The sense of a venture: Despite the risks, investors still look for dreams to back

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The Independent Online
IT SOUNDS like a wonderful idea. Invest a few tens of thousands of pounds in a small company with an unbeatable product. Then sit back for a year or two and watch your money multiply.

For thousands of people, the dream is never more than just that. But for a handful of venture capital investors who are prepared to take a chance, the returns can be huge - as can the losses.

For every success story there are many failures. Yet people are still prepared to take the risk. Their willingness to do so is backed by the Government.

In November it announced plans for new Venture Capital Trusts, in part a replacement for the old Business Expansion Scheme. VCTs will enable investors in unquoted companies to receive dividends tax-free and will not attract capital gains tax.

A separate Enterprise Investment Scheme allows 20 per cent tax relief on investments of up to pounds 100,000 a year. They are also exempt from capital gains tax, while investors may become paid directors of the company. Losses incurred will earn tax relief.

One person who believes the Government's EIS plans are a good thing is John Milton, a venture capital investor based in Hereford. 'This gives real hope for many small businesses needing the cash,' he said. 'It will certainly get me to scout around for more investment opportunities.'

Last summer Mr Milton invested pounds 75,000 in Samantha de Teran, a luxury sportswear company run by Sam Angus, a London designer. The money came from Mr Milton's family firm, which has traditionally specialised in property development.

Ms Angus, 26, said last week: 'I started by running the business from my bedroom about 18 months ago. In the year to July last year our turnover was pounds 17,000. My designs are now sold at Harrods, Fenwick's and also abroad. We are growing quite fast. Last month alone we took orders of pounds 19,000.'

Even so, she is anxious not to grow too quickly: 'I had a number of offers from people, but they were unrealistic. They wanted immediate dividends. For a growing business I felt that was too much pressure.'

Mr Milton's family are subscribers to the Venture Capital Report, a Henley-based publication with details of projects in need of financial backing. Ms Angus's venture was mentioned in the magazine.

'We were looking to diversify into other areas. Obviously the financial return, or the potential for one, was important. But the area of investment also had to be something one of the family was interested in,' Mr Milton explained.

His family company is now a 30 per cent equity partner in Ms Angus's concern. He said: 'We are looking at a three-year timescale before we see anything at all, but in five years the returns should be substantial. We are also still looking for other ventures so that we can build a portfolio of investments.'

Mr Milton admits he may lose money in this and other high-risk investments. Not all his family's previous ventures have been happy.

'One of our investments was in a foundry company in Kent, where we thought there was a potential of good growth. We invested pounds 450,000. Our problem is that we just could not get on with the management, so there had to be a parting of the ways.'

The money is secured on the foundry's property, so it is not lost, but Mr Milton acknowledges it could have been used more profitably elsewhere. 'The moral is that unless you are prepared to lose some or all of your money in a venture capital investment you should not consider making it,' he said.

'It also helps if the amount that you invest is only a small proportion of the total amount that you have available.'

Venture Capital Report: tel 0491 579999.

(Photograph omitted)

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