Business angels replacing VCs as key players in early-stage investment

Business angels are replacing venture capital firms as the key players in early-stage investment, says Simon Cook, chief executive at DFJ Esprit.

The head of the London-based venture capital firm, which has funded companies such as movie rental business LoveFilm and biotechnology company Apatech, has declared that the lines between the ‘two worlds’ of venture investment – angels and VC firms – have become increasingly blurred.

Cook says that following the launch of the Seed Enterprise Investment Scheme next April, which Chancellor George Osborne announced in his Autumn Statement this week, there will be a shift in power to angel investors.

He adds that the firm is now investigating whether to enter the EIS and VCT market.

Cook tells GrowthBusiness, ‘We have been actively involved in consultations with the government. If you look at over half the [early-stage] deals done they involve angel investors – the tax advantages around angels are very significant.

‘Historically, the two worlds have existed separately but from April next year they will come together. We are looking to launch EIS and VCT products.’

Under the Seed Enterprise Investment Scheme, people who invest up to £100,000 in a qualifying new start-up business will be eligible for income tax relief of 50 per cent. The scheme will also be open to companies, but with a total investment limit of £150,000 and the relief will be offered regardless of the rate at which the investor pays tax.

Cook believes there are many pockets of growth across Europe, even though it is a relatively small venture capital market. He adds that London is one of the most exciting investment hubs, referencing the government’s ‘Tech City’ initiative that aims to assist start-up companies in East London.

He comments, ‘There are only 200 deals a year in Europe that are over $500 million so the Europe venture market is very small. That said London has some serious strengths with Tech City at the moment, it is becoming very much like New York, which is an upcoming home for venture capital.’

Cooks opines that there are three main investment trends at moment. These are e-commerce, personalised medicine and internet-based companies.

He continues, ‘Advertising technology, retail technology and financial technology are definitely something to look at, so is the whole story of e-commerce. Many people are online, but there are still so many things that have not been done online yet.

‘Medicine, maybe not in the next 12 months but over the next five years is interesting, particularly personalised medicine. Sixty-five per cent of the wealth in the world is held by over 65 year olds. There will be fantastic advancements in personalised medicine to serve the aging population.’

Cook sees a shift away from the mentality that successful companies can only emerge from California.

He explains, ‘Silicon Valley is more a state of mind. 25 per cent to 50 per cent of Silicon Valley companies [migrated there] and I think people are starting to realise now they don’t actually have to go out to Silicon Valley.’

Todd Cardy

Todd Cardy

Todd was Editor of between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital.

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