EISA Director General Sarah Wadham Talks to Neil Martin about the drive to get the EIS message across
Sarah Wadham is on a mission: to spread the word about the Enterprise Investment Scheme (EIS). Which is pretty much what you’d expect from the Director General of the Enterprise Investment Scheme Association (EISA). Just don’t call her a lobbyist. As we’ll see, Ms Wadham has firm views on that.
A Broad Range of Interests
But then, EISA isn’t a closed interest group. It’s an independent, not-for-profit organisation, the aim of which is to assist in the flow of capital and resource available to British small to medium-sized enterprises (SMEs) through the EIS and the Seed EIS (SEIS). And as we’ll see, its activities draw together a multitude of interests.
EISA, and its 1990 predecessor the BES Association, have “an established history of dealing with tax effective investments within the SME sector across various economic cycles”. It cites its purpose as working with Government and its various related parties “…to improve the success of the EIS, and to promote the benefits of the Scheme across the board including investors, EIS companies and their advisers.”
Although Ms Wadham spends much of her time liaising with the Treasury and HMRC, she says that EISA should not be regarded as a lobbying body. “I don’t really like the word lobbying,” she told us. “What I see us doing is representing the industry and being a forum for the different parts of the industry to come together. Rather, it’s a question of understanding the issues, understanding the other points of view, so that we are all on the same page to make the EIS scheme work.”
“We have very close relations with both the Treasury and HMRC, who overall are pretty keen to make this work. HMRC are obviously always concerned that people are abusing [the EIS format], but we’re concerned too; it’s a very generous scheme, and we don’t want people misusing it either.”
Structure and Membership
EISA is chaired by Lord (Howard) Flight and a main Board, and it’s organised through four committees: a Tax & Technical Committee, a Regulatory & Legal Committee, a Membership & Events Committee, and, Green Shoots. It also has an EIS Fund Managers’ Forum which publishes a Directory of successful companies funded by EIS.
Other Board members include deputy chairman Keith Lassman (HowardKennedyFsi); Ben Blackett-Ord (Bovill); Rogers Blears (RW Blears); John Glencross (Calculus Capital); Bruce Macfarlane (MMC Ventures); Martin Sherwood (Enterprise Investment Partners); and, Philip Hare (Robertson Hare).
The overall responsibility for getting the message out falls to Ms Wadham. Her efforts are focused on creating a balanced trade association which includes the EIS/SEIS fund providers, lawyers, accountants, corporate financiers and indeed the client companies who receive the funding. A very broad range of interests, then.
But Wadham agrees that the job is still ongoing, and that she needs more professional firms to join – as well companies which have benefited from the schemes, and entrepreneurs themselves of course.
There are two primary levels of membership. Full membership is open to the EIS/SEIS funds themselves, as well as intermediaries advising on EIS/SEIS issues, lawyers and tax advisers, or anyone involved in promoting, or sponsoring EIS/SEIS schemes. Affiliate memberships are open to individuals who have passed the EIS Diploma and to companies that have themselves raised money under the EIS or the SEIS and there is also a Green Shoots membership for young professionals in the EIS/SEIS industry.
Increasing the Membership
Wadham is looking for new members and she is currently reaching out to the regions in order to increase numbers. That’s not just the numbers of EISA members and affiliates, but the whole field of interested parties. Including the recipient companies themselves.
She agrees that it can be daunting for a small company that’s aiming for eligibility under the EIS rules. There are “lots of ways you can trip up,” she says, and it’s a bit of a minefield for small companies to have to work their way through. They also need specialist legal advice, of course.
Another problem for the recipient companies is that it can take several weeks for companies to get advanced assurance that they are in fact eligible for EIS and it can be quite technically complicated. Companies cannot just assume they will get EIS clearance..
Better Than Bank Finance
But EISA still believes that, for many company management teams, the scheme is likely to be their only potential source of development cash. Banks are really not the ideal solution when it comes to start-ups and fledgling companies.
“It has never been the role of banks to lend to these types of companies,” she says, “and you can’t beat up the banks on the one hand for taking risks and then expect them on the other hand to lend money to companies with no assets.” Then there’s the fact that banks tend to demand huge collateral from the company founders: “It’s not right for a person leaving their day job to start a company to have all their personal assets on the line,” she feels. Considering how much the country needs its entrepreneurs, she feels, the need for a successful EIS regime is paramount.
The EIS scheme is a huge success, she says. “It’s such an incredibly important contributor to the economy, and to the growth in jobs. We’re absolutely certain that the money the Government gives up front in tax breaks, they get back several times over in payroll taxes, VAT and Corporation Tax. EIS is an incredibly effective job creation scheme. It is much more effective than some of the heavy-handed schemes we’ve had in the past.”
As to the wider world’s view of the scheme, Wadham does get frustrated sometimes. “People focus on the tax breaks,” she says, “but this makes me very cross. These are risky investments, and quite a proportion of them go down, or fail to thrive. Very few people get amazing blockbusters.”
She wouldn’t go quite as far as saying that individual investors back the scheme because of a sense of altruism, but it comes close. She describes her experience her own former investor group, which was not made up of the extremely wealthy, but mostly consisted of City professionals who enjoyed putting money into small companies as a way of ‘giving something back’. She has also seen many of them end up in mentoring roles, passing on their own knowledge and experience.
Educating the IFAs
The need for education is still very great among IFAs, who are often uncertain as to how to assess EIS schemes. And as Wadham agrees, unless an individual IFA has particular knowledge about the scheme, taking pot shots at companies is difficult to monitor and can even be dangerous.
“IFAs have always been worried about EIS,” she says, “and quite understandably so. They perceive it as very high risk, but there are things you can do to mitigate risk, and choosing the right fund manager is key.”
To this end, EISA has recently launched the EIS Tolley Diploma, which offers professionals a unique chance to get to grips with the EIS and how it might help their clients. “We talk about the tax breaks and how you calculate them,” she says. “And we also talk about how you invest in the EIS. Do you go to a fund, do you go to individual companies, or do you have a managed portfolio? And what about the regulations?” The emphasis, then, is on basic information. “We’ve already had 100 people sign up, and this exam gives IFAs confidence.”
Does she have any worries that when a new Government is voted in next year, that EIS might become a victim of a new broom exercise? In a word, no. “This was started under Labour,” she says, “but both governments have supported it.”
Overall, you get the impression that singing the praises of the EIS is not just a day job for Wadham, but almost a passion, which harks back to her career as a City analyst.
Wadham’s background is in public companies and for most of her career she researched firstly UK and then US firms, which she preferred. She found herself heavily involved with the tech boom in the 1990s and has since that time always been a fan of smaller companies. For the last 12 years she has worked with early-stage companies, focusing on how to get them together with investors.
“I ran an informal business angel network, she explains, “so I learnt a lot about the whole sector. My main interest in this is to make EIS and SEIS work, and to support entrepreneurs and the growth of small companies in Britain.
As for the question about how she finds running a trade organisation which is full of strong individuals, each with their own views, Wadham had the perfect answer: “I’ve got four children, and that was a jolly good training.”