Unmet investor appetite for UK start-ups, research shows
Nearly half of UK investors are keen to explore investing in early-stage companies, according to new data from Octopus Investments on Monday, but only 17 per cent of advisers think their clients would be interested.
The gap in perception may stem from financial advisers believing that their clients are generally more risk averse when they invest. Over a third of advisers surveyed by investment firm Octopus thought this to be the case.
Conversely, over half of the investors surveyed by Octopus claimed they would be willing to take on more risk in order to achieve more growth.
Why the disconnect?
Speaking to City A.M, Jess Franks, head of investment products at Octopus, said there were likely a couple of reasons behind this appetite gap.
“Firstly, we have to consider the dispositions of each party,” she said, “advisers, in the broadest sense, are naturally focused on risk, whereas investors can be more focused on the potential for reward.”
“Secondly, I think start-ups represent a very small part of the investment universe and are inherently difficult to undertake diligence on and so they can be less of a natural fit for financial advisers. Whereas for investors, the concept feels straightforward, and the investments are often seen as interesting and exciting – something they are keen to spend more time thinking about.”
When Octopus asked investors to rank their three most important investment priorities, targeting high growth ranked higher than ISA and pension planning.
In contrast, advisers believed their clients prioritised ISA and pension planning, diversification and low volatility above targeting high growth.
Are advisers playing it safe?
Were advisers playing it safe or do they simply understand what would make a client happy? Franks believed it was a bit of both.
“Advisers will be trying to create a portfolio for each client that is capable of delivering their financial goals. Higher risk investments may not be appropriate to the outcome. But if a client is keen to invest in start-ups, an overall portfolio can often be rearranged and rebalanced to target a similar set of goals in a different way,” she said.
Franks told City PM that retail investors played a “vital role” in the UK entrepreneurial landscape.
“We are at an interesting point in the cycle right now where fundraising is increasingly difficult for businesses. As such, retail investors will be playing a vital role in enabling new businesses to get off the ground and to capitalise on opportunities born out of larger companies dialling back on innovation,” she said.
“They will also be providing critical growth capital for smaller companies who are less likely to be able to access financing from more traditional sources. These businesses tend to drive job creation and productivity, therefore support in the form of retail capital has and will continue to have a big impact UK-wide.”