BDO LLP | INTERNATIONAL TECH HUBS
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WHAT KINDS OF RESEARCH AND FUNDING INCENTIVES ARE AVAILABLE FOR INTERNATIONAL BUSINESSES IN LONDON? London and the UK in general have a good record for encouraging tech innovation, and the Enterprise Investment Schemes are good examples of this. Under this scheme, investors in smaller businesses can get back 30% or 50% of their investment from the government. They can potentially also roll gains from previous disposals into the cost of the shares, and so defer the tax on those gains. This would not necessarily apply in the case of someone investing in a spin-out from their own business but if they were, for example, to sell that company and then get involved in something new (although perhaps in similar sector), then some of their gains could be rolled into investing in shares in that new company. For SMEs, there is a very generous R&D tax credit regime, which can either be delivered in the form of cashback, or as a reduction to your taxable profit. If you’re part of a large group, then it’s a less generous scheme but it’s still internationally very competitive. There are also lots of research grants available too, along with a range of other corporation tax incentives. Another scheme to mention here is the Patent Box, which can deliver a 10 percent tax break on profits arising from patented technology. All tech businesses should be investigating what they could patent and how it would influence their tax profile.
INVESTOR LANDSCAPE As you’d expect for such a mature and sophisticated market, the investor landscape is similarly rich and diverse. At the lower end of the scale, the sub-£1million bracket, there’s a complex network of crowdfunding options, angel investors, family offices, investor clubs and so on. At the larger VC and the PE end of the spectrum, there’s a wide range of highly expert and experienced professionals backed by well-regarded houses with no shortage of funds – and pretty much all of them are interested in high-growth tech – some exclusively so. According to a 2019 FT estimate, London boasted some $2.5tn of private equity cash available to be invested in new deals (though this figure would need to be adjusted in light of recent events). Businesses with an idea, a plan and a team that are robust enough to qualify for some of this funding will benefit from some of the most experienced growth professionals in the global market, with a proven track record of delivering targeted returns and exits. The sheer wealth of available VC and PE options in London can be daunting to founders, It can be tough to ascertain the house that’s the right fit for your business, and to sift through the many suitors that may approach you. But it’s also worth saying that, as you’d expect given the maturity and sophistication of the whole ecosystem here, the quality of professional advice available to businesses here is similarly both extensive and highly experienced. At BDO, for example, we have a range of advisors who specialise in working with private equity houses and their investments and can help you assess your options and draw up a shortlist. And the biggest industry group within our private equity practice is of course technology and media. WHAT OTHER COUNTRIES ARE INVESTING IN LONDON? WHERE’S THE MONEY COMING FROM? The US is far and away the most common investor that I see in the London market. Other key investors would include Greater China, Middle East, and some of the larger European economies, including from Scandinavia and other northern European countries. But the reality – and this is perhaps the best measure of the tech scene here – is that London is basically being invested in by everyone.
LONDON HAS A GOOD RECORD FOR ENCOURAGING TECH INNOVATION
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