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EXTRAORDINARY RETURNS FOR EXTRAORDINARY TIMES

Katharine Wooller, Managing Director, Dacxi, UK and Eire

 

Black swan events create much opportunity, and successful investors are able to show resilience through their ability to pivot.  Warren Buffet’s oft quoted maxim seems particularly relevant to the COVID era: “be fearful when others are greedy and to be greedy only when others are fearful.”  2020 has been an annus horribilis, with most traditional asset classes falling off a cliff, and it can difficult for those with cash to know where to turn.

Indeed, the year to date figures at time of writing make for grim reading: the FTSE 100 is down 26% and the S&P 500 has delivered an underwhelming 1%.  Luckily there are a small number of assets which have shown phenomenal growth and are increasingly adopted by institutional and retail investors alike.

There are some well-established reputable cryptos that have bucked all trends.  Bitcoin is up 81%, Ethereum is up 202%, and Litecoin is up 33%.  These are some jaw-dropping returns, and it is a convincing argument for minimal diversification into, say Ethereum, when it would take more than 4 centuries to achieve the same returns as the via the S&P500 at its current rate of growth!

Recent weeks have seen solid performance in these coins.  Interestingly Paypal’s announcement in October had a very positive effect on prices, with Bitcoin alone showing 25.6% growth.

Katharine Wooller

You cannot overestimate the importance of this mainstream adoption from the addition of Paypal’s 340 million platform users having easy access to the asset.  For contrast, Bitcoin currently has 32 million non-zero addresses, effectively 10xing the potential audience.

Unsurprisingly, a good number of institutional buyers are now enthusiastically embracing bitcoin as a hedge against inflation.    The asset manager Stone Ridge Holdings Group has purchased 10,000 BTC (approx. £88m at the time of writing) as a “primary treasury reserve asset”.

Microstrategy has purchase $425m worth of BTC, and Square has invested $50m.  Mode Global Holdings, a London Stock Exchange-listed company, has announced plans to make a substantial purchase, as it looks to convert 10% of its cash holdings as part of a strategy “protect investors’ assets from currency debasement.  Even the investment banks have had reason to stem their usual vitriol: JP Morgan issued a research note on bitcoin stressing a “vote of confidence”.

Interestingly there seems to be an emerging trend to talk about crypto and precious metals as a perfect marriage.  Indeed, champion of personal wealth creation/preservation, Robert Kiyosak has given the succinct guidance: “Do not save. Buy gold, silver, bitcoin. Dollar is dying”.

Certainly, precious metals seem to be enjoying a moment in the spotlight once again.  Even Warren Buffet himself, traditionally far from a fan, has invested in gold miner Barrick Gold.

The year to date figures support this investment strategy; gold is up 25% and silver is up 29%.   Interestingly a lot of the dialogue around crypto is about wealth generation, whereas precious metals investors tend to focus on wealth preservation.  Regardless, to be returning to the very assets that were used thousands of years ago says a lot about our current global economic situation.

In conclusion, extraordinary events require a willingness to think outside the box.  Fail to diversify at your peril!  It will be interesting to see if the traditional asset classes even register as part of our new normal, or, as some suspect, we are already a fair way into a complete global economic reset.

 

Business

GOING GLOBAL: 7 TIPS TO GET STARTED

The idea of selling your products or services to new markets across the globe is an attractive prospect for any business, large or small. But while reaching new customers and unlocking the potential for further growth can seem exciting initially, adapting your business to foreign markets is no small feat. Factors such as cost, communication and cultural differences can all affect your business’ success when going global. This guide will explore some of the key considerations to make when you’re thinking of expanding your business overseas.

 

Evaluate Your Finances

One of the main questions to ask when looking to go global is whether or not your business can afford to do so. Crossing borders can be a complicated and expensive process which can take away time and resources from other opportunities at home. Growth for businesses abroad is often a slow process; establishing products and services in other countries takes time, so you will need to factor this into your planning. Thorough analysis of domestic and international markets should always be undertaken before making the decision to expand your business overseas.

 

Location, Location, Location

Choosing the right location is crucial to the success of your business expansion. International business network Going Global Live says that taking your business to the right countries initially can save you money on excessive marketing and advertising, putting you face-to-face with your target market from the outset. You should weigh up the pros and cons of potential locations, such as the likelihood of being able to fill your new HQ with prime, homegrown talent, as well as access to desired markets aided by foreign investment bodies. It is also important to consider the relevant laws and regulations laid out by national and regional governments.

 

Ensure You Have the Right Infrastructure

Making sure your business has the right infrastructure to handle expansion abroad will put you in a good place going forward. Implementing a clear management strategy, both locally and centrally, will set your business up for a smooth and successful launch overseas. Having up-to-date IT and communications systems at the centre of your business will allow you to share information and data securely. When it comes to shipping, choosing the best – and most efficient – transport and storage providers will give you the peace of mind that your products are safe in transit. Companies such as S Jones are ideal for businesses looking for more information on storage solutions for shipping overseas.

 

Build a Strong Team

Appointing a strong team to oversee your expansion is crucial to your company’s success in new markets. Hiring people with a good knowledge of your target market, as well as a focus on your business’ interests, is key when establishing your overseas HQ. Working with local partners can help you to communicate your business’ unique selling point in a meaningful way. Having an experienced partner or mentor that you can trust to oversee the expansion will allow you to stay focused on the bigger picture and ensure that your attention isn’t taken away from your core customer base.

 

Have Faith

Once you’ve made the move to globalise your business, be sure to have faith in your ideas and don’t be deterred by slow progress. Dr Shai Vyakarnam of the Cranfield School of Management says that while there is a fine balance between faith and stubbornness, you’ll need “incredible levels of self-belief and faith in your idea” to succeed, and that you “only need to be able to turn a few key people in your favour and the others will follow”. Making well-informed decisions quickly will allow you to stay on track and will nullify the threat of any lingering self-doubt. While progress may be slow at first, be sure to remain patient and be prepared to build personal relationships to gain the trust of your new partners and customer base.

 

Consider the Impact of New Ideas

When implementing new ideas for your business as whole, consider how they will be received by your new international customers, as well as by your existing customer base at home. What might be seen as a positive idea in your home country could be perceived as offensive or alienating by your customers abroad. Factors such as differing time zones, languages and cultural appropriateness should always be taken into consideration when making key decisions to eliminate the risk of alienating foreign customers and damaging your reputation overseas.

 

Be Adaptable

While it is important to have faith in your business and be patient initially, you should also be willing to make changes as things develop. Acting on the advice of experts is key to navigating new markets successfully. It may be that your products and services require innovation to meet demand, or that cultural differences lead you to make changes to your marketing strategy. Being adaptable will give you the best chance of meeting consumer demand on a global scale.

When trying to expand your business to an entirely new customer base, try to bear in mind some of the above points. As long as you remain patient and open-minded, then you should have little difficulty in marketing your business globally.

 

Sources

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WHY HIGH NET WORTHS SHOULD BE LOOKING AT ANGEL INVESTING IN A NEGATIVE INTEREST RATE ENVIRONMENT

By Oliver Woolley, Envestors

 

As England gets through its second lockdown, Bank of England policymakers report the UK we may be headed for negative interest rates. This would be the for the first time this has happened in the bank’s 326-year history.

With interest rates already at 0.1%, central bank officials announced an additional £150bn stimulus package, in an attempt to boost consumer spending during the second wave of the pandemic.

Despite news of a vaccine, the BoE has taken the total stimulus to £895bn, as double-dip recession forecasts emerge.

In the event of negative interest rates becoming a reality, banks would have the incentive to lend more by making loans cheaper, but account holders would likely be asked to pay to hold money in a savings account.

While plans for negative interest rates are pending, government bonds are already selling at a negative yield of -0.003%, with investors hoping for the safe haven of government issued bonds paying out to get their money back in three years.

Between negative returns on savings accounts, lower yield on bond holdings, a volatile stock market and a projected dip in property prices, investors don’t have many options to diversify their portfolio in a negative rate interest environment.

However, for investors who are comfortable with risk, early-stage investing may be the answer. Angel investors support early-stage companies through financial backing, typically in exchange for equity in the company. An additional benefit for angel investors is the generous tax reliefs offered under the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

 

Oliver Woolley

What is angel investing and why is it attractive?

An angel investor (also known as a private investor, seed investor or angel funder) supports early-stage enterprises by providing funding and getting actively involved in the business. Typically, the amount invested is between £5,000 and £50,000 per investment.

Early-stage investments are high risk as the number of early-stage businesses that grow through to an exit is low. Previous research suggested that 56% of investments in early-stage companies went bust. This is why experienced angels aim to build a diverse portfolio of 20+ investments.

While angels usually have to wait a number of years before recovering their initial investment, returns can be considerable. Due to the high risk nature of angel investing, high net worth individuals are usually looking for a 2.5x Return of Investment (RoI).

When first starting out, an investor should look for a well put together business plan with a defined exit strategy. Many angels choose to join an angel network when starting out, where investors can pool investment capital and invest alongside like-minded, experienced investors.

 

Tax relief through EIS and SEIS

In order to encourage investment in start-up companies which play a vital role in the economy, the UK government has launched several tax relief programmes, including the Enterprise Investment Scheme (EIS). This scheme, which makes investing in early stage enterprises tax-efficient, has encouraged £22bn in investment in 31,365 companies.

By investing in an EIS eligible company, angels receive income tax relief of 30% of the amount subscribed for eligible shares. Investors can put in up to £1m per tax year in EIS qualifying companies for the tax relief; this cap rises to £2m if investing in knowledge-intensive EIS companies.

In order to qualify, companies have to be trading for less than seven years and can raise a maximum of £12m.

Through EIS, angels receive a Capital Gains Tax (CGT) exemption, carry back and loss relief which can be offset against CGT or Income Tax.

Looking at a practical example:

If an angel invested £10,000 and the company failed, their actual loss would only be £7,000, due to the 30% income tax relief. However, a top rate income taxpayer paying tax at 45% will be able to claim loss relief on their tax liability at the 45% level. In this example, they’re eligible for further relief of £3,150, making their actual loss £3,850.

The success of EIS led to the introduction of the Seed Enterprise Investment Scheme (SEIS), promoting investments in riskier, earlier stage companies. About 80% of UK angel investors seek relief through EIS or its sister scheme, SEIS.

SEIS allows HNWIs to invest up to £100,000 and receive 50% tax relief on their investment. In order for companies to be eligible for SEIS, they have to have been trading for less than two years and cannot have more than £150,000 in previous investment.

 

Hot investment sectors

Reports from the British Business Bank and the UK Business Angels Association reveal that many investors are still seeing positive returns during the pandemic.

While angels are battling economic uncertainty, around three quarters are optimistic about the market bouncing back within the next 12 months.

Healthcare, Digital Health and MedTech, BioTech, Life Sciences and Pharmaceuticals are the leading sectors in terms of investor engagement during the COVID-19 crisis.

Software as a Service and FinTech have fared well throughout the pandemic and are still attracting a large number of investors.

Getting started with angel investing is now easier than ever, with an array of angel networks that can provide advice and support. Industry-association, the UKBAA, offers an Angel Investment Accelerator which is designed for those new to early-stage investing.

In order to choose the right angel network, HNWIs should look for the most active networks; Research body Beauhurst recently published a list of the most active networks in the UK.

Active networks will present a greater array of screened opportunities as well as connecting new investors to more experienced ones.

The best networks cover a variety of regions, sectors and investment sizes, and they’re forthcoming with examples of previous investments, so first-time angels can make the right choice on how to grow their portfolio.

So, while looming negative interest rates may require a rethink of current investment strategies for many – it might also open up a new and exciting investment class that offers much more than just financial gains.

 

ABOUT THE AUTHOR

Oliver Woolley is CEO and co-founder of Envestors. Envestors’ digital investment platform brings together entrepreneurs and investors across geographies, communities and sectors – creating the single marketplace for early stage investment in the UK.

Envestors partners with accelerators, incubators and angel networks to provide a white-label platform empowering them to promote deals, engage investors and connect to other networks.

Founded in 2004, Envestors has helped more than 200 high growth businesses raise more than £100m through its own private investment club.

Envestors is authorised and regulated by the Financial Conduct Authority.

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