innovation within the uk financial regulatory environment: opportunities for hong kong
TRANSCRIPT
Innovation within the UK financial regulatory environment:
Opportunities for Hong Kong
Techstars• Founded 2006
• David Cohen & Brad Feld
• Started in Boulder ($100k)
• Now 20 programs
• 10 City & 10 Verticals
• 600+ Companies
• $1.8bn+ raised
@tak_lo
Tak Lo• Operations Director at Techstars
• Advisor at Tech City UK and Guest Lecturer at London Business School
• Ex management consultant and investment banker
• Soldier turned entrepreneur turned investor
• Pretend academic
@tak_lo
The UK leads the world in financial regulatory innovation
@tak_lo
What makes UK a leader?Macro-factors, I.
• London ranked #6 ecosystem in the world, with the third highest growth index
• UK alone represents 4.5% of global investment in fintech in 2015, growing 114% from 2014
• UK represents 37.4% of total European investment in fintech
Sources: Accenture: The Future of Fintech and Banking: 2014, CB Insights, Global Startup Ecosystem Ranking 2015: Compass Report @tak_lo
What makes UK a leader?Macro-factors, II.
• There are very few cities in the world that are:
• A global financial center
• A regional hub for technology
• A nation’s capital
• The scale of London at 8+ million people
@tak_lo
What makes UK a leader?Micro-factors
Sources: http://www.cityam.com/224592/london-fintech-investment-has-already-surpassed-last-year @tak_lo
Four frameworks1) Increasing the pool of angels
2) Increasing incentives for angel financing
3) Increasing leverage for venture financing
4) Diversifying angel opportunities - "crowdfunding"
@tak_lo
Increasing the pool of angels
• In the US, one needs to be an accredited investor:
• net worth of at least $1mn
• have income at least $200K each year for the last 2 years
• In the UK, one can do a few things, but the most popular are:
• self-certify to be sophisticated investor if:
• have been a member of a business angel network for at least 6 months, or
• have made at least one investment in an unlisted security in the last 2 years, or
• have worked in a professional capacity of finance of SMEs in the last 2 years
• be a restricted investor if:
• agree to not make more than 10% of their investments (including savings, stocks, ISAs, bonds and property excluding your primary residence) into company shares that cannot easily be sold
Sources: FCA regulations @tak_lo
Increasing incentives for angel financing, I.
Seed Enterprise Investment Scheme:
- Investors can receive initial income tax relief of 50% on investments up to £100,000 per tax year - A CGT exemption will offered in respect of gains realized on the disposal of assets in 2012-13, that are reinvested through SEIS in the same year - Loss relief: If shares are disposed of at a loss, the investor can elect that the amount of the loss, less Income Tax relief given, can be set against income of the year in which they were disposed or, on income of the previous year instead of being set of against any capital gains.
Enterprise Investment Scheme:
- Tax relief of 30% can be claimed on investments (up to £1,000,000 in one tax year) giving a maximum tax reduction in any one year of £300,000 - Any gain is CGT free if the shares are held for at least three years - Loss relief: If shares are disposed of at a loss, the investor can elect that the amount of the loss, less Income Tax relief given, can be set against income of the year in which they were disposed or, on income of the previous year instead of being set of against any capital gains.
Sources: https://www.crowdcube.com/pg/seis-tax-relief-42 and https://www.crowdcube.com/pg/eis-tax-relief-for-investors-44 @tak_lo
Increasing incentives for angel financing, II.
Sources: An IoD Policy Report, Opening the Equity Economy @tak_lo
Increasing leverage for venture financing
• Enterprise Capital Fund by British Business Bank
• British Business Bank plc is a state-owned economic development bank established by the UK Government. Its aim is to increase the supply of credit to small and medium enterprises (SMEs) as well as providing business advice services. It is structured as a public limited company and is owned by the Department for Business, Innovation and Skills (BIS). The bank has its headquarters in Sheffield.
• The Enterprise Capital Fund by the British Business Bank often operate on a matched funding basis, with the Treasury putting £1 in for every £1 raised from the private sector.
• There is a rolling investment programme for commitments to new Enterprise Capital Funds. The process is competitive, and invest in 2 to 3 new funds per year.
• There is no maximum fund size for an ECF, but will commit no more than £50 million of funding to any single fund.
@tak_lo
Diversifying angel opportunities - “crowdfunding”
• Financial Conduct Authority (FCA) - client money permission
• “Seedrs, while giving direct beneficial ownership to the individual investor, holds voting and direction power over the group of shares held by all investors as their nominee. The nominee structure allows Seedrs to negotiate certain protections for its investors such as anti-dilution, tag-along and consent to certain corporate action rights.”
Sources: FCA regulations
• Financial Conduct Authority (FCA) - arranging deals permission
• Broadens international investing opportunities. Back and follow top worldwide angels into deals and have local investors acting as leads for deals
@tak_lo
Four frameworks1) Increasing the pool of angels
2) Increasing incentives for angel financing
3) Increasing leverage for venture financing
4) Diversifying angel opportunities - "crowdfunding"
@tak_lo
Policy takeaway"I am confident that London leads the likes of Silicon Valley and
Wall Street [in fintech]. Unlike the US, the growth of London and the UK’s FinTech sector is being boosted by collaboration
between key decision makers from the financial services and technology communities, as well as the policy makers in
government”
Eileen Burbidge
@tak_lo
Opportunities for Hong Kong
Don’t try to replicate Silicon Valley
Find like-minded ecosystems and build connections
Decide to be bold and pro-active
Create agility
@tak_lo
Acknowledgements
Nancy Fechnay Partner at Flight.vc
Jon Bradford MD at Techstars
Guy Levin Executive Director at
Coadec
Eileen Burbidge Chair at Tech City UK
Andy Chung Head at Angel List Europe
Simon Taylor VP Entrepreneurial Partnerships - Barclays @tak_lo
Matt Webb Chief Scientific Advisor at Government
Digital Services
