Small Talk: Save the schemes that find finance for our small firms
Treasury minister David Gauke was in congratulatory mood at the EIS Association's annual dinner at the House of Lords last week. The enterprise investment scheme, through which investors get tax breaks for putting money into smaller companies, is "the most successful and widely respected venture capital relief scheme in Europe", Mr Gauke told his fellow diners.
It's a pity, then, that this scheme may soon be effectively declared off-limits to tens of thousands of investors who have put money into EISs over the past 20 years or so. For City regulators are debating whether to introduce new rules on financial promotions that will prevent the marketing of the schemes to all but the most sophisticated, high-net-worth individuals.
Even worse, these rules would also apply to venture capital trusts (VCTs), another long-standing and successful tax efficient scheme which offers investors access to a portfolio of smaller companies. Though this portfolio approach offers investors some useful diversification – thus lowering the riskiness of VCTs – the Financial Services Authority (FSA) has warned that these funds may not be suitable for the mass market either.
Together VCTs and EISs have been a hugely important source of financing for growing businesses – they have so far raised more than £13bn of new investment for 20,000 companies. That support has always been vital, of course, but never more so than in the years since the financial crisis, when other sources of finance have been few and far between.
If, however, the financial promotions rules are implemented in their current form, much of this funding will dry up. Both EISs and VCTs do appeal to high-net-worth investors, so the schemes won't die entirely, but the finance they supply will be hugely curtailed if both are ruled out-of-bounds to the retail investment market.
All is not yet lost. The FSA has just told the Association of Investment Companies that it is now reconsidering its position on VCTs at least. It is understood to be working on alternative proposals that would exclude these funds from the new rules.
But there's no clarity yet on how these alternatives might work and, in any case, the final decision rests with the Financial Conduct Authority, the new consumer regulator that replaces the FSA soon. Moreover, there has as yet been no movement on the EIS, where the FSA says it is still looking at the arguments.
For now at least the scheme remains within the scope of the new rules – and the fact that the regulator has felt able to move more positively on VCTs does not augur well for the EIS. There are some good reasons for regulators to look closely at the way the EISs and VCTs are promoted. Investments in very small businesses are, by their very nature, more risky than taking a punt on blue-chip companies. There's a much higher possibility of losing the lot, particularly in the EIS.
Also, the generous tax advantages may turn the heads of investors for whom these schemes are not really suitable.
Nevertheless, both VCTs and the EIS have been available since the mid-Nineties with no evidence of any substantive mis-selling – even though some schemes have registered significant losses. Regulators are right to think about how to encourage investors to tread warily, but an outright ban on promotion of these vehicles is draconian.
With ambitious, growing SMEs struggling to find finance, do we really want to deprive them of funding that has worked very well for the best part of two decades?
New EU rules on payments face setbacks
Will new European Union legislation on late payments, which comes into force in mid-March, improve the lot of struggling small businesses? At first sight, it should – the rules require public-sector organisations to settle all bills within 30 days and private-sector ones within 60 days.
There are two problems, however. First, businesses whose customers fall foul of the rules will have to bring a claim to secure redress, which many small businesses will be reluctant to do for fear of jeopardising their relationships. Second, the rules allow for longer terms if both parties agree to this – again, many small businesses may feel they have little choice but to accept whatever large customers want.
Julian Ireland, a solicitor at the law firm EMW, says the EU rules are a positive step forward but that it will be necessary to monitor the response of larger companies.
"A minority of big businesses might wish to exploit the power they have over smaller suppliers by continuing to push payment boundaries beyond the 60-day limit, or at least put pressure on suppliers to waive their rights," he warns.
African Potash digs into a double boost
Where there's muck, there's brass – not least in the potash industry. As a crucial ingredient in fertiliser, potash is an increasingly sought-after asset, with population growth raising demands on crop yields.
Alternative Investment Market-listed African Potash floated in 2011, raising funds to secure potash assets on that continent. It has been slow to make investments, but has now paid $15m (£10m) for the exploration rights to the Lake Dinga Project in the Republic of Congo, one of Africa's best potash prospects.
Meanwhile the company has signed up Jean-Pierre Conrad as non-executive chairman. Mr Conrad has held senior positions at Marc Rich & Co (which would become the commodities trader Glencore) before becoming chief financial officer at the giant miner Xstrata. He has spent much of the past decade pursing private ventures in the resources sector.
Small Businessman of the Week: Paul Lewis, marketing director, Moo.Com
We founded Moo.Com in 2006, offering mini-cards for photographers looking for a new way to print their work. Since then we've launched a whole range of different ventures, offering business cards, postcards and greetings cards, as well as services for companies.
"We're also trying to close the gap between online and offline – we acquired Flavors.me last September, a site where you can create an online calling card that incorporates all your social media and other online activity. And we're also trialling NFC cards – they have a built-in link, like a QR code, to your online presence.
"Now we're doing something unusual for an online business. Today we're opening our first ever shop, in Shoreditch [in east London]. We've signed a six-month lease – we think that will be long enough to see if we can do something that's a little different for retail.
"We want to provide an environment where customers can touch and feel their creations. However good the online offer is, nothing beats physical reality. All of what we do is founded on our love of brand and design – the printed form has been around in one way or another for 600 years and we're just the latest innovators in that history.
Swedish stars ask fans for £195 pledges on crowd-funding website
voicesJust when you thought you could find a man, get married, and have a baby by the age of 35... it turns out you’re too late, says Grace Dent
sportNapoli 2 Arsenal 0: Gunners must now face either Real Madrid, PSG, Bayern Munich, Atletico Madrid or Barcelona in knock-out stages
musicAs Mariah Carey and Noddy Holder rake in the royalties from their classics, why there hasn't been a decent festive hit for 20 years?
theatreAuthor Daniel Rosenthal recalls the mishaps that almost brought the curtain down on the likes of John Gielgud and Diana Rigg
filmFilm producers sue Warner Bros for $75m over Hobbit films
lifeAs the Royal Mail plans to phase out deliveries on two wheels, it's no wonder posties are in a spin
musicThe 21-year-old beat Ella Eyre and Chlöe Howl to win the honour
lifeFull of the joys and want to help your fellow man? December isn't the time to do it
techLuke Blackall reports on precision engineered prams and babygros that monitor your child 24-7
The ten coldest places on Earth
Nelson Mandela memorial: ‘Bogus’ interpreter made mockery of Barack Obama’s tribute
David Cameron explains selfie with Obama and Helle Thorning-Schmidt at Mandela Memorial
Krokodil in Mexico? Teenager hospitalised after 'injecting drug into her genitals'
Australia incest case: Filthy and severely deformed children found in remote farming community after generations of inbreeding
- 1 Nelson Mandela memorial: ‘Bogus’ interpreter made mockery of Barack Obama’s tribute
- 2 It’s shameful that our universities have accepted gender segregation under pressure from the most oppressive religious fanatics
- 3 Kenyan politician Mike Sonko left red-faced after photoshopping himself next to Nelson Mandela
- 4 Exeter to Edinburgh and back in a day: How one fresher's lost bet left him facing a 900-mile round trip
- 5 Selfie at funeral: Cameron squeezes in on Obama snap at Mandela memorial
- < Previous
- Next >
iJobs Money & Business
£77099.84 - £96375.26 per annum + Bonus + Benefits : Harrington Starr: My clie...
£45000 - £60000 per annum + Bonus and Package: Harrington Starr: Trading appli...
£50000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: A leading prov...
£70000 - £90000 per annum + BONUS + BENEFITS: Harrington Starr: A leading mark...