As Mark Brownridge(pictured) moves on from his highly successful tenure as Director General of the EIS Association(EISA) , GBI Magazine caught up with him for a chat and a chance to reflect on the past five years.
GBI: Mark, thank you for taking the time to talk to us today and let’s jump straight in and start with by asking you to reflect on your very successful tenure as head of the EIS Association.
MB: That’s a great place to start and it’s been five years, so I have been thinking about this over the last few days and what a rollercoaster it has been. Pretty much the first thing I had to consider when I started was the Patient Capital Review. It was a huge review of the whole the EIS and SEIS sector, but it had a wider remit to look at how we could get funding into smaller companies and grow them through scale-up. It was certainly a shot across our boughs in terms of a review of what was being invested in at that time. If you think back to that point, emphasis was on renewables and asset backed funds which Treasury and Government really didn’t like. So, the whole point of looking at a venture capital review was to go back to the start and refocus EIS on its original purpose.
At the heart of these schemes was Government wanting to invest in three things really, innovation, growth and technology and these were the key words throughout the Patient Capital Review. I don’t think people always believe me when I say that we were very close to losing the schemes had the government decided to refocus on different areas. That we managed to successfully keep the schemes was a huge win at that point.
A bonus for our sector was to refocus putting the emphasis back on the risk to capital. Our subcommittee did a huge amount of work and helped to Treasury and much thanks needs to go to them for that. So, we kept the schemes and if you look back now, five years on, I think everyone’s in a good place. There was a little grumbling and moaning about moving away from areas Treasury didn’t like because these were popular with investors. But refocussing on ventures based on innovation, growth, and technology, meant getting back to basics and the sector is very well suited to that now.
GBI: It’s fair to say that it wasn’t just the Patient Capital Review that has caused some bumps along the way?
MB: Indeed, and then we had Brexit and as we all know anything that happens to EU and our relationship with the EU always as a counter effect. We have also to contend with the wider implications of changes in international politics, which we did successfully. But then finally, the big one, a world-wide pandemic affecting every aspect of every single person’s life on the planet. In March 2020, when it should be the biggest time to raise money for funds, fundraising just fell off the side of a roof. EIS investing being a high-risk investment, it’s the first to come off the table and the last to come back on. So, this had a knock-on effect on companies who couldn’t access the funding they needed and started to struggle. Companies that had funding needed shoring up, but I believe we are over the worst impact now. One of the great things I have been doing recently is talking with managers and it’s great hearing about the work they’ve done with those companies during that time. They have not just kept them going, but some have flourished and done really well. It’s remarkable how few failures there have been in companies’ portfolios. I think that’s a positive message to send out to investors, that even during this horrible time for small businesses, fund managers have come to the fore, got these businesses stable and allowed them to flourish at the same time.
GBI: If you could share your three key highlights from your time at EISA what would they be?
MB: The great thing about EIS is that you get an early look at some great companies. EISA as a trade association doesn’t necessarily work directly with those companies but we work with 50 or 60 fund managers, so you get a broad look at the companies that they are investing into. There, of course, a whole wide variety of sectors such as FinTech’s, AI, cybersecurity and data security which have been popular for a while now. We are seeing vegan food and a big ESG push, with social impact funds coming through, which I think is a positive movement. If we look forward, companies who are mission led and not necessarily revenue driven will create the big companies of the future because they’re working towards solving a big problem of say plastic waste or biodiversity.
To come back to your question, number one would be the early look at some of the companies of the future. Number two would be the opportunity you get in this job to take a broad look at everything, whether that’s looking at how they charge or measure performance, everyone’s got a different way of doing it. It’s great to see that such variety and such a great number of different ways of ‘cutting the cake’ in terms of, say, fee charges, performance, investment philosophy, generalist or specific sectors whether it’s life sciences or biomed.
The third relates to my own profession, trying to get more financial planners and advisers interested in these areas. Also working to get their knowledge levels up so they can really understand investing in EIS. I’m pleased to say, more advisers are on boards, and more people are doing EIS investments. I think it’s seen as quite cool because of interest in things like Dragons Den and The Apprentice. Throughout the pandemic we’ve seen more private investing online and the challenge for advisers is going to be to work out with their clients how they’re going to actually get some of these investments over the line. So, we still have work to do with the FCA and other authorities about how we can do better but it’s been great to see over the years, more involvement, more engagement with EIS and SEIS and there is much more to do in this area.
GBI: Can we pick up on the point you made about ‘cutting the cake’ and the variety that you see in of these funds? Is this something that’s changed over your tenure do you think?
MB: The key change was the move away from renewables and how the fund managers now view the companies they are investing in. The big institutional investors realised that if they invested earlier, not just say after Series A, that they could invest at every point in a company. Similarly, small or boutique VCs realised that they had companies in their portfolio that they wanted to stick with on their journeys. They started to try and get extra business backing or some bigger co-investment, or institutional investment to come in alongside them so they could stay in That has led to a different mindset for fund managers, who are in it for the long run now. Patient Capital Review does what it says, it’s trying to make us look at five, seven, maybe even beyond those years, whereas perhaps it was three years and a day in terms of trying to get investment out before. More fund managers are coming into the market, so you see more variety and I think it’s a sign of a good market if you’ve got a number of new players coming into it. The players who have been in it for a while have now extended their product range and want to invest at every single stage for companies, and that’s good for investors. Their capital may be deployed for longer but actually it is likely to get them slightly higher returns. We also see far more exits now. When we first started our awards five years ago we had about four or five entrants for the best exit awards. This year we had about 15 or 20 which is great because that’s money back in investors’ hands. It’s a moot point that there will always be failures because of the nature of EIS investing, but you’ve got to hold on and see the bigger wins from it.
GBI: That naturally brings us onto the next question which is how the EIS industry has changed and what challenges you see ahead.
MB: It has changed and certainly for the better. There’s always been the backdrop of meeting government and Treasury needs and keeping within the rules. The Patient capital review was fairly benign but there will always be pinch points in the system. We are doing a lot of work with government at the moment to try and lobby for the future. This relates to the sunset clause due in 2025. We would like assurances that Treasury might extend it or leave it out completely. They have told us it is too early for them to consider it so this will be a priority for us, as the trade body for the industry. There will always be challenges, such as the uncertainty around Covid at the moment. Managers are now busy in the run up to the end of the tax year and investors want to invest their money with the certainty of knowing the future which no one can give at the moment.
GBI: So if we gave you a crystal ball what trends in EIS/SEIS would you anticipate or what would you like to see happening in the future?
MB: What would be great for our sector is to have the big success story, a company that was founded through EIS or SEIS but that became the next Uber or Facebook. I do have high hopes that there are some companies particularly in the MedTech side and the BioTech area that will be winners. Before the pandemic they found it really, really hard to raise money because of the long gestation period for an investor. We know that clinical trials take a long time before they create profit and revenues. Now the world knows that we need vaccines and drugs and medical therapeutics and investment is moving into these sectors. I think that will be a good one to watch out for and there will be a big hitter to come out from EIS. Founders constantly tell us what the schemes have meant to them and that they wouldn’t be here without that first seed funding or EIS funding. I think we’ll be hearing more of the stories going forward. The future is bright for EIS.
