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05-09-2017 - Modwenna Rees-Mogg - 0 comments
Exploiting Brexit uncertainty to make money

Brexit is the big undying risk story in the UK at the moment, but there are other bigger risks angels need to consider.  But of course where there is risk there is also opportunity.  

With the quoted markets achieving all time highs, value investors are having to look further afield to find opportunity where the margin of return fits with the risks involved. Depending on your perspective the long term risks of Brexit are great or small, but there is no doubt that the uncertainty until negotiations are concluded creates risk.  Outside Brexit some of the biggest risks are beyond the control of a typical angel investor - Trump and red buttons come to mind, but these are outlyers.  Perhaps the even bigger risk than Brexit is how the FAANGs are taking over the world - Google and Facebook eating £mns of VC money as portfolio companies chase growth at all cost, but which they come to understand and can kill if it suits them.  Let alone Amazon becoming a fresh food retailer in the form of Whole Foods.

Other BIG macro risks are cyber and data protection which could yet bring a household name or two to its financial knees and will probably annihilate more than one bright young, start up.

What can angels do about it?  Well there are the obvious strategies.  Lean into the risk and back sexy pre-revenue growing like a weed businesses which will sell out to the FAANGs. Spot the cyber solutions which will take over the world.  Chase the areas so new that they are too hot for the FAANGs - there's some interesting stuff going on in the AI/biotech/physics nexus (clever things with wormholes?).

Or you could go into deals where the company may be protected from the FAANGs by a force even bigger than them.  The European Commission is definitely flexing its muscles against Facebook and its peers, so it would be worth taking a look at deals in continental Europe now before we leave and any barriers to UK money may have been put up. (Portugal has tax breaks to rival the EIS scheme by the way).

We have recently done some research that suggests angels are particularly focused deal opportunities whose primary focus is UK expansion at the moment.  This is not surprising and is the more cautious, rational approach.  Of course UK growth will be there and available and more likely to achieve than international growth, but it is also going to be in all likelihood pretty pedestrian for the next few years.  The companies to back in this context right now are probably the more established ones where you can gauge future growth vs past performance.  You will probably find many of these deals are already fully valued as value investors from the small quoted cap, family offices and other worlds may now be playing here too.  

So the angel ambitious for the change the world solution, the roller coaster ride that ends on a high and which generates the feels good factor AS WELL AS making loads money needs to look for the deals that have a bold global vision - chasing the dream into South America and the African consentient and literally into outer Space where trade barriers and a customs post at Portsmoth and Dover will not matter.  I am interested in companies that are based in or who are keen to trade with companies and governments based in countries desperate to do a free trade deal with the UK.  And also in countries where political risk may be high but the economies are booming. Personally and thanks to my friendship with Baybars Altuntas, a Turkish angel, I will be starting my own exploration of thiis "brave new world" investing in Turkey on 23rd October.  Let me know if you want to join me.

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