Business

Why ‘disruptive finance’ has found its home in London

This is a guest post by The Real Asset Company‘s William Bancroft

We’ve all heard about the contrasts between the venture and entrepreneurial scenes in the USA and Europe.

The prevailing view is that the US, especially Silicon Valley, is a more vibrant hotbed of disruption than the UK and Europe. Pools of venture money are funding U.S. start-ups, fueling a more compelling roster of Google-like successes.

A sector growing outside of the USA

But a certain niche has grown more mature and attractive outside of the US, and is largely focused around London. That new sector is known as “disruptive finance.”

Disruptive financial services businesses seeking to revolutionize the way we move money, save and invest, trade and speculate, and generally consume financial services are finding London a more fertile environment to launch and grow.

Apart from crowd-funding and P2P lending, which are established in the U.S., a number of start-ups and established businesses in London have found doing business in America to be difficult. Examples include Zopa, Market Invoice, Transfer Wise and BetFair. Meanwhile, sectors like spread-betting are based almost solely in London.

Online gambling and trading has been one of the biggest winners of the Internet so far, and has grown in London. In the next stage of growing financial disruption, London is now best placed to nurture it and benefit from it.

There are many reasons for this potential trend: London’s financial infrastructure, our talent pool of finance professionals, and recent tax incentives, which have added more fuel to the fire.

UK government directing money to start-ups

Tax relief for entrepreneurs based in the UK has been around for a number of years, but new tax incentives aimed at directing private money into venture are now having a significant impact.

The recent SEIS and EIS schemes in the UK allow individuals with tax liabilities to offset these against investments in qualifying businesses. The angel is able to invest in start-ups at a more attractive cost per share, reducing their risks, whilst entrepreneurs suddenly have a growing pool of eager angel capital to tap, which makes early-stage fundraising far easier.

I won’t go into the nitty gritty details here, but the SEIS scheme is so generous that individuals are almost gaining risk free options on start-ups. It is also interesting to note the investment industry now further helping direct private money into these schemes — IFAs and tax advisers in the UK increasingly offer SEIS/EIS products to their clients.

Private equity holdings as a percentage of private portfolios will likely grow as a result; all good for UK-based venture.

Seeing the money hitting the ground

I’m part of a small team in London and Europe that lets individuals buy gold and bullion. In our funding rounds we found EIS to be a real carrot for angels. SEIS/EIS has become like a badge, and wearing it proudly will improve your chances of raising capital.

We know two other local start-ups: Pelican Exchange, a marketplace for investment performance, and Asset Match, a marketplace for trading private companies. Both these businesses found SEIS and EIS to be helpful during the fundraising process.

Disruptive finance can bloom in London going forward, and the sector is receiving its vital lifeblood via Her Majesty’s Revenue & Customs.

will-bancroftWilliam Bancroft is the cofounder of the Real Asset Company, a marketplace for individuals to invest in gold, silver and other precious metals. Will is passionate about gold’s role in a portfolio, and his op-eds have appeared on Kitco and Seeking Alpha. 

London finance image via Shutterstock


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