A very

private affair

For experienced investors, private companies could be rewarding, both financially and personally

At Coutts, we believe being patient, long-term investors and being sensibly diversified are some of the best ways to help cushion portfolios through the short term ups and downs of a rapidly changing world. And for those able to lock in capital for a long period, investing in a private company can be a rewarding experience – financially and personally.

Private company investments may be illiquid and there may be no recognised market for them and it may therefore be difficult for you to deal in them or obtain reliable information about their value or the extent of the risks to which they are exposed. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

ANGELS ARE WELCOME

The emergence of crowdfunding and the growth of investor clubs are helping bring companies and individual investors together. Small businesses are receptive to private capital from high-net-worth individuals, and not just because they want patient investors who can provide financial support on flexible terms. Many are also looking for the valuable advice and important contacts that these ‘angel investors’ can provide as mentors or non-executive directors.

Investing in a company at an early stage can be very attractive but investors must be comfortable with the risks involved. Notably, private investments are illiquid - investors cannot easily sell or value their holdings - and the timing for exiting is often over a decade. This can be a problem if the investor needs cash.

The direct route can also be tax-efficient through a number of government-backed structures, including the Enterprise Investment Scheme (EIS) which offers entrepreneurs and individual investors attractive and valuable tax relief from certain qualifying, unlisted companies.

 

GET CLOSER TO YOUR INVESTMENT

Small and medium-sized companies (SMEs) power the UK economy. Yet eight years on from the financial crisis, many are still finding it difficult to raise sufficient capital for growth from banks, particularly where the funding needed carries more equity-like risk. Private investors are helping bridge this gap by backing enterprises that are vital for the country’s economic future and, in doing so, creating jobs in an increasingly competitive global economy.

There are many considerations involved in making a private investment, and one of the most important is the quality and experience of the people managing the business. Do they have their own wealth invested so that there’s an alignment of interests to maintain focus and dedication?

It’s essential for investors to conduct their own thorough due diligence and consider any existing information that’s available. A key difference from investing in public markets is the ability of investors to ask very detailed questions directly to management teams, with the expectation of receiving an equally detailed response. 

“One aspect is fundamental in every situation – the calibre of the management team” Hans Prottey, Coutts

WHAT PROSPECTIVE ‘ANGELS’ SHOULD CONSIDER:

  • Can you justify the valuation? Are you being asked to pay “tomorrow’s price” today?
  • Beware of aggressive business plans as projections almost always differ from future reality
  • Be prepared to make follow-on investments, or have your shareholding diluted
  • Some may take comfort in knowing there are other investors. Is there already a lead investor? What are their terms? Have they done due diligence?

The value of investments can go down as well as up, and you may not recover the amount of your original investment.

JOIN AN INVESTMENT CLUB

To help some of our more financially experienced investors find private company investment opportunities, the Coutts Investment Club connects clients with highly selective, potential high growth opportunities.  The Club leverages Coutts’ unique strengths to source proprietary deal flow. Our brand and reputation means companies approach us everyday seeking advice about high-net-worth investors.

We believe the most interesting opportunities are coming from our own highly successful clients. Whether they are entrepreneurs or super-angels, they are looking to bring in like-minded shareholders. Coutts also receives numerous referrals from NatWest (also part of the RBS Group), which has a leading market share in providing banking services to SMEs in the UK.

As an introduction-only, non-advised service, our club members select the companies in which they want to invest and decide on their level of involvement. These businesses typically require capital to make strategic acquisitions, scale their operations or attract and secure the best talent. Deals are typically between £2-10mn, EIS-qualifying and require individual investment ‘tickets’ of £250,000 and above.

“Angel investors back people and they need to have complete confidence and trust in management to make the right decisions” Hans Prottey, Coutts

Coutts’ Strategic Solutions team sources and reviews opportunities before they are introduced to clients. These involve companies across a range of sectors that includes some of the most innovative and fastest-growing areas of the economy. 

 “We consider a broad range of factors when looking to find opportunities to introduce to our clients,” says Hans Prottey, who leads Strategic Solutions. “But one aspect is fundamental in every situation – the calibre of the management team. Angel investors back people and they need to have complete confidence and trust in management to make the right decisions and to lead the business through both good and bad times.”

With opportunities to become actively involved in small fast growing businesses and perform your own detailed hands on analysis, a private company investment is an exciting way to diversify and potentially enhance investment returns - as well as helping the next generation of entrepreneurs.

Private company investments are illiquid - investors cannot easily sell or value their holdings - and the timing for exiting is often over a decade. This can be a problem if the investor needs cash. As with any investment, past performance should not be taken as a guide to future performance, the value of investments can go down as well as up, and you may not recover the amount of your original investment.

 

IMPORTANT INFORMATION

This webpage is produced by Coutts for information purposes only and for the sole use of the recipient and may not be reproduced in part or full without the prior permission of Coutts.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

Past performance should not be taken as a guide to future performance.

In the case of some investments, they may be illiquid and there may be no recognised market for them and it may therefore be difficult for you to deal in them or obtain reliable information about their value or the extent of the risks to which they are exposed. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. Investments in emerging markets are subject to certain special risks, which include, for example, a certain degree of political instability, relatively unpredictable financial market trends and economic growth patterns, a financial market that is still in the development stage and a weak economy.

The information in this webpage is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. Nothing in this material constitutes investment, legal, credit, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you.

The information in this webpage is believed to be correct but cannot be guaranteed. Any opinion or forecast constitutes our judgment as at the date of issue and is subject to change without notice. The analysis contained in this document has been procured, and may have been acted upon, by Coutts and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law and without being inconsistent with any applicable regulation, neither Coutts nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such information, opinions and analysis.

This document has been produced by Financial Advice & Investment Solutions at Coutts and does not constitute investment research. Neither this document nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person. In certain other jurisdictions, the distribution may be restricted by local law or regulation.

Wealth division of Royal Bank of Scotland Group.

Coutts & Co. Registered in England No. 36695. Registered office 440 Strand, London WC2R 0QS. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

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