UK: MARRIAGE POSTPONED - COMPANIES AND CAPITAL. - It's axiomatic that the smaller the business, the greater the difficulty of raising funds. A start-up may need only a few thousand pounds-worth of seedcorn in order to get off the ground, but at this leve

Last Updated: 31 Aug 2010

It's axiomatic that the smaller the business, the greater the difficulty of raising funds. A start-up may need only a few thousand pounds-worth of seedcorn in order to get off the ground, but at this level the banking system is almost wholly unable to help. What the ambitious entrepreneur could need is a business angel, to put up the money in return for a piece of the action. But how is the entrepreneur to go about finding a compatible angel? And how is the angel to identify a - for him - really interesting opportunity?

It was previously estimated that there are as many as 50,000 well-heeled individuals in the UK with a potential £3 billion available for investment in private companies. A recent survey commissioned by Venture Capital Report (VCR), probably the UK's best known business introduction agency, suggests that the total sum available could be considerably greater than that. The survey also found that, contrary to earlier assumptions, business angels do not confine themselves to companies down the road, but will range far and wide in search of a good prospect. However, this does little or nothing to improve the chances of the right investor hearing about the right needy company.

VCR's Dr Hamish Stevenson argues that, in its efforts to encourage investment in small industry, the Department of Trade and Industry merely fragmented the market, by bringing about a proliferation of small local introduction bureaux. A majority of the angels who responded to the VCR survey would like to see the formation of a single national network, enabling them to pick and choose between investment opportunities anywhere in the land. Stevenson, too, would 'like to think that a national scheme will be created' - and help to create a more entrepreneurial climate in Britain.

It so happens that this summer, while the VCR survey was in preparation, Enterprise Adventure - a private sector offshoot of the DTI's Enterprise Initiative - launched a computer database service called VentureNet, which aims at bringing companies together with providers of capital. It is designed to operate nationwide, and enable investors to examine opportunities by whatever criteria they choose: location, industry, amount required, etc. The scheme 'obviously makes sense', in the view of one angel.

Acclaim has not been universal, however. The existing introduction agencies are certainly not impressed. Vivienne Upcott-Gill, who runs TechInvest, a DTI-sponsored bureau in Cheshire, stresses the huge importance of personal chemistry when it comes to marrying companies and capital. 'Investors may reject a proposal on paper (or, for that matter, on screen) but change their minds after meeting the people,' she points out.

A major bone of contention is money. The introduction agencies survive by charging a subscription plus a fee if an investment is made - and in some instances get a subsidy. VentureNet also has a complex set of charges. But VentureNet is in a classic chicken-and-egg situation, and having difficulty attracting enough small businesses, or business angels, to reach critical mass. Its managing director, Paul Coleman, has been approaching rival agencies and has 'established working relationships' with a few of them. Others have been deaf to blandishments, although Coleman has tried to persuade them that co-operation 'will not cost a cent'. VCR, for example, is naturally disinclined to share its list of 620 angels with the newcomer. Indeed, VCR itself aspires to be the centre of a national angel network.

If it's worth creating a market, it may first be necessary to establish a marketplace. In which case perhaps the DTI should rethink its solution, and then knock some heads together. Meanwhile the majority of small businesses will continue to look for financial support via the golf club. And many opportunities for wealth creation will be missed.

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