Firms miss out on equity funding

Vast sums of funding are being missed out on because professional advisers are unaware of a relaxation in rules governing new business investment.

Awareness of changes to the Financial Services and Markets Act among advisers must be improved if ‘early-stage’ businesses are to take full advantage of informal equity funding.

A survey among 100 business advisers by the Development Capital Exchange revealed that, although there was some awareness of the changes, knowledge of what they were or how they affected funding applications was poor.

Of the 50 firms surveyed, while all were aware of the changes, only 10 were able to name the three key amendments to the financial promotion rules. The rule changes allow non FSA-regulated organisations to back investment opportunities.

David Rose, chief executive of the Development Capital Exchange, said the changes to the rules had ‘not been appreciated by all but a few advisers in the market’. He went on to say that there were between 20,000 and 50,000 early-stage enterprises looking for funding and up to 150,000 entrepreneurs looking to invest.

Rose believes that the changes have not been widely communicated and therefore exploited because of the large number of professions that operate in the market, including accountants, IFAs, business advisers, management consultants and lawyers.

‘The time has surely come for professional advisers in this fragmented market to form an organisation through which information can be properly distributed along with introducing standards and protocols,’ he said.

The changes, which became law on 7 March, allow potential investors to make direct contact with private equity opportunities without fear of either party breaching financial regulations.

When the changes were made by the Treasury in March, Rose said the department had ‘liberated’ the informal private equity market, and overcome the catch-all restrictions placed on it by what he termed the ‘big bang’ Act of 1986.

‘It’s taken a little while but, at long last the regulators have done well by independent, unlisted businesses seeking equity funding,’ said Rose. ‘These amendments mean that the opportunities listed on our private equity market can now legitimately “come out of the closet” and into the wider world, much the same as offerings through the stock exchange’.

The 100 business advisers and accountants also backed calls for a ‘code of practice’ for professional advisers involved in the early-stage equity market. A total of 95 out of the 100 surveyed agreed.

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