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Revealing the results of the ‘EIS on trial’ webinar as experts give their verdict

by | Dec 8, 2023

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GBI Magazine recently hosted a one-of-a-kind “EIS on trial Webinar” in an attempt to uncover advisers’ true feelings about the investment scheme and whether or not it represents an under-utilised investment opportunity thwarted by misconceptions.

In a trend-breaking format setting the case for and against in a courtroom scenario, Artemis’ Lawrence Gosling presided as Judge of the Court, while Martin Fox served as the Prosecution and Stephen Jones as the Defence. The two sides assessed the pros and cons of EIS as an

investment choice with the calling of key witnesses to back their arguments.

 
 

Representatives from Beauhurst, Cooper Parry, Hardman, BareRock, Haatch, Par Equity, Hardman & Co, Bunch, and GrowthInvest debated the topic of EIS. Each representative provided their opinion on EIS and used their expertise to advise the on-looking jury as to the validity of ElS as an Investment opportunity.

In the lead-up to this webinar, GB reached out to several industry experts for their thoughts on EIS investment. They provided their views on the future of ElS, and whether they would vote for or against EIS. Click here.

Outlining the case

 

The debate kicked off with Lawrence Gosling, who explained the reason for holding the discussion putting ElS on trial. He said:

“Despite recent enthusiasm for EIS from the Treasury, ElS is largely undersold. When we talk to advisers about EIS, many barriers and reasons for not using ElS are raised, some of which are clearly built on misconceptions. We are putting ElS on trial to assess the validity of the issues raised, and to give the audience the opportunity to judge for themselves.”

The case for the prosecution

 

Gosling introduced Martin Fox, the counsel for the prosecution, who was quick to express his disapproval of EIS. “I am very pleased to have the opportunity to present compelling reasons why EIS is not a suitable vehicle for the vast majority of investors. In fact, given the weight of evidence, I am surprised that this case has ever come to court. Members of the jury, I am sorry that your time is being wasted in this way!”

His first witness was Dan Robinson, Senior Research Manager at Beauhurst. Beauhurst is a company data provider with comprehensive data on private UK companies, including startups, scale-ups and equity finance deals.

Robinson provided statistics which looked damning for EIS, stating, “Looking back at the last seven years, 67.9% of high-growth companies either fail or stagnate. The figure for outright failures is 25.3%, while only 3.1% go on to exit. Only 29% of companies scaled over the last seven years.”

 

Fox then called his second witness, Simon Williams, the Client Relationship Manager for Cooper Parry. Fox confirmed that Williams is highly familiar with the ElS world and does not offer ElS to his clients as often as he could do, due to the barriers and pitfalls that advisers face.

In response to this, Williams stated that it is difficult to know which investment methods work best, and which ones support the companies they invest in better than others, which limits the frequency with which he recommends EIS. This is especially the case it the clients are risk-averse, or don’t understand that in this market some young companies are likely to fail.

Williams added: “The problem is that because you don’t know when successful exits are going to happen, it makes financial planning rather difficult, particularly if there are planned uses for the money. So, this can restrict the use of ElS to only a few clients.”

 

The case for the defence

However, this argument against ElS was disputed by Stephen Jones, counsel for the defence. Jones claimed that the examples which Williams highlighted indicate the importance of offering EIS to the right clients, adding “If you do limit yourself to the right clients, then quite simply these problems shouldn’t arise,” to which Williams agreed.

Before closing his case, Fox highlighted several more arguments that are of concern to advisers. Firstly, he said that ElS impacts on the advisers’ PI insurance, making it more costly to write the business. He also suggested that the amount of administrative work required is a significant challenge, stating “There is loads of paperwork, and you must apply to get your tax relief. ElS uses up manpower, making it costly to run.”

 

Fox also expressed concerns over the fees involved, describing them as “opaque”, before adding “there are so many different fees, whether on the investor or the portfolio company, so it is hard to work out what is good value and what isn’t.”

It was then the turn for the defendant to plead their case, in favour of ElS investment. Stephen Jones, the Managing Director of Clear Solutions Wealth and Tax Management Ltd, began by calling Dr Brian Moretta to the stand. Moretta is the Head of Tax-Enhanced Services for Hardman & Co, and recently wrote a paper which explains why there is a place for ElS in every wealth portfolio.

Moretta notes that adding venture capital to a portfolio will see higher returns, reduced correlation, and increased portfolio returns without increasing risk. He said, “Although venture capital is a high-risk asset, it’s also a diversifying asset. If you add venture capital and balance the other assets, you can do so in a way which does not increase risks.” He also agreed with Jones that ElS is, in fact, undersold in the wealth management community.

Returning to Fox’s earlier comment that the administrative work required with EIS is difficult, Jones called in his second witness. Laura-Ann Martens, the Head of Business Development at GrowthInvest, stated that while in the past, ElS was more of an administrative burden, this is no longer the case as a result of digitalisation.

Martens said, “GrowthInvest allows advisers and their clients to do all of their tax efficient and alternative business in a single secure platform, just as they would with their main market investments on the likes of Transact and 7IM.” She concluded by agreeing that the simplified administration for EIS is encouraging more advisers to use it.

In response to the prosecution’s claim that advisers are penalised in their Pl insurance if they sell EIS, Jones called John Netting of BareRock to the stand. Netting was quick to debunk this accusation, claiming:

“Advisers who use products proportionately, for suitable clients, and can evidence good research should mitigate most of those historic Pl issues. When used correctly, ElS shouldn’t pose any more risk than any other product.”

He continued, “By selecting firms who demonstrate good practice, which we do by asking more qualitative not just quantitate questions, we can avoid risk. This means we don’t have to adopt the overall market risk stance used by the legacy insurers.”

Next, Jones brought in Andrew Castell, a partner and founder at Par Equity, to take a closer look at what EIS managers are delivering. He said, “We’re delighted to have been able to return cash to investors every year for the past decade. The average holding period of all these exits, good and bad, is just over 5 years.”

Castell added that, despite the economic challenges posed by the pandemic, the Ukraine war and the ensuing economic uncertainty, Par Equity have managed to return cash to investors, and expect to continue delivering based on ongoing discussions.

Jones then called Fred Soneya, co-founder and partner of Haatch, to the stand. Soneya explained the support that Haatch provides its customers and the difference the support makes.

“We’re focused on GTM and helping B2B SaaS companies get to that magic £1m of ARR to raise a Series A round. We think technology is becoming democratised and execution and GTM is the USP. That’s where we focus hard. It’s often the difference between making it to the next round or falling short. We see portfolio success much higher than the average startup failure numbers which are shared around. If you have a team who have been there for good and bad and a wider portfolio of founders to support too this makes a big difference.”

From Haatch to a company it invested in, Bunch’s Founder and CEO Elliott Herrod-Taylor, was next to take to the stand. He stated that Haatch’s Investment has seen the company’s valuation rise to £11.7 million in under three years, adding, “Haatch has helped the business go from a start-up to a scale-up, and helped us navigate the many changes and hurdles.”

Jones used this as an example of the significant difference a good EIS manager can make to their portfolio companies.

The final witness for the defence was Aleks Sasin, the founder and CEO of Navigatus. She listed some of the benefits of ElS, beginning with its ability to mitigate IT quickly and alongside other more traditional estate-planning strategies, such as gifting and trust-based investing.

She also credited the approach for its benefits in income tax relief, and the ability to carry back the relief to the previous tax year, along with benefits regarding loss relief, CGT deferral and increased portfolio diversification through the inclusion of small unquoted companies.

Sasin concluded by saying, “We have seen greater client engagement with EIS investments compared to conventional funds. Clients can work with their adviser to choose the sectors they want to invest in, and there is generally a lot of transparency when it comes to the investee companies, their development and their future plans.”

In response to Martin Fox’s question regarding the greatest barrier to increased EIS recommendations, Sasin answered, “It is nothing to do with the product, which is great. It is largely down to a lack of knowledge and understanding of EIS, sometimes by advisers, but more often, in our experience by compliance departments who aren’t always looking at the planning being implemented holistically. They instead focus on Individual products in isolation. There is a great need for more education because as a firm, we would like to see more ElS being used.”

Announcing the jury’s verdict…

Ultimately, the decision came down to the Jury (our webinar viewers) as to whether they believe that the positives of investing in ElS outweigh the negatives. While the prosecution summed up by reiterating his concern for ElS, and imploring the jury to vote against the motion, the case in favour of EIS investment was too strong.

Following the vote, GBI Magazine can exclusively reveal that 93% of the jury believed that the positives do in fact outweigh the negatives, thus giving the case to the defence.

About the panel

The Judge – Lawrence Gosling

Lawrence Gosling Is currently head of PR, Comms and Content at Artemis Investment Management, and previously hosted the Adviser Hour for Growth Invest. He is a personal investor in both ElS single company and portfolios, and VCT investments.

He was the founding editor of Investment Week magazine in 1995, where he spent nearly 25 years. He has been a journalist for nearly 40 years and a regular commentator on BBC television and radio on business and financial affairs.

The Prosecution – Martin Fox

Martin has had a career in financial services marketing, including a range of roles at Legal & General, Marketing Director at Prolific, and General Manager Marketing at Pearl Assurance. Today he runs Bulletin Marketing.

Over the past 12 years he has been increasingly involved in the ElS industry, including chairing the EISA Research, Education and Marketing committee for 8 years.

Witness to the prosecution

Dan Robinson, Senior Research Manager, Beauhurst.

Dan is an expert in using data to understand the equity funding landscape for private UK companies. He manages the research output from Beauhurst’s Research and Consultancy team.

He has a background in business analysis and commercial copywriting in Australia and the UK, having worked at The Sunday Times Fast Track, Oxford University Press, and advertising network MullenLowe Group.

Simon Williams, IFA Cooper Parry

Simon has a 20-year pedigree in Financial Planning, with Wealth at Work, Close Brothers, and for the past 5 years or so, as Relationship Director with accountancy firm, Cooper Parry.

The Defence – Stephen Jones

Stephen Jones, FPFS Chartered Financial Planner CFP, is the Managing Director of Clear Solutions Wealth and Tax Management Ltd, a multi award winning firm with offices in both the Midlands and London. The firm specialises in advising time pressured business owners and entrepreneurs with a particular interest in tax mitigation.

He is the first adviser to be appointed to the Main Board of the Enterprise Investment Scheme Association (EISA) where he has recently been appointed as the Chair of Governance.

He is also a member of the Adviser Tax Efficient Forum whose purpose is to act as a forum for advisory firms and analysts to discuss and action ideas to assist in improving transparency and information flow between fund managers, analysts, advisers and investors.

Announcing the jury’s verdict…

Brian Moretta, Hardman

Brian Moretta is the Head of Tax-Enhanced Research at Hardman Co, and also covers Financials stocks and Investment Funds.

In addition to his role with Hardman & Co, Brian has lectured on actuarial science and financial economics at Heriot-Watt University, is an examiner for the Faculty & Institute of Actuaries, and is on the Bankers without Borders Financial Modelling Reserve Corp.

Brian has had a 20-year career in Financial Services, including more than a decade as a fund manager. He specialised in analysing Financial Services companies at SVM Asset Management, as well as managing two traded endowment funds, an equity fund and working on hedge funds.

Brian joined Hardman & Co in February 2013. He holds a PhD in Applied Probability and a BSc in Actuarial Maths and Statistics from Herriot Watt University.

John Netting, BareRock

John Netting is the Director of BareRock. He has been a Financial Services professional since the early 90s. In 1998, he moved from advisory roles into compliance, gaining extensive expertise across several IFA networks. John co-founded the award-winning Sense Network in 2007, helping to develop it into a successful firm before its acquisition in 2020.

He then joined IFAPROSURE, applying his insights to support firms in procuring PI Insurance, evaluating risk and delivering improved Adviser and end consumer outcomes.

Fred Soneya, Haatch

Fred Soneya is the co-founder and partner at Haatch. He was responsible for a number of high profile, large-scale innovation projects across Kiddicare.com and, post-acquisition, Morrisons.

Fred created award-winning digital customer experiences by working with cutting-edge early-stage technology start-ups, bridging the online-offline gap at Morrisons. This included the launch of browse-and-order porting, mobile payments and electronic shelf-edge labels.

Having co-founded Haatch in 2013, Fred is responsible for the day-to-day running of the Haatch funds. He has led both the completion of over 150 investments into 70+ companies over the last 10 years and the onboarding of over 600 investors into the funds.

Andrew Castell, Par Equity

Andrew Castell is a partner at Par Equity. He Chartered Accountant with extensive corporate finance and corporate restructuring experience. Andrew began his career in the audit practice and then management consultancy practice of Touche Ross (now Deloitte), before several vears in investment banking, gaining broad-based experience in transactional corporate finance advisor work. Andrew serves on various boards and industry bodies and has an MA in Jurisprudence from Oxford University.

Elliott Herrod-Taylor, Bunch

Elliott founded and continues to serve as the CEO of Bunch, a fast-growing technology platform start-up aimed at revolutionising the way people handle their household finances.

Elliott built Bunch from a start-up to a £10 million valuation business last year and continues to drive forward accelerated growth. Bunch aims to simplify people’s everyday lives by using innovative technology to organise, manage, and simplify household finances. In 2021 he won Young Entrepreneur of the Year at the Growing Business Awards.

Laura-Ann Martens, GrowthInvest

Laura-Ann Martens joined the Growthlnvest team in 2019 as an Analyst after relocating to London from Auckland, New Zealand. After working across a number of roles in Client Services and Operations as part of our Graduate program, Laura-Ann was promoted in the summer of 2023, to a newly created role of Head of Business Development.

Whilst finishing her Bachelor of Business she interned at the Bank of New Zealand working as a Senior Associate in the Business Banking team. After her undergraduate she was awarded an international scholarship to intern at Zolfo Cooper in New York City as a restructuring analyst, going on to work in investment banking at Evercore, NYC.

Laura-Ann enjoys travelling and eating her way around the world, trading stocks and talking about the growing influence of ESG in today’s markets. She is a New Zealand champion in Ice Figure Skating & Tap Dance and has competed nationally in Athletics. In her free time you will find Laura-Ann on her snowboard in the Alps, cycling around London or somewhere near the beach.

Aleks Sasin, IFA

Aleks is a Paraplanner and a Chartered Financial Planner. Having worked in a variety of paraplanning and technical roles for a number of years, she launched an outsourced paraplanning service in 2017 and now heads up a team of 7 paraplanners who support a number of financial planning firms across the UK.

Aleks is passionate about delivering high-quality, easy-to-understand financial planning to as many people as possible and sees paraplanners as essential in freeing up advisers’ time to reach more clients.

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