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Jenny Tooth talks about the need for a suitable scheme to bring co-investment support to the angel and early stage community

As we reach the end of the second phase of lockdown, we wait to hear from the Prime Minister on Sunday about plans to start gently opening the door for our communities and notably for the economy. Meanwhile, the Government is still working on further measures to support businesses, although measures to directly support our Angel and early stage community have still not been put on the table. The new Bounce Back loan scheme launched this week, could prove a valuable additional funding source to support working capital for some of the businesses supported by our community and it seems that it is actually offering speedy and easy access, though there has been huge demand.

This does not take away from the need to identify a suitable scheme to bring co-investment support to our angel and early stage community who are struggling to support their investee businesses to address the impact of Covid-19. Whilst we await the launch of the new £225m Future Fund we have learned that this will not prove to be compatible as a co-investment mechanism to support businesses backed by our angel and EIS investment community. Despite our best efforts and those of many of our partners, HMTreasury have been unable to change the EIS rules to make the Convertible Loan Note eligible for EIS tax relief. Consequently a large part of the early stage businesses backed by our community will be unable to access the Future Fund when it launches , but will of course support the businesses that are at the right stage of growth to access VC funding The issue of lowering the level of equity already raised from £250k to £100k may still be considered which could help some businesses in the regions and some women founders, but does not address the key EIS incompatibility issue .As many of you know, we have also been seeking a time limited increase in the existing tax relief benefit under EIS and SEIS to kickstart more Angel and EIS investing, but we have also now heard from Treasury that this has been discounted by Government at this stage.

This is all of course very disappointing and frustrating for us all, but rest assured, that I will continue to put pressure on Government and British Business Bank for a solution. We are continuing to explore alternatives including a separate pot of co-investment funding based on EIS compatibility suitable for easy access by Angels and early stage investors. We will also continue to encourage the British Business Bank to review the existing parameters of the Regional Angels Programme £100m pot to achieve more rapid deployment but also to bring forward a further £100m funding for wider scale distribution. There is also the opportunity to increase the Angel CoFund and flex the existing criteria for investment. in addition, we recognise that there are strong existing distribution models for co-investing in our regions including the Scottish Coinvestment Fund model that could be more widely applied.

However there are also opportunities coming forward from Innovate UK which, as I recently informed you, is bringing £750m to the table through its innovation and R&D grants. Whilst part of this will support businesses that have already received Innovate UK grants to further support their R&D activities, around £300m of new grant funding is also being made available which will be accessible for angel backed businesses that meet Innovate UK criteria. This will provide valuable undiluted match funding alongside Angel and early stage Investment.We are awaiting the Business Secretary, Alook Sharma’s announcement on this and how it will be accessed by businesses in the coming few days

So as we wait to hear what lies ahead of us in the coming weeks in terms of loosening the rules on how we work and live, I can assure you that I will continue to persevere to identify how our community can be proactively supported and I welcome your continuing ideas and suggestions. Thank you once again for all you are doing to support the angel and early stage ecosystem.
Do have a good long weekend and keep safe and well meantime.

PS Do also check out our UKBAA Covid-19 Information Hub.

Also do join us on our Webinars and Virtual Roundtables to exchange views.

UKBAA

By UKBAA07 May 2020