With Tom Pellereau due to embark on his new business with Lord Sugar this week following his success in winning the £250,000 investment prize in the final of The Apprentice on Sunday, it seems everyone is talking about alternative investments as a way of obtaining funding for both new start-up businesses, as well as existing established businesses, without having to resort to traditional bank funding.
With traditional business loans from banks still proving difficult to obtain in many circumstances, the Government is currently in ongoing consultation in relation to ways in which enterprise investment schemes and venture capital trusts can be simplified to encourage diversity of share ownership.
The Government are also considering granting tax relief on investments made by so called “business angels’ who provide initial investment to start up businesses, which will encourage both start ups and investors alike to look into this type of funding.
Alternative investments can work very successfully for both businesses looking for funding and for the investors themselves. However, for the business itself, there is always a balance to be struck between obtaining the funding and entering into too many restrictions in favour of the investor as to the way in which that business can be run. It is vital that the documentation affords the appropriate level of protection for both parties, and also sets out a clear exit strategy for the investor.
Investors also need to consider that even with watertight paperwork; there is no guarantee of any return on the investment in the event of the company becoming insolvent.
As proven in The Apprentice series finale, investors will expect a thorough, well researched and realistic business plan when considering investing in a business, in which they can clearly see the potential for a return on their investment.
Whilst I’m not sure I will be rushing out to buy the ‘back pain chair’, Tom’s inventive flair coupled with Lord Sugar’s passion for new products and experience in taking them to market certainly has the foundations of being a great new business partnership.
For further advice on alternative investments, either from a start up business perspective or as an investor, please do not hesitate to contact me or a member of the team.