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| How will the budget hit the pound in the angel's pocket asks financial expert |
| Written by Ben Fountain | |
| Wednesday, 12 March 2008 | |
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If business angels fear to tread, where will the funding come from for early-stage technology companies?, asks local financial expert David Blair, CEO of the DBA Group, in response to Alistair Darling’s first budget as Chancellor. One of the most talked-about aspects of this budget is the changes to the capital gains tax regime, which were revealed in the pre-budget report last year and Blair believes that one overlooked implication of these changes is the effect they will have on investment in early-stage technology businesses. "Start-up companies are already feeling the squeeze as venture capitalists turn their attention elsewhere and the burden of investment falls onto business angels,” says David. "They will be among the groups most hit by the reforms to the capital gains tax regime. The proposed Entrepreneurs' Relief means that CGT is limited to 10% for the first £1million of gains made over a lifetime. My concern is that serial entrepreneurs or serial investors, when they've used up their £1million allocation, will look around for other things rather than investing in more early-stage technology companies. “The problem for early-stage companies is heightened because to qualify for the relief investors must own at least 5% of the equity. This is likely to have implications for the employee share ownership schemes that are critical to giving experienced managers the incentives they need to take on the risks of running a start-up.” Blair also believes that if the government has a real commitment to supporting the knowledge-based economy and technology clusters such as Cambridge, they must take a holistic approach which integrates policy relating to all aspects of a company’s finances, to spur innovation and enterprise. But the present changes are counterproductive, believes Blair: “The changes to the CGT regime have been proposed without thought or recognition of the way in which business angels and serial entrepreneurs work together in the technology sector. These changes will have far reaching implications for investors and the companies themselves. The tax on any gains from investments in high-tech start-ups should not be set at the same rate as gains on investments in mature companies, because there is a huge gulf between them in terms of the risks involved. And let’s face it, it’s not hard for the public – or the taxman – to tell high-tech start-ups from large mature businesses.” DBA Group works closely with early-stage and start-up high-tech and biotech companies to help them manage their funding and make money go further. They use intelligent computer models to integrate the strategic and operational sides of business planning
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