Wed. Dec 8th, 2021

As we get out on the other side of the blockade, it seems like the world is going crazy, splashing cash on things that are definitely taking holders, even though they are questionable in their ability to deliver returns.

Recently, an invisible work of art sold for $ 18,000. When I say it’s invisible, I don’t mean that it was a new James Bond-style technology you’ve never heard of. I mean, in real terms, this art doesn’t exist. And yet someone invested in it. On top of that, the craze for non-consumable tokens (NFTs) has seen money being invested in assets, including a digital perfume, a $ 500,000 digital house and the world’s first tweet, which won 2 , $ 9 million.

Non-fungible tokens or NFTs are cryptographic assets, the ownership of which is recorded in blockchain with unique identification codes and metadata that distinguish them from each other. One person cannot exchange one NFT for another as he would with dollars or other assets. Each NFT is unique and acts as a collector’s item that cannot be duplicated, which is rare for design.

This differs from expendable tokens such as cryptocurrencies, which are identical to each other and can therefore be used as a medium for commercial transactions.

Clearly, there are many new things you can invest your money in. But how long will this fashion last and there will be buyers on the other side? Who will say. What I can say is that if you want to invest your money in something exciting (and a little more predictable), you should consider investing angels.

Angel investors are the superheroes of the early world. Not only do they provide vital blood for start-ups in the form of much-needed capital, but they provide invaluable advice, contacts and support.

Angel Investment is a journey in which you have the opportunity to identify and help grow the UK’s brightest companies and, if you have experience, get a good financial return.

So, if the idea of ​​being an angel investor has never crossed your mind, here are five good reasons to consider it.

1. It will make you feel good

When you invest in listed properties or stocks, it only influences cash, so the only time you’ll be proud is when you get a return. With start-ups, it’s a different story. Cash is important, but it’s not the only thing these companies need. They need advice, assistance and your black paper. When you invest in a start-up, you join them on a journey in which you can directly impact their growth trajectory, either by making a vital introduction to a canopy customer, helping them to match their pricing model. or avoiding getting themselves into legal hot water.

You may also have the difference between a company that becomes a giant future or does not exist at all. By providing support at the beginning, you can help set up which businesses are up and running. Therefore, if there is any cause you are passionate about, such as sustainable fashion or social care for the aging population, you can support seed companies in those areas that can help have a wider social impact.

2. Save money on your taxes

The UK government manages two important and lucrative tax systems that a staggering number of people have never heard of: the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). Both schemes are designed to encourage investment in start-ups. To date, the scheme has helped raise £ 22bn for more than 30,000 companies.

Is it like that that successfully because the tax incentives are that well.

The EIS scheme, aimed at slightly more consolidated companies, offers:

  • Reduction of income tax of 30% of the amount invested
  • Capital Gains Tax (CGT) Exemption on Earnings from the Sale of Your EIS Shares
  • Further reduction of income tax at the higher rate of income tax (40% or 45%) due to losses caused by the disposition of EIS shares
  • Unlimited deferral of capital gains

The SEIS scheme, its initial counterpart, offers:

  • Reduction of income tax of 50% of the amount invested
  • Capital Gains Tax (CGT) Exemption on Earnings from the Sale of Your EIS Shares
  • Further reduction of income tax at the higher rate of income tax (40% or 45%) due to losses caused by the disposition of EIS shares
  • Unlimited deferral of capital gains

All of this is designed to encourage investment in start-ups, while offsetting the risk, because investing in start-ups is risky.

3. You may one day get richer

Yes, one day you might wake up and read the news and leave your phone excited when you learn that one of your businesses has just sold for money. (By contrast, I have to mention that one day you may get up and read the news and leave your phone in utter disappointment when you learn that one of your businesses has suffered the bucket.)

Jokes aside, investing in angels, while risky, can be very lucrative. Data collected in the United States in a 2017 Willamette University study of angel investment returns calculated an average return of angel investors of 2.5 times. With an average investment period of 4.5 years, this indicates a gross internal rate of return of 22%.

Compare this with other investment vehicles:

  • Mutual funds: not even the best-performing investment funds of all time will break 20% of average annual return, and most do not exceed 15%
  • Bonds: UK interest rates on bonds have fallen to 0.1% over the past year
  • Shares: The average return on an ISA of Shares and Shares in the UK is 5.14% (April 1999 to April 2020)
  • Index Fund: The S&P 500 has provided an average annual return of 13.6% since its inception
  • Invisible Art: Your guess is as good as mine
  • NFTS: Nobody knows

A more recent study published in January 2021 by FounderCatalyst showed that angel investments yielded an average return of 2.77X. With the added advantage of the EIS scheme, it grows to an average yield of 3.19X.

It is worth noting here that averages are averages. Any experienced angel will tell you that many companies take well over 4.5 years to mature and get out. Some companies fail quickly, while others fail slowly, never grow and never come out, blocking your assets indefinitely.

4. You will make new friends

Whether investing in ISAs or stocks will leave you lonely, flipping through the financial section with your ink-stained fingers, or spending quality time with your investment app, angel investing is social. You will meet new people, smart people like you.

A big part of angel investing is networking. When you start researching opportunities, you will meet passionate founders and related investors with whom you can talk about passionate founders. You will be invited to present events where entrepreneurs will present you with their investment opportunity as you sip wine and contemplate the potential benefits.

You can also join an investment club (which I recommend to all new investors). You can opt for a sector-specific club that suits your interest and experience or for an agnostic sector. There is a lot to choose from and the Beauhurst research agency has detailed the most active ones here (including investors) Private Investment Club, which is at the top of the list.)

5. You will have the best dinner stories

There’s one in which you woke up a million pounds richer, or one in which an entrepreneur chased you to launch his hug-pound telegram business (medium pandemic) or one in which you helped a start-up business to become a household name.

Whether you make a little money or a little (or none), you’ll have a great story to tell. As an angel investor, you will have a positive impact on the companies in which you choose to invest. And in life, sometimes what you get depends a lot on what you do.

Related reading:

Your free digital guide to angel investing

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