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Capitalising on calmer waters

EISA’s Mark Brownridge gets his telescope out and looks at what might lie ahead for EIS and SEIS

Whilst the Budget passed without a single mention of EIS or SEIS, there was however some insight into how the Government may transition from fostering recovery to fostering growth within the “Build, Back, Better” document that accompanied it. This document did mention EIS and SEIS, albeit in passing, but this was certainly an acknowledgement that the schemes have an important part to play in future plans and are not being ignored.

But let’s not worry. Firstly, as has been abundantly apparent for some time now, EIS and SEIS are fully focused on growing and developing businesses. Whilst the Government is more concerned with saving and propping them up, it’s easy to understand why the schemes aren’t being talked about. For now, at least.

As we slowly move out of the pandemic (fingers crossed), economically attention moves away from recovery mode i.e. simply keeping companies from going out of business by making access to loans and grants much easier, to growth mode i.e. now these companies have survived, how do we get them back on that growth path that they were following pre- Covid so they can expand, develop and increase revenue staff and the other usual key business growth metrics.

To use a simple Jonathan Van Tam style analogy, the pandemic has been a perfect storm for many businesses (particularly hospitality and retail) who have been rocked by strong waves and appalling weather, some sunk but others with the help of Government funding and loans have made it to shore, battered but intact. Now these businesses have reached a safe harbour, how do they rebuild and strengthen their ships, get back out on the waves and capitalise on calmer waters?

Rebuild and strengthen

And it’s rebuilding and strengthening where we believe EIS and SEIS can play a significant part. The Government has already signalled its intentions towards the schemes as announced in the Tory manifesto.

More recently the Chancellor pronounced in the House of Commons as recently as December 2020 that the “world beating EIS and SEIS programmes provide significant support for private investors to help fund new businesses and we look forward to hearing thoughts on how to expand those schemes”.

What could some of those expansions look like? Well, EISA have lobbied for a raise in the SEIS limit from £150,000 to £250,000, an abolition of the rule that restricts companies more than 7 years being eligible for the relief and an increase to the limits on how much a company can raise both annually and over their lifetime.

From the Government’s Building Back Better document, it’s clear it particularly wants to focus attention and funding on certain sectors. The majority of those sectors are smack bang in the sweet spot of where EIS and SEIS is already focused, specifically, Net Zero, Impact Tech, Artificial Intelligence, Fintech and Deep Tech.

The recent Tech Nation report identified that the UK’s tech sector is growing 6 times faster than the rest of the UK economy combined; is valued at almost $600bn (double that of our nearest competitor, Germany). The UK also has more than 80 unicorns headquartered around the country.

These companies are already driving our economic recovery (5 unicorns in the tech sector have already been created in 2021) and will continue to shape the society of the future. The tech sector already employs almost 3 million people and creates both high value tech and non-tech jobs.

Funding this sector has to be a priority. Speak to any tech entrepreneur and they will quickly and vocally tell you how important EIS and SEIS was and will continue to be for their business as only equity funding supports fast and effective growth. Debt funding keeps the engine ticking, equity funding supercharges the engine! So keep an eye out on fiscal announcements and budgets later this year.

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