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Could alternative investments go mainstream post-pandemic?

16% of UK investors will back start-ups and small businesses in 2021 – new research

Luke Davis, CEO of IW Capital, discusses the rise of alternative investment and why small firms are key to economic growth.

Alternative investment and alternative finance is a class of investment that provides growth capital for businesses that includes equity crowdfunding, peer-to-peer lending, asset finance and other non-traditional corporate fundraising options. One of the key routes into this is through the Enterprise Investment Scheme (EIS), a government-backed scheme that encourages investment into small growing companies. 

Investment through the EIS has been on the rise since its creation in 1993, now reaching a yearly figure of nearly £2 billion of growth capital for small firms. Venture Capital Trusts (VCTs) have also raised nearly £700 million each year while angel investment accounted for around £2 billion.

With the rise of crowdfunding and peer-to-peer lending, alternative finance has begun to reach the mainstream, with investors now increasingly aware of opportunities outside of the FTSE 100 and traditional stocks and shares investing. This is demonstrated by new national research from SME investment experts IW Capital which shows that 16% of UK investors are looking to invest in start-ups and small businesses in the next year. 

Luke Davis, CEO of IW Capital discusses:

“Over the past few years there has been a growing trend that we have noticed to support growing and scaling small businesses, especially through the EIS. Alternative investments such as this have become increasingly well known and also increasingly in demand. We know private investment will be key to ensuring the innovative firms and entrepreneurs can grow and scale effectively, therefore these figures stand as a benchmark for growth and ambition in the sector. 

“Investment confidence is often a barometer for the future of the economy and wider business sentiment so it is great to see that investors are putting its money where its mouth is in terms of backing smaller UK firms that are looking to grow and scale. This is a trend that has also been reflected in the desire of investors to support and invest in, small, private, growth companies. In our experience many firms are looking for growth, and the investors we work with are keen to back them in their goals after a tough year for businesses of all kinds. 

“The following year or so will be crucial for UK economic growth and SMEs and entrepreneurs will be key to that given that they make up 99.9% of private sectors businesses and employ nearly 60% of the workforce. The investment community that backs these firms will, therefore, be equally important so it is hugely encouraging to see this optimism and activity.”

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