Start-ups chase the equity gap

The number of start-up and early stage companies receiving venture capital reached a 10-year high last year, according to figures from the British Venture Capital Association.

Although there is a long way to go before the equity gap – namely, the problems small companies face in raising medium-sized sums of capital – is solved, the BVCA figures show that start-ups are benefiting as much as larger groups from the growth in private equity investments.

A total of 454 start-ups received venture capital during 2004 compared with 427 a year earlier. The number of small companies receiving venture capital has been increasing since 1995, but dipped after the dotcom bubble burst.

BVCA’s figures also show that UK private investors tripled their contributions to private equity funds to £220m last year.

Gary Robins, chief executive of Hotbed, the private investor network, said that although funding start-up businesses can be riskier than investing in expanding established businesses or management buy-outs, investors are attracted by the potential for higher returns.

“Although growth capital and buy-out investments tend to be the most popular among our members, there is a clear demand for promising early-stage investments.”

Small- and medium-sized businesses could benefit further from new government initiatives, such as the relaxation of the rules on self invested personal pensions to include private equity investments.

In 2003, the government announced its intention to create enterprise capital funds as a means of bridging the equity gap for SMEs although these have yet to materialise.

Understanding business credit

The Better Payment Practice Group, a collaboration between business and government to improve the payment culture, has added a new section to its website to help companies understand business credit ratings.

The guidance explains what a credit rating is, how it is calculated and how businesses can improve their score. The BPPG is encouraging companies to incorporate credit checks in their standard credit management practices, including such actions as vetting the creditworthiness of potential customers before trading with them.

The full guidance from the BPPG can be found at www.payontime.co.uk/collect/collect_understand_ratings.html.

A taxing warning for Christmas

With the season of goodwill approaching, the Association of Chartered Certified Accountants and HSBC have issued sobering warnings about Christmas excess.

ACCA is reminding companies that they will be liable for income tax and National Insurance contributions if the total cost of the staff Christmas party comes to more than £150 per head. Each guest will have a £150 exemption if employees take their spouses, family and friends. However, employers cannot claim back any VAT incurred.

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