Those with long memories may recall the panic over the so-called Millennium Bug at the turn of the century.
The theory was that, because computers would not be able to understand the concept of the year 2000, they would melt down, plunging civilisation into chaos.
Some countries spent huge sums tackling the bug. Others spent very little. In both cases, nothing happened.
All this comes to mind with the current dire warnings about the consequences of Brexit. Our aircraft will not be able to fly to European destinations, we are told. Business will grind to a halt. The wilder tales involve shortages of food and medicine.
Winners and losers
Yes, there will be losers from Brexit, possibly including financial services firms that rely on passporting rights into the European market. Leaving the EU isn’t particularly good news for those trying to sell London property either.
But there will be winners as well, such as the nimble and fleet-footed smaller businesses that will be the backbone of the post-Brexit economy. For them, and I write as one who voted Remain, Brexit is likely to prove somewhere between irrelevant and genuinely positive.
An upbeat mood prevails among businesses seeking financing, such as through the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). That is not surprising, as this market finds itself in a “sweet spot”, in which businesses are seeking investors and investors are looking for growth opportunities.
Indeed, a virtuous circle is in operation. Reforms to EIS and SEIS in Chancellor Philip Hammond’s Autumn 2017 Budget cleared out the structured tax avoidance schemes that had previously taken advantage of tax efficiencies and helped the two schemes to metamorphose into vehicles for proper venture investment.
The headline figures for money raised may be a little lower than at the time of the June 2016 referendum vote, because at that time a wall of money was heading into asset-backed schemes involving renewable energy and other ventures.
But the quality of today’s investment is, in the absence of the avoidance schemes, very much higher. The result is that, for businesses seeking genuine risk capital, it is almost certainly a lot easier to raise money now than in 2016.
The right types of business
If that is one part of the virtuous circle, another is that growing businesses offer the sort of opportunities to investors that will appear increasingly attractive in the post-Brexit climate. These are the types of firms that are well-placed to flourish after Brexit, for a number of reasons.
One, they tend to operate in very specific areas of activity, quite often specialising in their niche. That gives some protection against any adverse Brexit.
Two, they are agile and able to adapt quickly, in contrast to corporate giants.
Three, on a similar theme, smaller firms can transform themselves much more quickly than larger businesses, should circumstances demand it. If there are problems selling the type of widget currently emerging from their workshop, they can start producing a different type without too much trouble.
Further reading on Brexit
By contrast, a business making aeroplane wings, for example, or chassis for big lorries will not be able to reconfigure its operation in anything like the same timescale.
The final piece of the virtuous circle is that the government is throwing its weight behind innovation and entrepreneurship, possible with greater vigour than at any time since the eighties. Ministers are keen to encourage smaller companies both to exploit opportunities in niche markets and then to expand into larger markets.
One of the funds helping such growth businesses to raise finance through EIS and SEIS investment is one of the funds on our platform Jenson Funding Partners. ‘The current climate is very positive,’ said John Lees, Jenson’s chief operating officer, ‘and some of our recent successes help illustrate different aspects of this.’
Tailwise, a platform that matches responsible dog buyers with reputable breeders, is a case study in how a burning passion – in this case, the desire to put puppy farms out of business – can attract the right funding on the right terms.
‘We work with great breeders and use technology to match each dog with an appropriate owner, whilst providing crucial transparency around the purchase,’ said co-founders Sam Worthy and Dan Baird, ‘Jenson and angel investors helped us raise £150,000 to validate our business.’
In the current climate, potential disruptors are also proving attractive to investors. EBar Initiatives is shaking up nothing less than the traditional ways of serving drinks at the bar, including beer, at sporting and other events. ‘Seeing customers missing parts of the event because they were waiting for a drink was the inspiration for our business,’ said Sam Pettipher, managing director of EBar. With help from Jenson, EBar has raised £228,000 equity investment and is looking to integrate its patented dispenser with the latest rapid-payment technologies.
Growth businesses arise from entrepreneurship, but the learning and development consultancy Enploy seeks also to spread the spirit of enterprise to others. Jon Allen, the company’s managing director says ‘Our aim is to prepare students for working life by helping them to think and act more entrepreneurially.’
Enploy was able to double its workforce after raising £150,000 SEIS investment. In short, if you are running a growing business or thinking of starting one, be assured that the financing climate is as welcoming as it has ever been. Nor is this support limited to money. The funds that channel investors’ cash into these growth businesses increasingly provide the sort of mentoring that can, in its way, prove as important as the finance itself.
Funds can provide mentoring
At times, the mentoring can involve complex industry-specific guidance. At other times, it can be as straightforward as pointing out the difference between a gap in the market (which may be there for a very good reason) and the existence of ‘a market in the gap’.
Whatever the type of mentoring undertaken, it is there for the sound commercial reason that, by giving the investee – the business – the best chance of success, it is also promoting the investors’ chance of a successful outcome.
These businesses will be the lifeblood of this country. That said, performance data for these fledgling companies is not readily available and potentially misleading due to the investment cycle despite this all anecdotal evidence paints a remarkably buoyant and positive picture.
As Brexit approaches, investors should be turning their thoughts towards such businesses, those with the best chance of surviving and thriving in what will be a new landscape, ignoring the panic-mongers who have been proved so completely wrong in the past.
Dermot Campbell is CEO of investment platform Kuber Ventures.