s progress and makes your investment all the more likely to be a fruitful one.
Less personal risk is involved to the entrepreneurs, who traditionally would have to raise personal funds or collateral in order to secure investment. This opens out the playing field and gives more opportunity to those who may not have the means for acquiring their own funds.
Compatibility is what separates an investment from a business relationship. When both entrepreneur and investor are passionate about the company they are pouring their time and resources into, it makes for a stronger alliance and is more likely to produce good results.
Quick decisions will also add ease and pace to the dealings of a business. Where a third-party investor like a bank may need to go through lengthy formalities and paper trails before approving any requests, independent investors can give entrepreneurs quick and personal decisions on next moves, and offer elaboration on each decision, which is a rare commodity.
In an era of hardship and procrastination when it comes to securing investments or funding, investors can establish mutually beneficial business relationships that offer opportunities that neither party would have if a more traditional investment route were chosen. It is time to sever ties with outdated investment techniques that do not fit the modern business landscape and embrace more inclusive, two-way arrangements.