Personal Finance: Where angels go to find business opportunities

internet investor

This month a new "stock market" was launched on the internet, the Development Capital Exchange (DCX). It is specifically designed for informal investment in unlisted small and medium-size enterprises (SMEs).

These are companies looking for anything between pounds 10,000 and pounds 2m in funds, which do not meet bank lending or venture capital criteria. DCX is not a match-making service for "business angels" but acts as an information conduit.

This informal investment sector is said to be worth around $200bn in the US, five-times larger than the formal venture capital industry. On that basis, DCX reckons the potential value of its market to be at least pounds 10bn in private investment in British SMEs.

The Private Equity Funding Association, the organisation behind DCX, says the marketplace received a major boost in the Budget.

Changes by the Chancellor, Gordon Brown, to the capital gains tax (CGT) regime with the introduction of a long-term, 10-year CGT rate of just 10 per cent is likely to encourage investment in start-up and expanding SMEs whose need is overwhelmingly for long-term, patient capital.

Potential investors surfing on to DCX are immediately presented with a warning, which is more comprehensive than that required by the Financial Services Act. DCX makes it very clear that the onus of "due diligence" rests entirely with the investor who should seek the advice of professional advisers.

The key difference between investing in quoted stock and participating as an investor/director in an unquoted company, is that the business plan is only a basis for negotiation. It is not an investment document and there is no protection should things go wrong.

You can see opportunities currently available on DCX by clicking on a summary listing. These business opportunities remain on the site for 90 days. If you want to get hold of more details, the site offers the option of a pounds 15 "sample" subscription for three months or a full 12-month subscription for pounds 50.

Both these options include automatic e-mail notification of any investment opportunities that meet your specified personal search criteria of the size of the investment required, the business location and the industry sector.

You may be worried about being inundated with corporate begging for investment. Don't be. Investors subscribing to DCX remain anonymous until they decide to open negotiations with a company in which they are interested in investing.

You need only reveal your identity to the DCX member firm handling a particular opportunity when you are ready to open negotiations. However, the company or individual seeking funds is obviously within their rights to ask you to identify yourself before releasing a full business plan.

The detailed listing page contains the past three years' audited accounts, where these are available, together with three-year forecasts of turnover and profits. There is also a 200-word summary of the opportunity. This does not contain the name of the company or entrepreneur seeking funds but will direct the potential investor to a DCX member firm advising the business. This means the firm seeking funds is not put in the position of making a public offer of shares without a prospectus.

If, after reading the detail of an individual opportunity, you want to see a copy of a business plan, you can click an icon on the case-listing page that will give you the DCX member's details and make contact automatically through e-mail.

Remember, private equity funding is no guarantee of quick capital gain or, in the case of start-up enterprises, even a regular income.

If your capital is comprised of a lump-sum portion of a pension scheme - or a redundancy settlement or any other source outside your regular income - think very, very carefully before committing any or all of it to such an investment.

Development Capital Exchange: www.equity-invest.com