Dear Financial Voice Reader,
With one of the world’s richest men, Warren Buffett’s company Berkshire Hathaway investing in Indian payment processing company Paytm, giving the latter a valuation of around $12 billion, you yourself may wonder how you get into investing in private companies.
The UK Government is keen to get us to save and invest, indeed the number of tax breaks makes it very attractive. They do this so we are less reliant on the State in our old age! Good advice. Take the EIS scheme. If you invest in an ‘EIS’ approved private company then look at these examples:
Case 1: The company does well and doubles its value and you hold the shares for three years
Investment = £10,000
Income Tax relief = £3,000 (as a reduction in your income tax bill)
Capital Gains Tax = £Zero
Your gain = £13,000 (£10,000 profit from the sale plus £3,000 income tax relief)
Case 2: The company value stays the same
Investment = £10,000
Income Tax relief = £3,000 (as a reduction in your income tax bill)
Share sales = £10,000
Your gain = £3,000 (from the income tax relief)
Case 3: The company closes and your shares are worth nothing
Investment = £10,000
Income Tax relief = £3,000 (as a reduction in your income tax bill)
At risk capital = £7,000
Loss relief on at risk capital @ 45% = £3,150
Your actual loss = £3,850 (£10,000 – [£3,000 + £3,150])
So where do you find such companies and what are my rules of investing? I like crowdfunding sites – online sites where angel investors come together to invest in companies. I like Crowdcube and Seedrs for instance. I like these sites because all the information is there for me. My rules:
Is the company already exceeding its funding target ie have people already put in more money than the company asked for – a pretty good sign I am in good company and momentum and interest. Has the company, looking at its online documents, a professional look and feel and has it exceeded its execution goals which themselves are impressive.
Whilst the valuation of the company is difficult to judge at an early stage, I am looking to see can the company based on its on value of itself what people are investing in it at, be able to rise 10x in 3 years. I look at their documents, they themselves should be able to show me other companies in their field who have and why there is room for them to do it.
Who are the people behind it – do they have a good track record of success, age, wisdom?
What key milestones have they hit so far? Big name clients. Things that blow my socks off?
I am always keen to promote entrepreneurs and the best way is with my own money. I’ve invested in the past month in Vitl, Qured, zzish, Urban Massage. Here are some key reasons why: Urban Massage – large investments to date, reached a lot of cities, I have used them and like the product, overfunded, ie more demand than supply of shares.
Qured – on-demand health teach platform which provides affordable at home healthcare. Again, used it for my baby son. It works well. Lots raised from a lot of investors. They execute well. Peers have succeeded. They have momentum.
Zzish - is an Edtech platform, a ‘Virtual Teaching Assistant’ giving precise insight into learning gaps and personalising content. Backed by 2 Chinese funds with 254% activity growth and $600k govt deals in 2018 Crowdstacker Investment - Crowdstacker is an award winning online investment platform, providing ISA eligible investments – where you lend money to others and get interest. It’s not the first, but is growing and has a lot of users who rate it highly.
Vitl - A 'revolutionary' personalised nutrition platform backed by the founders of Zoopla, Love Film and Bulldog Skincare. VITL delivers fully personalised vitamin packs tailored to you, using artificial intelligence to take the guess work out of the missing nutrients in your diet. For me it was ‘look who is behind it’. You may say I should pontificate like a Dragon on the valuation and want to spend hours meeting the company. No – either they will go bust, return my money or go up 10x. That’s it. One of three things. And time is money. Dillydallying gets me nowhere. The online platforms show me a lot of information. Love it.
Alpesh B Patel
For a free online trading course visit www.alpeshpatel.com
