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The impact of digital technology on early stage investing

Posted on June 13, 2019 Written by Administrator

Early-stage investing has always been a very human endeavour, after all matching businesses and investors is all about relationships. So, it’s no surprise that the adoption of digital in this space has been slower than it has been in other industries.

But the sector is now waking up to the idea that digital does not mean impersonal. In fact, it can help people to build deeper relationships, faster. Digital goes this by providing new ways to communicate, share information and ultimately makes finding the right opportunity and deciding to invest easier process for investors.

Two ways digital will transform the world of early-stage investing:

  1. Making it considerably easier for investors to discover deals, complete due diligence and manage their portfolios

In early-stage investments, offline activity is still primary. This is set to change with the introduction of white-label investment management platforms like Envestry for Networks. These platforms allow groups to showcase deals to their investors, in an FCA-regulated environment. Investors can review deal information and documents in a secure area, engage with the management team and other investors and make an investment.

The suggestion here is not that digital will replace offline activities; presentation events and face-to-face meetings will always play a crucial role in any investment decision. Digital will complement these activities in a way that makes the entire end-to-end experience much better for investors.

  1. Connecting the disparate world of early-stage investing

The landscape we have today is the same landscape we had fifty years ago. We’ve got investment networks, clubs, incubators and accelerators, all of whom actively help investors to find opportunities and scale-ups to secure funding – but they are all closed and separate. Our vision for the future is one in which all these groups connect to one another, without sacrificing control or independence. We’ve built a software platform to do just that. Using an aggregated approach, we can bring the world of early-stage investing together in a way that benefits all of those involved.

For scale ups, it means working with one party and gaining wide exposure rather than promoting a deal through a number of disparate networks. For investors, it means having access to a near unlimited number of deals, all filtered according to interest and managed in a single location – regardless of network of origin. For investment facilitators, it means a greatly improved experience for their investors and decreased operational overheads.

But why is now the time? I’ve delved into the market and industry trends to show why I think 2019 is the year that early-stage investing truly adopts digital.

Results – instantly

Instant gratification spans all areas of our lives: instantaneous validation on Twitter, one-hour Amazon delivery, and 24-hour news. So why should the investment experience be any different? If I can find out about anything in the world from wherever I happen to be, why should I – as an investor – wait for a pitch session to find out about investment opportunities?

The ROBO Effect

Borrowing a term from the retail industry, ROBO (Research Online, Buy Offline) reflects a broad behavioural change. People no longer head to a shopping centre to browse for an item, they go online and find what they want and then go down to the store to get it. In many cases, they opt not to go to the store, satisfied with the information they have found online, and make an immediate purchase. This behaviour isn’t particular to consumers: a study, by Forrester Research, found that 68% of business to business buyers researched online independently and a further 62% say they go as far as developing a selection criteria and vendor list based on digital content.

So, why is it different with investing? When people prefer to get information instantaneously and independently, why do we ask them to wait for a pitch event? Using digital, information on potential investment opportunities and any relevant details can be ready for investors to read at their leisure. Further to that, information can be interactive. Potential investors can ask management teams questions – using online channels – and get answers in real time.

Seeking a diverse portfolio

Digitisation has fuelled the unprecedented growth of start-ups in the UK.  This has produced a vast – and occasionally overwhelming – array of opportunities, resulting in a trend showing networks are becoming more niche and sector specific. While regional investment networks have long been part of the landscape, they are joined by networks specialising in – for example – Greentech, MedTech or women-owned businesses.  This is not a bad thing, but it has caused further fragmentation.

Experienced investors know, that if they are to get the best chance of a return on their investments, a diverse portfolio is a must. However, such specificity throws diversity out the window, leaving investors only one option – joining multiple networks and doing a lot of leg work to build and manage their portfolios.

Digital to the rescue. With an aggregated platform, regional and niche networks can connect to one another and share deals at the click of a button. This allows networks to protect their greatest asset – their investors – while offering them a broader array of investment opportunities without doing all of the vetting and admin.

Uncertainly factor

By mid-2018, the impact of a looming Brexit was already starting to be felt across the industry.  With predictions of economic troubles in the UK in the short term, many investors tightened their purse strings, becoming increasingly selective over which investments to make. Yet, at the same time, reports show that foreign investment is at an all-time high: in 2017, a whopping £6bn was invested over the course of the year, with 396 of these deals involving at least one investor from abroad.

This is another opportunity that could be capitalised by digital. With a digital platform, deals can flow across borders – giving investors the ability to further diversify their portfolios, while giving businesses a better opportunity to find investment.

It’s time to follow the leaders in the field and adopt digital in early stage investing.  The sector will reap the benefits.

Key players, like The SetSquared Partnership and Britbots, are already well on their way to adopting digital. Digital disruption has begun so as entrepreneurs and investors you can take advantage of the many benefits.

About the Author

Oliver is CEO and Co-founder of Envestors. Oliver sits on the Board of the UK Crowdfunding Association (UKCFA) and sat on the Board of the UK Business Angels Association (UKBAA) from 2006 to 2014. He is also a Member of Court at Imperial College (London). After completing a degree in Finance, Oliver decided not to become an accountant but instead raised equity and bank debt to start Woolleys Healthfoods. The business comprised three retail catering outlets in central London, three organic sausage shops and a factory in the south-east of England, which wholesaled to 200 establishments including Harrods. In 1997 he sold the business to Northern Foods and moved into early-stage investing.

Web: https://www.envestors.co.uk/

LinkedIn: https://www.linkedin.com/company/envestors-llp/

Twitter: @EnvestorsLondon

Facebook: https://www.facebook.com/pg/envestorslondon/posts/

Filed Under: Pensions and Investments

Give yourself the option to retire earlier

Posted on February 2, 2018 Written by Administrator

Do you know when you want to retire? Are you confident that your retirement planning will help you achieve this? Many business owners may find that their planned retirement is delayed unless they take action. The crunch issue is the need to review the fees being charged on your retirement and investment plans. Let me explain why and give you an example to demonstrate what can be achieved.

The Financial Services Industry charges fees on all investment products – that’s how they get paid for the advice they offer and the work they do setting up and managing funds and portfolios. There is nothing wrong with that – but most people, even business people, have no idea what these fees are, and they have virtually no understanding of the impact these fees have on the value of their retirement fund.

Why don’t we shop around on fees for what is really important in our lives; our retirement lifestyle? Even if you love your business if you could get the same return on your money with the same consumer protection, but by shopping around you could retire sooner – why wouldn’t you?

Regardless of age or how much money you have, high industry fees can delay you reaching your desired date to sell your business, or hand it on to the next generation; the day you start your retirement. With the changes implemented following the ‘Retail Distribution Review’ (RDR) five years ago and the new update to the Markets in Financial Instruments Directive (MiFID 11) which came into force on the 3rd January 2018, investors have never had so much information available to them. Investors now have the power to take back control of their money from the Financial Services Industry and do what’s right for them. After all, this is your money and you are saving for your retirement not your fund manager’s. Yet very few investors understand the fees they are paying and the impact of those fees.

And that’s the problem; without knowing the total Financial Services Industry charges and the impact that has on our long-term future wealth, why would we do anything about it, and how would we know what to do?

Perhaps it is because we do not have sufficient information presented to us when we invest, to allow us to make that decision, or we do not want to look ignorant in front of our trusted advisor or perhaps we do not think it is happening to us.

Let’s have a look at an example:

Sara is aged 45 and has pension and ISA savings valued at £300,000 and wishes to retire with a fund in the region of £750,000 and preferably at the age of 65. The total financial services industry cost on her money is 2.5% per annum. Assuming an average growth rate of 6% per annum the fund value would not achieve the target value until she is aged 73.

Remember, £300,000 of this fund value was Sara’s money to start with, a profit of £467,000 has been generated and it has taken 28 years to achieve target value. You may be surprised to find out that the total Financial Services Industry charges have totalled £345,512 over this time.

This means it has cost Sara £345,512 to make £467,000 and she’s lost eight years of her desired retirement lifestyle.

Adnan, also aged 45 and with pension and ISA savings valued at £300,000, wishes to retire with a fund in the region of £750,000 and preferably at the age of 65. He decided to review the industry costs. Adnan realised that he could get the same returns and same consumer protection for 1.1% per annum. He also achieved an average 6% return per annum on his money meaning that he achieved a target fund value of £773,000 by age 65 – eight years earlier than Sara.

By shopping around to get the best fees he has achieved his target retirement fund value at his projected retirement date.

As £300,000 was Adnan’s money anyway he has made a profit of £473,000 in 20 years not 28 and it has cost him only £102,000 (not £345,512) to make £473,000 and achieve his lifestyle objective. If at the time he decided to delay retirement to age 73, like Sara, the fund value would continue to compound and be in the region of £1,128,500, an additional increase of £360,000.

The question: is which of these two investors does your retirement planning mirror?

Running your business maybe your passion yet the day will come when you want to retire. Make sure you take control so that you can retire on the date you want to with the income you need to enjoy the lifestyle you want to have.

About the Author

Hannah Goldsmith is founder of Goldsmiths Financial Solutions and author of ‘Retire Faster’. Hannah specialises in Low Fee Investing and is challenging the way financial services are delivered to consumers in the UK, by enabling each client to understand the nature of investment costs and the impact these costs have on their future lifestyle.

Goldsmiths complimentary ‘Second Opinion Service’ reviews investors’ existing portfolios and makes recommendations on Risk, Diversification, Performance, Cost and Tax efficiency, making investors’ money grow in a more transparent and financially efficient way.

Web: http://goldsmithfs.co.uk

Twitter: https://twitter.com/hannahgfs

LinkedIn: https://www.linkedin.com/in/hannahgoldsmith/

Facebook: https://www.facebook.com/GoldsmithFinancialSolutions/

Filed Under: Pensions and Investments

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