Forget about trendy investments and become an angel investor instead

By Chantelle Arneaud, Envestors

Capital at Risk. Please see full risk warning.

Have you noticed the unusual things that people are investing in?  And have you thought of investing in them yourself?

Recently, an invisible piece of artwork sold for $18,000. By ‘invisible’ I don’t mean it’s a new James Bond style tech that you haven’t heard of. I mean in actual terms, this art does not exist. And yet, someone invested in it. The craze with Non Fungible Tokens (NFT) has seen monies poured into assets including a digital perfume, a digital house which went for $500,000.

There are many trendy things you could invest your money in. But how long will this craze last? Who’s to say. What I can say is that if you’re looking to invest your money into something exciting (and slightly more predictable) you should consider angel investing.

Angel investing is a journey where you have the opportunity to identify and help grow the UK’s brightest businesses – and if you’re savvy make a good financial return in doing so.

So, if the idea of being an angel investor has never crossed your mind, here are some good reasons to consider it.

The feel-good factor

Cash is important, but it is not the only thing young businesses need. They need advice, support and your black book. When you invest in a start-up you join them on a journey, one in which you can directly impact their growth trajectory.

You may also be the difference between a business growing into a future giant or not existing at all. So, if there is a cause you feel passionate about, like sustainable fashion or social care for the aging population, you can support seed businesses in those areas which can help affect a broader social impact.

You’ll save money on your taxes

The UK government runs two lucrative and important tax schemes that a shocking number of people have never heard of – the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). Both of these schemes are designed to encourage investment into early-stage businesses. So far, the scheme has helped raise £22bn for over thirty-thousand companies.

It’s that successful because the tax incentives are that good.

The EIS scheme, which is for slightly more established, companies offers:

  • Income tax relief of 30% of the amount invested
  • Exemption from Capital Gains Tax (CGT) on any gains from selling your EIS shares 
  • Further income tax relief at top rate of income tax (40% or 45%) for any losses made on the disposal of EIS shares
  • Unlimited deferral of capital gains

Its earlier stage counterpart, the SEIS scheme offers:

  • Income tax relief of 50% of the amount invested
  • Exemption from Capital Gains Tax (CGT) on any gains from selling your EIS shares 
  • Further income tax relief at top rate of income tax (40% or 45%) for any losses made on the disposal of EIS shares
  • Unlimited deferral of capital gains

All of this is designed to encourage investing into early-stage businesses, while off-setting the risk, because investing in early stage businesses is risky.

You might become richer overnight

One day you might find out that one of your businesses has been sold for big money. (Conversely, I need to mention that one day you might wake up and read the news discover that one of your businesses has gone down the drain.)

A recent study published in January 2021 by FounderCatalyst showed that angel investments yielded an average 2.77 X return. With the additional benefit the EIS scheme that grows to an average 3.19 X return.

It is worth pointing out here that averages are averages. Any experienced angel will tell you that many companies take much longer than 4.5 years to mature and exit. Some companies fail quickly while others fail slowly, never growing and never exiting— locking up your assets indefinitely.

You’ll increase you networks of friends

A huge part of angel investing is networking. As you start to investigate opportunities you will meet passionate founders and like-minded investors with whom you can discuss said passionate founders.

You can also join an investment club (which I recommend for all new investors). Opt for a sector specific club aligned to your interest and expertise or for a sector- agnostic one. There are plenty to choose from. Research agency Beauhurst lists the most active ones here.

And finally, whether you make a load of money or a little bit (or none at all) you’ll have a great story to tell because as an angel investor you will have a positive impact on the businesses you choose to invest in.

ABOUT THE AUTHOR

Chantelle Arneaud is from Envestors.Envestors’ digital investment platform brings together entrepreneurs and investors across geographies, communities and sectors – creating the single marketplace for early-stage investment in the UK.

Envestors partners with accelerators, incubators and angel networks to provide a white-label platform empowering them to promote deals, engage investors and connect to other networks.

Founded in 2004, Envestors has helped more than 200 high growth businesses raise more than £100m through its own private investment club.

Envestors is authorised and regulated by the Financial Conduct Authority.

Web: https://www.envestors.co.uk/

LinkedIn: https://www.linkedin.com/company/envestors-llp/

Twitter: @EnvestorsLondon

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