As we approach our ‘EIS on Trial’ Webinar, which takes place on Thursday 19th October, we asked industry experts for their thoughts on EIS investment.
The following provided their views on the future of EIS, and whether they would vote for or against EIS.
Dr Paul Mattick, Head of Sales & Private Investor Relations at Mercia, said:
“There is a massive impact of fiscal drag taking many more people into paying significant amounts of taxes (income tax, CGT and IHT). Advisers have a unique opportunity with EIS to manage multiple tax burden and allocate capital to an asset class with very high growth. There are various white papers that suggest all investors should have between 10%-25% of their capital invested in private companies (Brian Moretta et al).
“Most importantly, the UK is a massively entrepreneurial country, and as companies scale up there will be an increasing demand (and supply) for scale up and expansion capital, and the combination of EIS and VCT funds will be what maintains the competitiveness/lead in some knowledge-intensive technology areas (e.g. AI, quantum, healthcare).
“At the last point of measurement the EIS industry was £2.3b overall, and over the next decade, I expect this will rapidly expand to £10b per annum.
“This strong growth will be throughout the different groups, including EIS funds, crowdfunders, family offices and family and friends. I suspect that the advisory support of EIS funds will lead this to grow the fastest, from c£0.5b per annum, up towards £3.0b over the next decade. Politically, there is cross party support for the EIS schemes, and we will shortly see the sunset clause will be delayed/removed.“
Mark Brownridge, Board Member at EISA, said:
“The future is probably brighter than its ever been. All political parties have committed to keeping the scheme and indeed, in many cases, improving the structure so more businesses benefit. So the political will is strong and at the same time, the rationale is equally strong. We still don’t have deep, institutional pockets in the UK to fund our early stage businesses so its private investors who are stepping in to kickstart these companies to towards meeting their growth ambitions.
“This is particularly the case during a cost-of-living crisis where early stage companies are squeezed by requiring more capital to meet their costs but seeing fewer available funding sources, especially as debt has retreated in the recent past. Additionally, increasing evidence shows that EIS investments are an important addition to a clients overall investment portfolio offering non correlated returns over the long term.
“EIS Offers diversification across sectors and from alternative asset classes and the research shows that adding VC investments to your overall portfolio provides the opportunity for higher returns without a commensurate increase in risk so the investment case for these types of investment is very strong. That’s before you even consider the tax benefits!”
Rob Wiegold, Investment Manager at Shard Capital, said:
“If you are a UK investor, pay income tax and have an appetite for higher risk investments, it would make sense for EIS investments to play some part in your portfolio. Appetite for high risk is key – the early stage nature of EIS-qualified companies means they inevitably fall into the higher risk category.
“As well as a tolerance for higher risk, it is essential that investors conduct a significant level of due diligence on any company before investing in it. The EIS qualification element of the investment should be secondary; first and foremost the opportunity should stack up as a good investment and offer an attractive risk/reward profile. If it meets your personal criteria for a good investment, the EIS aspect should just be a bonus.
“My preference is to look at EIS opportunities that are already listed or looking to list on a UK exchange. This certainly does not guarantee success, but the levels of transparency and corporate governance are often significantly improved compared to private companies. Another preference of mine is to invest in an EIS qualified company that has enough liquidity to exit, should personal circumstances change. There are plenty of risks involved in EIS investing but if you can get it right, it is one of the most tax efficient ways for a UK investor to deploy capital.
“Earlier on in the year, the Chancellor said that the governments ‘firm intention’ is to extend EIS and VCT reliefs beyond the current April 2025 ‘sunset’ date. Therefore, if the UK wants to be looked upon as a country where innovation can flourish, I think we will see EIS and VCT schemes for many more years to come.”
David Kaye, CEO and Founder of Puma Investments, said:
“The Enterprise Investment Scheme provides crucial funding to British scale-up, high potential businesses. These companies are the lifeblood of the UK economy and the scheme enables them to grow, innovate and create vital employment opportunities. The scheme (alongside Venture Capital Trusts) also enables retail investors to access private equity investments which historically have only been available to institutional investors. Without the EIS scheme it would be much more challenging both for these businesses to grow and for private investors to benefit from their growth.
“When it comes to the future of the scheme, we fully support the recent findings by the Treasury Committee which highlighted the need for better diversity in the venture capital sector and we note the scheme’s importance as part of the levelling up agenda. It’s something we’ve been focused on as a firm, including recently opening an office in Manchester to focus on investing in scale-up businesses within the North West.
“We also believe that both from an investor and company perspective there needs to be some commitment on the length of the scheme beyond the April 2025 sunset clause deadline. Given the challenging economic environment, this will not only give private investors confidence in the future of the scheme but will also provide clarity to the sector.”