In two weeks’ time, the UK will have a new body of MPs at Parliament.  Whether a new government has been formed is another matter.  With the polls rightly or wrongly inferring a hung parliament, I thought it might be interesting to muse on what investing strategies might be best for angels once a new government has been formed.  Given the very different economic and political scenarios that will be created under different scenarios, here are AngelNews’ thoughts on where angels will be able to make money from their investments during the next Parliament. 

Scenario 1 – a small Conservative majority or a Conservative minority government supported by minority parties.

If you believe the polls are wrong and that UK voters will take fright at the idea of a country run by a Labour/SNP pact, economically, the direction of travel we have been on for the last five years will continue.  With the government steadily reducing spending on the public sector forget backing businesses that will depend on state spending, perhaps with the exception of Defence in its wider sense, where investing in tech companies which provide solutions that protect the public and servicemen and women from the impact of war – everything from new materials, to IT security to remote controlled observation and weaponry. Pay attention to investments that will benefit the Third Sector, which is likely to pick up much of the burden of for solving the country’s social problems.  This will be the age of Social Investment Tax Relief, but also use of SEIS and EIS in healthcare for the elderly and obese in particular. 

Watch out for the impact of a government that will have its beady eye on the EIS Scheme and will be looking to close anything that smacks of “unreasonable”, if legitimate, tax avoidance via use of EIS.

The Tories will encourage the private sector to finance scale ups, not by subsidising private investors, but by reducing business taxes, such as Corporation Tax, to make larger businesses more financially efficient and to encourage companies to settle in the UK for tax purposes.  In contrast, the populist policies to refresh our global status as a Nation of Shopkeepers and start up tech companies will be maintained from the Start up Loans scheme to SEIS.  Prepare, as the economy strengthens, to see a reduction in the tax breaks available under the schemes, especially once the books are balanced.  In particular the government may have another go at restricting Loss Relief.

With Scottish Home Rule on the cards and therefore, in all likelihood in Wales too at some point soon, bear in mind the fact that the concept of trading internationally may come to include trading within the UK with all the related tax and regulatory challenges that will bring with it! 

The Tories desire to create a Northern Powerhouse should encourage angels to look outside London and the South East for deal flow.

If an EU Referendum goes the way many Tories in the right wing of the party want, watch for challenging times ahead for companies dependent on the EU for business – whether government or private sector.  Look to back companies that are instead facing west to the Americas and looking to the growth markets of Africa and near Asia. 

Key sectors where you will find opportunities:  Defence technology, social care (especially ageing), mental health, new education models, housing and sectors with little dependency on the state – consumer & retail, internet etc.

Scenario 2 – a Labour/SNP pact

The tragedy of true Scottish independence is that here in England we will cut our Gordian knot with the country that showed us the way to 21^st Century angel investing.  From Scotland, we have taken concepts such as modern investment syndicates and successful angel co funds.  Let us hope the Scottish fishes, if they win power in Westminster, do not take the opportunity to prevent the angels of North Britain from leading the way in the future.

Meanwhile, with a Labour party intent on protecting, as they see it, the citizenry from the wiles of big business, watch out for the impact on entrepreneurial companies of kicking out the non doms, ending of zero hours contracts, the introduction of rent controls and also fixed prices for utilities on entrepreneurial companies. Expect a collapse in funding from the private sector as money leaves the UK, although this will at least have the advantage of suppressing valuations for smaller companies. 

Invest in businesses that serve the State directly, especially those that proffer solutions that make managing the bureaucracy more efficient and also invest in sectors that are regulation light and/or defensive.   Bear in mind you are quite likely to see the re-emergence of state funding models for small businesses which will compete with you.  Maybe your best bet will be to give up investing and instead take a job with the government!

Scenario 3 – a Labour/Liberal Democratic/smaller parties coalition

In this world, which party actually holds the reins of power in different departments will be key, especially at HM Treasury and the Department of Business.  The influence of the smaller parties will impact on policy – will we see more emphasis on the Environment if the Greens end up as part of the coalition, for example, and spending on mental health if the Liberal Democrats get enough Cabinet seats.

If there is a loosening of the purse strings in an attempt to meet the promises of less austerity, expect more State funding of enterprise, in competition to yourselves.  At least the Scots will not be allowed to leave the UK, so we can rely on them to help us work out what to do!

Maybe it would be worth having a read of the smaller parties’ manifestos to seek some clues on what else this Coalition will be focusing on.

This of course would be the time to be brave. Invest when everyone else is distracted or disillusioned as there will be bargains to be had.