From understanding the portfolio approach to the investment philosophy driven by the fourth industrial revolution, Sanjeev Gordhan, Director at Newable Ventures, talks to Peter Wilson about why he is passionate about EIS
Newable Ventures offers two ways of investing through EIS; firstly, the Newable Scale-Up Fund 3 and secondly, on a deal-by-deal basis. All the investments on offer, explains Sanjeev Gordhan, are connected by a strong investment philosophy, namely following a strategy in line with the expectations of the fourth industrial revolution.
This term was popularised at the World Economic Forum, and stipulates in the near future there will be a blurring of the lines between the biological, physical, and digital worlds. Sanjeev said it is this philosophy that drives the sectors which Newable invests in. The philosophy serves a purpose too. Sanjeev wants a better labour market, more equality and more sustainability.
EIS can allow investors to offset the risk that is involved in early stage business investing, while getting exposure to the potential for achieving amazing returns. Newable are constantly looking at exit strategies and just last year they saw an exit return 5.6 times their capital investment.
However Sanjeev wants to “get past hype” of tech, and approach EIS with a deeper investment philosophy. Along with potential for high growth and reducing tax liability, EIS also allows investors to support truly innovative businesses that will shape the society of the future.
How EIS has affected the UK’s start-up scene
Since EIS was first launched in 1994, more than £22 billion has been directly invested into UK businesses through the scheme (as of May 2020). Asked how he thought EIS has influenced the UK’s burgeoning start-up scene, Sanjeev said, “In the UK we have a lot of delegates come from all over the world to try and mimic what we’ve done with EIS and VCT schemes.”
Sanjeev explained that EIS has helped to incentivise investors to get into the early stage investment market, while helping to acknowledge and manage the risks – “put simply, that’s what EIS does, it helps to manage risk.”
Sanjeev suggested that EIS has had a large impact on the UK start-up scene, and explained it as a positive circle. Investors were attracted because it’s a good policy, and the investors attracted good businesses, and then these good businesses attracted more good investors. Sanjeev, continued, “It grows out of that, we now have a really strong ecosystem throughout the UK.”
According to the Federation of Small Businesses (FSB), SMEs account for three fifths of the employment and around half of turnover in the UK private sector. 72% of this growth happened over the last 20 years.
Sanjeev acknowledged that a lot of EIS investment was London-centric. According to the Office for National Statistics (ONS), 65% of all EIS investment in 2018-19 was into companies registered in the South East and London.
However, this is something that Newable is helping to counteract with their regional work spaces, something you can read more about here.
Changes to the scheme
Our conversation started with Sanjeev reflecting back to when he was a Wealth Manager. Before the Finance Act of 2018, asset-backed EIS were still widely used by advisers. These investments were considered less risky as the companies looking for capital had assets that could offset cost if the venture went wrong.
Sanjeev commented, “I struggled with that… it wasn’t about high growth opportunities, and that’s what EIS is meant to be.” Sanjeev continued, “If you’re looking for safer investments, EIS is not what you should be doing.” Sanjeev added “the true spirit of EIS is investing in real innovation and technology.”
In 2016-17 the EIS Association (EISA) recorded around half of EIS investment went into asset-backed schemes. Following legislation in 2018, these projects ceased to work on this model. Sanjeev thinks that advisers are still adapting to this situation and that many advisers see VCTs as the safer option, but are missing an opportunity for high growth.
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