ENTERPRISE INVESTMENT SCHEME
Industry Update - MAY 2022
1. INTRODUCTION
The latest news, updates and statistics on EIS
2. Market Update
3. Considerations for Investment
4. Industry Analysis
5. Managers in Focus
6. What's on the Horizon
7. Further Learning
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02
Opening statement Acknowledgements and thanks Key findings
1. Introduction
Opening Statement Acknowledgements and Thanks Key Findings
MICAP Stats Analysis MICAP Market Snapshot
3. Considerations For Investment
The Key to Unlocking the Small-cap Effect Post-Brexit PRIIPS: the Battle over Investor Protection Rages on Interview with Christiana Stewart-Lockhart, EISA EISA Guide to the Sunset Clause
Spring Statement 2022 - What are the Implications for EIS? Balancing Risk and Return: Venture Capital for Retail Investors EIS According to the Numbers: Strength Amid Unprecedented Disruption What the Managers Say
2. market update
Blackfinch Oxford Capital Praetura Ventures Comparison Table
5. managers in focus
Copycat: UK Seeks to Replicate EIS’ Success to Nab Tech Firms Startups: Key to UK’s Economic Recovery Britain to Ditch EU Financial Regulation for UK-specific Ones What the Managers Say
6. what's on the horizon
Learning Objectives CPD and Feedback About Intelligent Partnership Disclamer
7. further learning
2. MARKET UPDATE
3. CONSIDERATIONS FOR INVESTMENT
4. INDUSTRY ANALYSIS
5. MANAGERS IN FOCUS
6. WHAT'S ON THE HORIZON
7. FURTHER LEARNING
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Opening statement
Photography by Interview by
03
IS is a bright spot amid the ongoing financial crisis A new financial year is upon us and, once again, a return to ‘normal’ seems a long way off. Whilst lockdowns finally seem to be behind us, the country now faces a cost-of-living crisis and the Bank of England has continued to increase interest rates to try and curb inflation. So, what’s the good news? Well, with all these economic challenges ahead of us, it is innovation driven by start-ups that will provide the solutions and that will be key to securing economic growth and our recovery post Covid. Furthermore, the annual HMRC data was released on the 5th May and EIS and SEIS look to be in very good health, ensuring start-ups are able to access capital in those very early stages when it’s needed most. The data shows that Covid 19 actually had very little impact on investment raised during the pandemic. Whilst there was a slight dip in investments made using EIS at the start of the 2020/21, the end of the year saw levels rebound above the corresponding quarter the previous year. Interestingly, there was also more money invested through SEIS than before the pandemic with companies raising £175 million, an increase of 4% on the previous year. There is still an overwhelming majority of investment being made in London and the South East and, whilst it must be noted that a company’s registered address is not necessarily where the majority of their business activity takes place, there is still more that could be done to address the regional imbalance. It demonstrates a huge potential opportunity as the Government’s plans for levelling up are taken forward. A clear priority for EISA is to raise awareness of the EIS and SEIS across the UK and to ensure that entrepreneurs have access to the information and infrastructure that will enable them to use EIS and SEIS to secure much-needed investment to drive growth. So, what next? 2025 is getting closer and we’re well aware that the Sunset Clause is on the horizon and beginning to cause concern for entrepreneurs looking to secure investment. As it currently stands, EIS is due to end on 5th April 2025. The reason for the time limit (or Sunset Clause) is that it is a form of State Aid under EU law. It is worth noting that SEIS is not subject to the Sunset Clause, as the smaller limits mean it is considered to be de minimis and does not fall under State Aid regulations (unlike EIS and VCTs). EIS is the oxygen of investment, breathing life into small businesses and fuelling economic growth and job creation. Governments of all parties have recognised this and have supported EIS since it was started in 1994. Securing the future of EIS beyond the Sunset Clause is the number one priority for EISA and our understanding is that the Government is likely to address this before the end of 2023. Since their inception, SEIS and EIS have together raised more than £27billion and have enabled investment in more than 52,000 start-ups. These small businesses are the lifeblood of the UK economy and it’s crucial that we ensure they are still able to access the investment they need thanks to SEIS and EIS.
E
- Name Surname
2025 is getting closer and we’re well aware that the Sunset Clause is on the horizon and beginning to cause concern for entrepreneurs looking to secure investment.
Christiana Stewart-Lockhart
Director General Enterprise Investment Scheme Association (EISA)
The data shows that Covid 19 actually had very little impact on investment raised during the pandemic.
This report and the research behind it would not have been possible without the help and support of a number of third parties who enthusiastically shared their time and expertise. These busy professionals went to great lengths to provide us with data, their insights on the market, and useful comments and suggestions while peer reviewing initial drafts. We thank Christiana Stewart-Lockhart, the new Director General of the EIS Association, who graciously provided both the opening statement and an interview. We are grateful she took the time out of her busy schedule. We’d also like to show our gratitude to Nic Pillow and Gordon Pugh of Blackfinch Investments; Mark Bower-Easton and Richard Roberts of Oxford Capital; and Jonathan Prescott of Praetura. Our thanks also go to Jack Dominy, of Research in Finance, for his insightful thought leadership on the small-cap effect. The expertise of one and all have improved this study in innumerable ways and their support as sponsors has made this update possible. Any errors and omission are our own. We have relied upon MICAP for most of the data that we have based the update upon. MICAP is part of the same group of companies as Intelligent Partnership. We also carried out our own extensive desk research and interviews to verify their data. The update is made possible by our sponsors, who have contributed copy to the update and supported us by helping to meet production costs. So, a big thanks to Blackfinch, Oxford, and Praetura.
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Acknowledgements and thanks
Identify main developments and news in the EIS market Outline regulatory developments that could impact the EIS in the near future Benchmark products and providers in the market against one another Evaluate the key fees and charges applied by EIS managers Outline the statistical trends in EIS investment and tax relief in recent years Define some of the key events likely to impact EIS in the near future
After you have reviewed this publication and before we fulfill your CPD certification request, we will be requesting your feedback on it. Your collaboration will assist us to enhance the learning activity, and will inform improvements to future publications.
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EDITORIAL Mohamed Dabo CREATIVE Mar Alvarez SUB-EDITING Lisa Best & Mohamed Dabo RESEARCH Mohamed Dabo
MARKETING Carlo Nassetti DISTRIBUTION Michelle Powell SALES Chris White
EDITORIAL Mohamed Dabo CREATIVE Gillian Livingstone SUB-EDITING Lisa Best & Mohamed Dabo RESEARCH Mohamed Dabo
Key findings
05
proportion of EIS companies that raised 31% of all investment (2020 to 2021)
4%
decrease in funds raised by EIS companies due to the pandemic (2020 to 2021)
12%
proportion of all EIS investment accounted for by companies from the Information and Communication sector (2020 to 2021)
34%
total investment raised by 3,755 companies under the EIS scheme (2020 to 2021)
£1,658 million
proportion of 3,455 AAR applications for EIS that have been approved so far (2021 to 2022)
73%
decrease in the number of companies raising funds under the EIS due to the pandemic (2020 to 2021)
10%
proportion of EIS investment accounted for by companies registered in London and the South East (2020 to 2021)
65%
£385 million
£
amount raised by 1,370 new EIS companies (2020 to 2021)
%
?
This update has thrown up some interesting, sometimes alarming, sometimes revealing facts and figures. So we've selected a few to give you a flavour of the current context, some food for thought and some indicators of the fundamentals you should be aware of.
CLOSED
06
Spring Statement 2022 – What are the implications for EIS? Balancing risk and return: venture capital for retail investors EIS according to the numbers: strength amid unprecedented disruption What the managers say
07
hile there was very little within the Spring Statement to support investors and EIS, the announcement hit at a time when there is a huge amount of market uncertainty and investors may be considering how to diversify their portfolio in the current environment. On the morning of the Spring Statement, the Office of National Statistics (ONS) announced that inflation had jumped from 5.5% in January, to 6.2% in February. Further to this, on 12th April, inflation rose again to 7%. The rate of inflation is now at its highest rate since March 1992, when it hit 7.1%. Unfortunately, the current rate is not expected to be the peak – further increases are expected in the coming months, as Russia’s invasion of Ukraine increases fuel prices, and the recent hike in energy prices takes effect. It appears that the cost-of-living crisis is going to get worse, before it gets better. So, what does this mean for investors? With the rate of inflation so high, it is important that investors make their money work as hard for them as possible and invest in ways which will provide the best opportunity to see a return that will at least match the rate of inflation, to ensure an erosion of purchasing power is avoided. So, what should investors consider? Interest rates have increased in recent months (from 0.15% to 0.75%) but that’s not really going to move the needle when it comes to deposit-based accounts. It may increase the attractiveness of fixed-interest investments such as corporate bonds or government gilts, but neither of these are likely to suddenly offer a yield in excess, or anywhere near, the current rate of inflation. Historically, when volatility was seen in equity markets, investors migrated to fixed interest securities as a safe haven, due to their inversely proportionate relationship. However, given that interest rates have been so low for so long, this relationship has disappeared altogether in recent years. Should investors look at increasing equity exposure? Certainly, if they time it right, and pick the right stocks they might see a return above inflation, but the fact is that equity markets are very volatile at present, for obvious reasons. In the first three months of the year alone, the FTSE 100 closing price has fluctuated by 10%, moving from 4% up YTD to 6% down. Could EIS be a potential solution in the current environment? EIS is a government initiative, originally created in 1994 with the aim of boosting investment in to early-stage businesses, by offering some very generous tax reliefs. Since inception it has raised over £26bn and has helped fund nearly 32,000 new businesses, and the positive effect it has had on the economy and jobs market cannot be underestimated. Early-stage, unquoted companies, via EIS have minimal correlation to stock market sentiment, so when political and economic events throw major stock market indices into turmoil, as we are currently experiencing, early-stage unquoted companies are shielded from the volatility of the stock markets, which in the main are not caused by the performance of the underlying companies, but the geopolitical and economic situation driving market sentiment. In addition, they represent an opportunity for investors to invest into assets that have the potential to deliver inflation-beating returns and also the significant tax reliefs associated with EIS. The majority of stock market returns since 2000 have been derived from dividends. With EIS, the focus is on growing the value of the underlying businesses and generating successful exits and providing the opportunity of achieving superior investment returns. EIS is not suitable for everyone. They are high risk investments, and not only do investors need to accept this level of risk, they also need to be comfortable with their capacity for loss and lack of liquidity for at least 5-7 years. Investing in EIS should be considered as part of a diversified portfolio, and not as a standalone investment. However, for the right investor EIS can be a compelling option, particularly given ongoing market uncertainty. It can offer greater tax efficiency, diversity and the potential for improved, inflation beating returns.
W
[Early-stage unquoted companies] represent an opportunity for investors to invest into assets that have the potential to deliver inflation-beating returns and also the significant tax reliefs associated with EIS
Introduction
Market Update
Considerations for Investment
Industry Analysis
Managers in Focus
What's on the Horizon
Further Learning
Mark Bower-Easton
Business Development Manager, oxford capital
thought leadership
Spring Statement 2022 – What are the implications for EIS?
oxcp.com/ 01865 860 760 info@oxcp.com
The majority of stock market returns since 2000 have been derived from dividends
Balancing risk and return: venture capital for retail investors
In many countries, including the US, the retail investor has very little access to the venture capital (VC) market.
08
UK-based retail investors are lucky to have a choice of venture capital schemes that even provide tax breaks as an incentive to invest. For example, the Enterprise Investment Scheme (EIS) offers up to 30% tax relief on investments worth up to £1,000,000 made in a single tax year. This is in addition to capital gains tax deferral and exemption as well as loss relief. Several studies have shown that VC is a valuable addition to almost any investor’s portfolio. Even at a relatively small proportion of portfolios, it can make a significant difference. The addition of tax reliefs makes it even more compelling.
How do tax reliefs change expected return and risk?
Source: Hardman & Co Research
Risk versus return: a holistic approach
When investors allocate capital in their portfolios, the usual process is to balance risk and return. They can significantly improve their risk/return profiles by adding venture capital to their equity/bond portfolios. For this, however, a holistic approach to asset allocation is required. If venture capital is introduced, then we need to adjust the weights of the other assets to keep the overall risk constant. This means reducing equity weights and increasing bond exposure.
- fred wilson, vc entrepreneur
The VC market remains largely out of reach of many ‘main street’ investors as the SEC limits these fund investments to qualified and accredited investors. That has never made sense to me and is yet another example of the ‘well meaning’ rules resulting in the wealthy getting wealthier and everyone else missing out.
Diversification: searching for uncorrelated assets
Venture capital will have decent diversification characteristics relative to equities. Financial markets are dynamic entities that evolve and change over time. In recent years, the inversely proportional relationship held between equities and fixed income has disappeared. It used to be that when equity markets declined, fixed-income markets would go up (and vice versa). But now, as we saw in March and April of 2020 when FTSE 100 dropped by 31%, fixed-income markets do not always deliver the positive returns investors expect as a result of an equity markets’ downturn. Given this unwelcome accord between equities and fixed income, savvy investors look for investments that have little or no correlation with traditional investments. Venture capital fits the bill, EIS being a good example. Clearly, diversification, within an EIS fund and within a portfolio, can have a positive impact on broader performance.
Tax reliefs: jacking up expected returns
Tax reliefs make a huge difference to expected returns. Indeed, they have repercussions for your returns whether your investment does well or badly. The following table, from a study by global consulting firm Hardman & Co, shows the huge impact tax reliefs have on expected returns. Under a given scenario, the initial relief alone adds 7ppts to EIS returns and 13ppts to SEIS returns. Loss relief is slightly less beneficial for SEIS, due to the larger initial relief. In absolute terms, loss relief would give another 12.7% of tax relief for EIS investors (for a total of 42.7%) and 8.2% for SEIS investors (total 58.2%). In short, the greater access to the venture capital asset class is a major advantage to the individual UK investor. Venture capital offers tremendous returns and can boost the wealth building capabilities of individual investors. With its series of tax reliefs, EIS invests in UK’s most promising companies and is able to produce outstanding returns for retail investors.
IRR
17% 24% 27% 31% 30% 32%
No tax reliefs Initial income tax relief of 30% (EIS) Add loss releif (EIS) Add CGT deferral Initial income tax rlief of 50% (EIS) Add loss relief (SEIS)
Scenario
Assumed initial income tax relief received after 12 months. Loss relief paid immediately for 40% tax payer. CGT deferral assumes whole investment from capital gain, with 20% rate and no CGT allowance.
- Jon Prescott, Director, praetura ventures
Venture capital is now being seen as an important asset class for helping drive positive return on a portfolio basis.
With inflation rising rapidly, tech-focused EIS funds offer a way to invest in innovation and long-term real returns.
- nick pillow, ventures manager, blackfinch investments
EIS according to the numbers: strength amid unprecedented disruption
The Enterprise Investment Scheme (EIS) continues to show remarkable resilience in these times of economic upheaval.
09
After the Covid-19 pandemic has tested its mettle like never before, EIS continues to navigate our new era of record-breaking inflation, soaring interest rates, and the economic reverberations of the Russia-Ukraine war with an endurance and a flexibility that bode well for the future of the tax-advantaged scheme. The latest data from HM Revenue and Customs (HMRC) which focus on the 2020/21 tax year, offer our first glimpse of pandemic impacts on the popular relief, depict a strong, healthy sector that has raked in around 25.7 billion in investment funds by 37,130 companies since it was launched in 1994. Fiscal year 2020 to 2021 witnessed a 12% drop in funding from the previous tax year, with 3,755 companies raising a total of £1,658 million. This period, it will be remembered, saw the worst devastation of the Covid-19 pandemic. As a result, EIS investment across the first 3 quarters of 2020 to 2021 remained below the level seen across the same quarters of 2019 to 2020. Even so, £358 million of investment was raised by 1,370 new EIS companies in 2020 to 2021. This was quite a startling development because funding rebounded above pre-pandemic levels in the last quarter of 2020 to 2021.
In 2020 to 2021, companies from top 4 sectors (Information and Communication; Manufacturing; Wholesale and Retail Trade, Repairs; and Professional, Scientific & Technical) together accounted for around £1,194 million of investment and made up 71% of all EIS Investment. This has remained consistent from 2019 to 2020.
During the last fiscal year, companies from the information and communication technology (ICT) sector accounted for £571 million of investment (34% of all EIS investment). Products and services from this sector primarily fulfil or enable the function of information processing and communication by electronic means. As work from home gained popularity, ICT was able to extract the best out of this crisis situation. That this industry accounts for the lion’s share of EIS investment is another indication of the scheme’s importance to the economy. ICT provides critical infrastructures to the country, enabling operations of all businesses and governments across all other critical infrastructure sectors. The ICT sector contributes to technological progress, output and productivity growth. Its impact can be examined in several ways: directly, through its contribution to output, employment or productivity growth, or indirectly, as a source of technological change affecting other parts of the economy.
Comparison between amounts of funds raised under the EIS by different industry sectors, 2019-20 to 2020-21
VCT investee companies
text
x%
A unicorn is a private company valued at $1 billion (£718 million) or more. Worldwide, the growth in the number of unicorns has paralleled the global funding increase for new ventures and tech startups. The term unicorn was introduced by venture capital investor, Aileen Lee, in 2013. The moniker was meant to reflect the particular attributes of a unicorn: something highly desirable, but very difficult to obtain.
Funding digital acceleration and innovation
Companies registered in London and the South East accounted for the largest proportion of investment, raising £1,078 million (65% of all EIS investment) in 2020 to 2021. This concentration of investment in London and the South East speaks to the longstanding issue of regional imbalances in access to early-stage equity finance for small businesses across the UK. According to a recent report by the Institute of Economic Development (IED), “the UK is by far the most imbalanced economy in Europe.” The government’s Regional Angels Programme was created as an effort to alleviate the disparity. The programme, often combined with EIS investment, has had notable successes around the country. It seeks to increase the aggregate amount of early-stage equity capital that is available to smaller businesses with high growth potential across the UK. At Spending Review 2021, the government announced £150 million of funding over three years for the Regional Angels Programme.
Facing regional imbalance
Distribution of the number of EIS companies and amount of investment by location, 2020 to 2021
Source: gov.uk
In 2021 to 2022, 3,455 advance assurance requests (AAR) applications for EIS were received. Of these, 2,510 (73%) have been approved so far. The number of applications has increased from 2020 to 2021 when 3,080 AAR applications were received and 2,380 (77%) approved. Although discretionary, obtaining advance assurance from HMRC will allow a company to show investors that it is probably eligible for EIS funding. Advance assurance is not an absolute guarantee, but can dramatically improve a start-up’s chances of getting funded. In particular, high net worth individuals and angel investors will likely seek to invest in start-ups that have EIS Advance Assurance, ensuring the start-up receives the full amount of the investment it is looking for. The significant increase in AAR could reflect a greater competition for funding as the economy confronts the headwinds of inflation and volatility that inaugurated 2021.
Seeking assurance amid the turbulence
The number of investors claiming Income tax relief on self-assessment forms under the EIS has increased, from 36,150 in tax year 2019 to 2020 to 37,535 in 2020 to 2021. The total tax relief claimed under EIS slightly decreased overall in 2020 to 2021, but there was a slight increase in the total number of investors (4%), particularly in the smaller investment size categories (up to £75,000). In 2018 to 2019, new limits were introduced for investments in KICs. These allow individuals to invest up to £2 million in a year if they are investing in a KIC. There were 40 investments of between £1 million and £2 million in 2020 to 2021, contributing £58 million of investment. With the higher limit available, investments of over £500,000 comprised 16% of the total amount of EIS investment raised on which claims were made in 2020 to 2021. It’s worth noting that the total figures provided on the amount of investment on which Income tax relief was claimed are not directly comparable with the figures on the amount of investment reported by companies. This is because some investors may choose to offset the tax liability against the previous year. A small amount of relief would also be claimed through the PAYE system; this is assumed to relate to about 5% of total EIS investment.
Claiming tax reliefs
Proportion of investors
Proportion of amount invested
london south east east of england north west scotland south west west midlands unknown yorkshire and the humber east midlands wales north east northern ireland channel islands / isle of man
0%
20%
30%
40%
50%
- Nic Pillow, Ventures Manager, Blackfinch Investments
Many EIS-qualifying start-ups have been forged with strong environmental and social values in their DNA, making them excellent ESG investments compared to older businesses.
J .Information and Communication M. Professional, Scnienfic and Technical C. Manufacturing G. Wholesale and Retail Trade, Repairs N. Admin and Support Services; O. Public Admin, Defence and Social Services K. Financial and Insurance S. Other service activities; T. Househols; U. Overseas Q. Health and Social Work R. Arts, entertainment and Recreation I. Accommodation and Food P. Education D. Electricity, Gas, Steam and Aric Conditioning; E. Water, Sewerage and Waste A. Agriculture, Forestry and Fishing; B. Mining and Quarrying H. Transport and Storage F. Construction L. Real Estate Unknown Sic2007
2020-21
2019-20
- author, company
Of 3,455 advance assurance requests (AAR) applications for EIS in 2021 to 2022, 2,510 (73%) have been approved so far.
- Richard Roberts, Director, Investor Relations, Oxford Capital
As we kick start the new tax year, it’s important for advisers and their clients to consider that the earlier they invest, the sooner their investment will be available to be deployed, which can avoid the pressure on capacity at tax year end.
What the managers say
10
What was your takeaway from the Chancellor’s Spring Statement speech?
The capital gains tax bill has jumped to record highs. What does this mean for savers looking to keep their money out of the taxman’s hands?
With more and more proceeds being taken by HMRC, it’s increasingly important to look for types of investment that can mitigate capital gains tax. For those people looking for long-term, higher risk investments, EIS is ideal: not only are all of the investment gains exempt of tax, but those gains also have the potential to be particularly large.
nic pillow
Ventures Manager Blackfinch Investments
So how are the managers feeling about the EIS market and overall investment market conditions? Here's what they have to say.
What will boosting R&D tax reliefs mean for investment into knowledge intensive and other EIS-qualifying companies?
R&D tax reliefs have long helped early-stage businesses develop exciting new technologies of the future. The government’s intention to enhance these reliefs will further reduce the barriers and risks of setting up and growing tech start-ups. Money spent on technology will go further, helping deliver better returns for tech-focused EIS providers such as Blackfinch.
The spring statement didn’t really move the needle as far as EIS is concerned. However, inflation has just hit 7% and is going to adversely hit the purchasing power of everyone in the UK. We’re not convinced that “traditional” investment assets have the capability of keeping up with inflation at this level, particularly over the medium to long term.
Savers have one of two options – hold on to the asset in the knowledge that upon death, the CGT liability will disappear, or alternatively, crystallise the gain and defer it indefinitely by investing the gain (minus the annual CGT allowance) into an EIS. Although holding on to the asset until death will solve the CGT issue, it won’t solve the IHT issue, and could potentially leave beneficiaries with a tax bill of up to 40% of the asset value.
It’s a positive change. Essentially, businesses can invest more into R&D, and the boost in credits means it will cost them the same amount. The scheme is being expanded to include data, cloud computing and pure maths which will help those early-stage companies in these sectors accelerate their growth and support investment into the EIS scheme going forwards.
Business Development Manager, Oxford Capital
Whilst the economy still grapples with the lasting effects of the pandemic, economic growth is starting to reflect the UK’s recovery. However, the chancellor is clearly trying to manage the rising cost of living. Ultimately, high inflation will encourage investors to demand more from their investments and look to alternative structures, such as EIS, to seek greater rates of returns.
Capital gains tax was always going to be an easy target for the government to raise additional revenue post-pandemic. Vehicles like EIS that support structured tax planning are becoming more and more applicable to a growing number of investors. Whilst EIS is yet to be considered mainstream, there is growing demand as we’re beginning to see a measurable shift in the use of acceptance of alternatives coupled with the effective tax planning that may be achieved through EIS.
R&D tax reliefs are critical to UK PLC’s competitive advantage on the global stage, which is good news for scale ups. That’s why Praetura supports our investee companies with expert financial advice to ensure they’re making the most of these opportunities. Recently, we saved a new portfolio company £180k in costs through our guidance. Ultimately, investors will feel the benefit of this additional capital, which can be put to better use in the business.
jonathan prescott
Director, Praetura Ventures
Most striking was the Office for Budget Responsibility’s forecast that inflation would reach almost 9% this year, which is exceptionally high by recent standards. It underlines the imperative of investing quickly rather than sitting on cash. For EIS investments, it means choosing a provider such as Blackfinch that can deploy funds in an average of under six months.
11
MICAP Statistical Analysis MICAP Market Snapshot
MICAP statistical analysis
For this section, we rely on MICAP data to help give you a snapshot of the size of the market, as well as the fees and charges you can expect to see from EIS offers. All data is accurate as of 11 May 2022.
12
The Covid-19 pandemic proved the ability of the Enterprise Investment Scheme (EIS) to withstand adverse conditions. With the pandemic now subdued (but not gone), the current market turmoil provides confirmation of EIS’ resilience. The outbreak of the Russia-Ukraine war in February introduced further uncertainty to financial markets, which were already reeling from a soaring inflation stemming from global supply-chain disruptions. In March, the UK’s annual UK inflation hit a 30-year high of 7% as food and energy prices continued to skyrocket. The Bank of England MPC raised the bank rate, at its May meeting, by 25 bps from 0.75% to 1.00%, as expected. The central bank said some further modest tightening may be appropriate in the coming months. In spite of these headwinds, however, the number of open EIS offers (54) is almost the same as it was in December (55), at the time of our last analysis of the sector. The steadiness of the open offers at a time of market instability reflects a remarkable vote of confidence by investors in a scheme generally considered risky.
Number of open offers holding steady despite market instability
open offers by investment sector
49%
47%
General Enterprise
Media & Entertainment
Fees and charges
average charges
Initial Charge to Investor Excluding Adviser Fee Initial Charge to Investee Company Total Initial Charge AMC Charged to Investor AMC Charged to Investee Company AMC Annual Performance Fee exit performance fee Annual Performance Hurdle exit performance initial deal fee exit deal fee annual admin charge
1.34% 2.07% 3.41% 0.94% 0.81% 1.74% N/A 18.08% 0.21% 97.85% 0.36% 0.17% 0.10%
may 2022
1.23% 2.32% 3.43% 0.98% 0.84% 1.76% N/A 17.91% 0.29% 96.45% 0.36% 0.20% 0.10%
dec 2021
+8.94% -10.78% -0.58% -4.08% -3.57% -1.14% N/A +0.95% -27.6% +1.45% 0% -15% 0%
% change
EIS has become increasingly popular over the past few years as the tax burden has risen and the quality of products available has increased. More funds are well established and more managers have longer track records. Despite the ‘tech wreck’ we are currently seeing on the market (see below), technology remains the most popular investment sector for the open offers. Hardly surprising; 2021 was a stellar year for the UK tech sector, which is acquiring a solid reputation as a domain of hefty VC investment, more unicorns, more jobs and more futurecorns. With almost half (49%) of the investment committed to this dynamic industry, EIS managers obviously see it as full of promise. They are not alone. More money than ever flowing into UK tech: £26 billion in 2021, up 2.3x from the year before (£11.5 billion). Almost £9 billion of all VC invested went into startups and scaleups outside London and the South. The number of British-born unicorns has climbed to 116, of which 29 (a quarter of the total) were created in 2021 alone.
Open offers by investment sector
Pharmaceuticals & Biotechnology
Technology
2%
When classified by investment type, the majority of open offers (82.7%) come under Discretionary Portfolio Service. The remaining 17.3% are alternative investment funds, a category created by the EU regulation that applies to alternative investments, many of which were left largely unchecked prior to the 2008-09 global financial crisis. The applicable EU directive sets standards for marketing around raising private capital, remuneration policies, risk monitoring and reporting, as well as overall accountability.
Open offers by investment type
Alternative Investment Fund
82.7%
17.3%
Discretionary Portfolio Service
The bulk of the investment for the open offers (76%) go into early-stage companies. MICAP defines an ‘early-stage’ company as a post-revenue business that is yet to become profitable or has only been profitable for less than two years. Given the search for growth and the FCA rules restricting types of companies that qualify for EIS in terms of risk to capital, the focus on early stage companies isn't surprising. Later-stage and AIM-listed companies account each for 12% of the investment. For MICAP, a ‘later-stage’ company is one that has been profitable for at least two years.
Open offers by investee company type
AIM Listed
76%
Early Stage
Later Stage
Amid the Russia-Ukraine war, the tech sector as a whole is experiencing some rather difficult times. By 12 May, amid the Russia-Ukraine war, tech stocks were taking a beating globally, overtaken by oil. Apple, having declined 10% year to date, was bumped off the top spot as the world's most valuable company. The Nasdaq fell another 3%, the S&P 500 by more than 1.6% and futures looked weak again that morning. European stock markets were down sharply after the losses on Wall Street and a very downbeat Asian session. the FTSE 100 index had hit its lowest since mid-March as markets continued to be hit by recession worries. Tech investor Scottish Mortgage Investment Trust (-5%) and online grocery tech business Ocado (-5.3%) were also down heavily. It’s worth noting that the tech debacle affected mainly big technology stocks. It was the story of companies like Netflix, Facebook, Tesla, and Microsoft. The lower end of the market, where EIS was active, remained relatively safe. Ultimately, the patient capital that EIS brings to tech is clearly a good thing when market sentiment can be volatile as recently demonstrated.
“Tech wreckage”
One hundred percent of the open offers have adopted a growth investment strategy. This is logical as capital preservation is not allowed and income would detract from the growth focus of these companies, not to mention the fact that dividends from EIS companies are not tax-free.
Open offers by investment strategy
The target number of investee companies by open offer has not changed since December. Diversification brings obvious benefits to portfolio, but, as we noted in our last EIS update: “While diversification brings obvious benefits, increasing the number of investee companies also brings additional costs (e.g., monitoring costs) and regulatory requirements (e.g., more paperwork) which managers have to consider. “Each fund manager needs to weigh this additional burden against the benefits of risk reduction.”
Diversification
TARGET NO. OF INVESTEE COMPANIES, OPEN OFFERS
average mode minimum median maximum
8.9 5 3 8 50
Looking at the above, however, it’s worth noting that the most quoted number is 5 and it looks like the overall average is dragged up by an outlier - the maximum 50. This suggests there is room for greater diversification should market conditions deteriorate further or any performance issues arise.
Since our last analysis in December, the average target return has jumped by more than 15% (from the then 264%), a bit of a surprise given the deteriorating economic conditions all around us. On closer look, however, it appears that this higher average has been driven by an outlier (the one open offer targeting 1,000%).
Target returns
Back in Q1 2021, we wrote: “The average minimum investment continued to increase between Q4 2020 and Q1 2021. It now stands £1,500 higher than it was at the same point in 2020, and has almost reached £20,000 - the number recorded in the second half of 2019. Half of the offers which opened between the start of 2020 and 5 February 2021 had minimum investments of at least £25,000.” By December of that year, the average minimum investment stood at £20,000, with the most frequently quoted minimum being £10,000. Today, the minimum average investment has dropped further to £5000. But the most frequently quoted amount has remained unchanged, which suggests that much has not changed. Again, looking closely at the numbers, we see that
Minimum subscrition
The average total initial charge has been mostly on a downward trend for the past couple of years. It dropped from 3.61% in February 2020 to 3.35% in October of the same year. By December 2021, it had crept up a bit to 3.43%. Now, it has fallen back to 3.41%. Compared to last year, more fees have declined today than have gone up. We see the biggest drop (27.6%) in the average performance hurdle fee. The initial charge to investee companies has fallen by more than 10% to 2.07%. In previous analysis we noted that this fee has also been in decline for a while, perhaps a sign of improved bargaining position by investee companies. Interestingly, the decline in the initial charge to investee companies has not been mirrored by the initial charge to investors, excluding adviser fee, which has jumped 8.94%. Does this suggest that managers have largely compensated for the drop in fees to investees by pushing up the fees to investors? As can be seen from the following table, two other fees went up: the exit performance fee and the exit performance hurdle.
303.94%
200%
130%
250%
1000%
Target return of open offers
£18,846
£10,000
£5,000
£20,000
£100,000
minimum subscription of open offers
There’s a huge amount to be positive about in the EIS sector – UK early-stage technology companies are continuing to innovate and provide positive investment opportunities and we’re really encouraged by the calibre of deal flow coming through.
Market snapshot
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The VCT fundraising season got into full swing in September and was a time of several rounds of impressive fundraising. During the pandemic and at a time when the UK’s young companies have needed it most, the VCT sector has raised £685 million for investment in small, innovative UK businesses. Where reported, open VCT offers target an average £1,000,000 in fundraising, less than the historical average minimum fundraise of £2,400,000. Whatever the reason, lower fundraising targets bring in more investors. That is what happened last year, when a 7.5% drop from the previous year allowed the most popular offers to be filled well in advance of the end of the tax year. Overall, 13 of the year’s 22 offers (comprising 20 of the 30 individual VCTs raising funds) were fully subscribed before 5 April 2021. Much of the investment went to support healthcare, science and technology businesses which have helped in the battle against coronavirus, said the AIC. “It demonstrates that demand for VCTs and the benefits they bring investors remains high at an extremely difficult time,” said former AIC boss Ian Sayers.
Leveraging its market overview position, MICAP is able to offer IFAs exclusive insight into the wider EIS market. As a sister company of MICAP, we are able to offer the following snapshot of data, which is updated in real time, and pulled from the MICAP website.
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The key to unlocking the small-cap effect Post-Brexit PRIIPS: the battle over investor protection rages on Interview with Christiana Stewart-Lockhart, EISA EISA guide to the Sunset Clause
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jack dominy
research manager, research in finance
The key to unlocking the small-cap effect
The small-cap effect concept has clear links to the Enterprise Investment Scheme (EIS), as the initiative is specifically focused on small companies, offering tax relief to investors who buy new shares in those companies.
he small-cap effect refers to the concept that smaller companies tend to have better long-term average returns than larger companies. There have been several academic articles written about whether it is true or not, ever since Nobel Prize winning economists Fama and French conducted work on how efficient markets are. The small-cap effect concept has clear links to the Enterprise Investment Scheme (EIS), as the initiative is specifically focused on small companies, offering tax relief to investors who buy new shares in those companies. The benefits of investing through EIS are numerous, focused primarily on tax relief. Indeed, in recent research conducted by Research in Finance on the topic of initiatives such as EIS and Venture Capital Trusts (VCTs), tax relief is the primary reason for choosing tax-efficient investments, over and above other advantages such as high growth potential and adding diversification to other investments. Our insight into the market finds several reasons as to why private investors may feel initiatives such as EIS, and smaller companies more broadly, have an investing magnetic pull. Importantly, some of these drivers are more quantifiable and others less tangible, but all help point towards the direction of outperformance and strong growth. There are clear, demonstrable advantages to investing in small caps if a portfolio principally includes large, blue-chip companies, for the sake of diversification and complementing long-term investments. Small caps are also under-researched by the market, given they are so numerous, which means they can often be undervalued as many are not well-known. This brings with it untapped potential opportunity for those willing to spend the time and effort to research certain businesses, understand their positioning and assess their principles. Less tangible factors that can help smaller companies to shine and add weight to the small-cap effect include agile ownership. This is where the owners of smaller businesses are typically closer to their employees, meaning all stakeholders may have a clearer understanding of where the company is headed and how they can deal with challenges that arise. The fear of failure is strong. Smaller companies are also likely to be more flexible and adaptable to change where needed. Imagine a large cruise liner and a small yacht. The large ship has its advantages undoubtedly but will struggle to change course quickly if required, whereas the yacht is much nimbler and can react speedily to anything in its path.
Nothing in investing is a silver bullet, of course. Smaller companies are, by their very nature, riskier and more volatile, because they are new to the market and/or their lower capitalisation level. In studies conducted by Research in Finance, ‘risk’ and ‘volatility’ are the top 2 barriers for private investors thinking about investing in smaller companies. Nobody wants to invest in a company that fails, and nobody wants to invest in a company where you have no idea or certainty about what the performance level will be on any given week. Sluggish overall economic growth and rising inflation can also cause investors to shy away from smaller companies in a ‘flight to safety’. Yet it would be remiss to separate the challenges from the opportunities, as they are inextricably connected. Difficulty in measuring certain attributes, and the risks and ‘unknown factor’ associated with that, is the very reason why some small companies are undervalued, because the market can struggle to price factors and the ‘intangibles’ effectively. So, what should advisers be thinking about with regards to EIS and the small-cap effect? As the American entrepreneur Jim Rohn said: “If you are not willing to risk the unusual, you will have to settle for the ordinary”. The potential benefits of outperformance and high growth of small companies certainly exist to be realised. However, these benefits will not apply to all small companies, and that is where diligent research and expertise of the market must come to the fore. This can include analysing the large companies and leaders of the stock markets around the world today, and where they came from, to understand who the winners of tomorrow could be. And isn’t that what investing is all about, at its very core? The excitement, the spark, the aura of finding a brilliant company at the start of its journey, that is profitable and successful and has the potential for long term growth. That is the key to unlocking the small-cap effect.
Smaller companies can offer high growth potential but unlocking that potential can be difficult. Why is this the case?
T
the small-cap effect: outperformance potential
Investing in the solutions and winners of tomorrow
Under-researched and therefore undervalued
Small company growth potential
Agile ownership, close link to employees
Diversification benefits
Potential tax relief (e.g. EIS)
More flexible, easier to adapt, less bureaucracy to deal with
Post-Brexit PRIIPS: the battle over investor protection rages on
HM Treasury has pledged to deviate from the EU PRIIPs [packaged retail investment and insurance-based products] regulation to offer better protection to UK consumers. However, the controversy around the PRIIPs regime continues.
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The Financial Conduct Authority (FCA) has set out proposals to change disclosure documents provided to retail investors under the PRIIPs regulation, but the Association of Investment Companies (AIC) is urging the Treasury to do more. The PRIIPs regulation was developed to renew the confidence of retail investors in the financial market and improve their protection. Those who produce, advise on or sell PRIIPs are required to provide a Key Information Document (KID) about the product they are selling. However, for some products the KID has the potential to contain misleading information as a result of the methodologies used in producing performance scenarios and summary risk indicators. There has also been a lack of clarity within the PRIIPs regime over the corporate bond market. This has led HM Treasury to confirm that the UK will diverge from EU PRIIPs regulation to better protect its consumers.
The AIC has called on the Treasury to make good on its promise to revamp the current disclosure regime for UK retail investors. The plea came in response to the publication of the Financial Conduct Authority (FCA)’s policy statement ‘PRIIPs – Scope Rules and amendments to Regulatory Technical Standards’ (PS22/2). The proposals, said FCA, were intended “to address the most serious and persistent concerns identified through our Call for Input and ongoing monitoring of the onshored PRIIPs regulation.” They included targeted amendments to the existing disclosure requirements contained in FCA Handbook rules and Guidance, and the PRIIPs Regulatory Technical Standards (RTS). The AIC deemed that the proposals did not go far enough, even though it found some positive in them. “The substance of the FCA’s amendments to the PRIIPs rules is much as expected, with misleading performance scenarios replaced with a requirement for narrative performance information, and more discretion given to product manufacturers to ‘upgrade’ risk scores when they feel these are too low,” said Richard Stone, the AIC’s chief executive. He said he was pleased that action was taken on these concerns, which had been raised ‘repeatedly’ by his organisation.
Improving disclosure documents
“The regulator is now at the end of the road”
The FCA has reached “the end of the road,” said Stone. The regulator, he noted, has done all it could to reform KIDs without being given further powers. It is now the Treasury’s turn to make good on its promise to overhaul the current disclosure regime. “Whilst the FCA has made some welcome steps in this round of changes, meeting this ambition is just not possible under the current PRIIPs framework,” he said.
Persistent issues for retail investors
As recognised in the PRIIPs Regulation, unless the information provided on PRIIPs is short and concise there is a risk that retail investors will not use it. Moreover, retail investors are often provided with duplicate disclosures both of which aim to inform them about the key or essential elements of a product, as well as additional explanations, potentially via an additional disclosure document. These documents may not provide consistent information due to technical differences in the methodologies underpinning the presentation of risks, performance and costs. These overlapping disclosure documents could in fact deter investors from using them rather than facilitating informed investment decision making. Add to that the continued and pervasive use of financial jargon and terminology which is not immediately clear to retail investors. To take the example of the risk indicators—the PRIIPs summary risk indicator and the UCITS synthetic risk reward indicator will result in different risk indicators for a material number of PRIIPs. As they currently stand, some of the rules are not satisfactory and pose a clear risk of undermining the aims of the PRIIPs Regulation. A key element in the FCA’s recent Consultation on the New Consumer Duty was to ensure that firms provide information which is understandable and helps consumers to make properly informed decisions. The proposed rule changes for PRIIPS will give firms great flexibility to ensure that their communications meet this test, says the regulator.
Post-Brexit divergence for PRIIPS regulation
Following the UK’s exit from the EU, the Financial Services Act 2021 allows the FCA to specify whether a product can be classified as a PRIIP under the PRIIPs Regulation as well as allowing the FCA to define what is meant by ‘performance information’. Sheldon Mills, FCA’s executive director, consumers and competition, said: “Exiting the EU has provided us an opportunity to quickly amend technical standards surrounding key information documents as we know that they are not fully achieving the intended aims. “We want to ensure that consumers have what they need through transparent information and furthermore through the reduction of potentially misleading information being displayed.”
For some products the KID has the potential to contain misleading information as a result of the methodologies used in producing performance scenarios and summary risk indicators.
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director, eiSA
Q&A
Interview with Christiana Stewart-Lockhart
I have extensive experience in outreach and building networks and at its heart, EISA is, of course, a membership organization. I have been really impressed at how collaborative the industry already is and I’m grateful for the very warm welcome I’ve received.
C
hristiana Stewart-Lockhart recently took over the helm of the EIS Association, which represents members from across the EIS landscape, at a crucial juncture for the industry. Indeed, after navigating the Covid-19 pandemic with remarkable resilience, EIS is now faced with another major crisis. Heightened geopolitical uncertainty; a UK inflation rate running at a 40-year high of 9%, more than triple the Bank of England’s target of 2%, and expected to rise further; slow economic growth and looming recession risk—these are all challenges to funding early-stage businesses. We asked the new Director General about her views on the state of the industry and her vision for the future. What attracted you to EIS as an area to work in? Since their inception, SEIS and EIS have together raised more than £27billion and have enabled investment in more than 52,000 start-ups. That is a phenomenal achievement, and when you couple that with the jobs created, the innovation and the economic growth, you really start to get a sense of just how important these schemes are. The start ups using EIS are some of the most exciting and innovative in the world and it is a joy to be working alongside these entrepreneurs and the investors who make these companies possible. This is where the magic is happening and everyday these companies are providing new solutions to our greatest challenges. To be part of the action is incredibly exciting. What are some skills and experience that make you particularly suited for your new position? I have extensive experience in outreach and building networks and at its heart, EISA is, of course, a membership organization. I have been really impressed at how collaborative the industry already is and I’m grateful for the very warm welcome I’ve received. I’m keen to build on these existing connections and also to expand our membership further. Founders and startups are central to the existence of EIS and SEIS and we have recently relaunched our entrepreneur membership to encourage more founders to become part of the Association. I fully appreciate just how vital SEIS and EIS are to entrepreneurs. Every day, speaking with founders, you hear how passionate they are about SEIS and EIS and many have said they genuinely don’t think their business would exist without the schemes. We need to make sure that they play an active role in industry conversations and I’m keen to facilitate this. Given your background as a director at the Institute of Economic Affairs, you bring a deep understanding of business from the political perspective. How do you hope to leverage these useful qualities in your new job? Spending nearly 15 years working in Westminster and Brussels is a significant advantage when it comes to raising awareness of EIS and SEIS in Parliament. Perhaps surprisingly, 43% of MPs have never even heard of EIS and 61% have never heard of SEIS according to a report by The Entrepreneurs Network. This is something I am keen to change and I am already working with EISA members on a campaign to address this. I’m also on the Advisory Board for the All-Party Parliamentary Group for Entrepreneurship and it’s been great to see lots of familiar faces from my previous roles engaging in this space. There is no doubt that the Sunset Clause is a clear priority for EISA. I appreciate that entrepreneurs and investors need clarity on the future of EIS sooner rather than later. We recently published a guide to the Sunset Clause which I hope has helped to provide some context and background to the legislation. It is worth noting, for example, that it is only EIS and not SEIS that is subject to the Sunset Clause. Whilst not having worked in a certain industry before can have its challenges, I think an outside perspective is often helpful. This is particularly relevant when we are looking to engage more people who aren’t involved in EIS or SEIS day in and day out. Having been on the job for over a month already, what are some things you’d like to change? I’ve spent a significant amount of time trying to meet as many members as possible. They’re working with EIS and SEIS every day and it’s very important to me to understand their experiences and what’s happening on the ground. My work has always involved education of some kind and a key priority is to increase promotion of SEIS and EIS across the UK to ensure that entrepreneurs and investors are fully aware of the opportunities available to them.
The latest HMRC data shows that 65% of investment through EIS goes to companies in London and the South East and, alongside the Government's levelling up agenda, there is a huge potential opportunity to use EIS and SEIS more across the regions. You’re taking over leadership of EISA at an uncertain time for the economy, given the rising inflation, slow economic growth, and geopolitical tensions. How does that inform your mission, at least in the immediate term? It definitely reinforces the importance of facilitating investment into startups, which is exactly what SEIS and EIS are doing. Small businesses are the lifeblood of the UK economy and they’re going to play a key role in our economic recovery post Covid. Indeed, they already are having an impact and the latest HMRC data shows that investment through SEIS actually increased by 4% in 2020/21 compared to 2019/20, despite Covid. Clarity around the future of EIS and the Sunset Clause would be a huge help to entrepreneurs as they consider their need for capital in the medium term. It would also give some security to those looking to provide the much-needed investment to allow these companies to grow. This is central to EISA’s mission. What is your vision for the future of EIS? Where do you see the sector in five years? In ten years? I was speaking with an Italian entrepreneur the other day who told me that she considered starting her fintech business in several countries in Europe but that she chose the UK because of EIS. That is powerful. I’d love to see EIS and SEIS continuing to play a central role in securing the UK’s position as a world leader in entrepreneurship and innovation, fuelling the economic growth that comes with that. Ultimately, I would like to see EIS continuing to deliver on its key objective of facilitating investment from private individuals to early-stage start-ups. That is why it was initially created by the Government nearly 30 years ago and why it has been supported by every Government ever since. I think education is key to this and my aspiration is that no new growth business fails to attract the capital it needs due to a lack of awareness about SEIS and EIS. What message do you have for the market participants reading this interview, who may not know much about you? I’m excited to build on the fantastic work that has already been done by my predecessor, Mark Brownridge, and the Association and, in particular, to continue championing EIS and SEIS across the UK. EIS and SEIS are obviously very well known within the Venture Capital world but the data about MPs' knowledge of the schemes is just one indicator of how much more could be done to raise awareness of the opportunities they offer. When I’ve asked founders how they first heard about EIS, the majority have said it was from other entrepreneurs. I’m looking forward to working with EISA members to ensure that founders and investors from across the regions are fully aware of the opportunities that EIS and SEIS offer them. I’d also love to help people become more aware of the brilliant companies that EIS and SEIS are helping to facilitate in their local communities – the job creation, the innovation and the economic growth. Go about your typical day and you will interact in some way with a company that received investment thanks to SEIS and EIS. It would be fantastic if we could really champion this and emphasize the key role SEIS and EIS play in helping to create companies that are shaping our future world.
Clarity around the future of EIS and the Sunset Clause would be a huge help to entrepreneurs as they consider their need for capital in the medium term. It would also give some security to those looking to provide the much-needed investment to allow these companies to grow. This is central to EISA’s mission.
EISA guide to the Sunset Clause
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For the last dozen or so years, the EIS income tax relief has been considered to be a form of State aid, and has needed to be notified to the European Commission. When EU State aid approval was last obtained for the EIS in 2015, it was a requirement that a "sunset" clause be included in the EIS legislation. Section 157(1)(aa) Income Tax Act 2007 provides that income tax relief is available for subscriptions for shares under the EIS prior to 6 April 2025. This is colloquially known as the “Sunset clause”. However section 157(1A) goes on to say that “The Treasury may, by regulations, amend subsection (1)(aa) to substitute a different date for the date for the time being specified there”. This gives the Government the power to extend the Sunset clause by secondary legislation beyond 5 April 2025.
Does this affect deferral relief under the EIS? Please note that the capital gains tax deferral relief available for investment in EIS companies is a separate tax relief from EIS income tax relief, and is not subject to a sunset clause. What about SEIS? There is no similar provision for the Seed Enterprise Investment Scheme (“SEIS”). This is because SEIS, being for smaller investment amounts, is a de minimis State aid, rather than a notified State aid. As such, if the legislation remains unchanged, SEIS tax reliefs will continue to be available after 5 April 2025. What about VCTs? There are similar provisions in the Venture Capital Trusts (“VCT”) legislation. These provide that VCT income tax relief is available for subscriptions of shares in VCTs before 6 April 2025, and also that regulations may be laid to substitute a different expiry date. The dividend relief and capital gains exemptions for VCT shares are not subject to a sunset clause. What can be done? The UK has now left the EU and therefore many of the State aid restrictions will cease to apply, and the Government may choose to remove the EIS Sunset Clause altogether. Northern Ireland is in the United Kingdom, but it is subject to the provisions of the Northern Ireland Protocol. It is not clear whether EU approval will need to be sought to remove or extend the sunset clause for businesses trading in Northern Ireland. The Government has been reluctant to make distinctions between different parts of the United Kingdom, but in the Spring Statement of 23 March 2022 the rate of VAT was reduced to zero on solar power, heat pumps and insulation for Great Britain, but not Northern Ireland, due to the Northern Ireland Protocol; and this may be a precedent for other government interventions.
What is the Sunset Clause?
What does the EISA recommend? The sunset clause is beginning to cause concern for entrepreneurs who are considering their need for capital in the medium term. We recommend that the Government should announce its intentions as to the longevity of EIS, which has proved its worth over a quarter of a century and has been supported by each party in government. The EIS falls within the remit of Treasury ministers, and we understand that the Government is likely to address this at a fiscal event before the end of 2023. EIS backed businesses have created thousands of jobs throughout the UK, and some have gone on to become “unicorns”. The Patient Capital Review Industry Response in October 2017 concluded that “accessing long-term, patient finance is difficult in the UK’s under-developed and fragmented ecosystem. If left unaddressed, this will continue to stifle the rich pipeline of UK start-ups coming to fruition and will see the UK lose out on the jobs, skills development, talent, technological know-how and other economic benefits they could provide” and “The popularity of these schemes [EIS & VCT] has contributed significantly to the development of a vibrant UK start-up scene”. The need of private capital is now greater than ever to aid the post Covid recovery and to support the levelling up agenda. We hope that the EIS will continue to play a crucial part in supporting and growing UK businesses for many years to come.
1. In November 2016, Sir Damon Buffini led an independent industry panel of entrepreneurs, academics and investment professionals to support the Government’s Patient Capital Review into the availability of long-term finance for growing UK firms. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/661397/PCR_Industry_panel_response.pdf
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Blackfinch Oxford Capital Praetura Ventures EIS Solutions Comparison
Manager video content
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gordon pugh
Executive Business Development Manager
blackfinch.com 01452 717070 enquiries@blackfinch.com
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Blackfinch Ventures EIS Portfolios 2013 £672m / £37.1m (as at 25/04/22) The Blackfinch Ventures EIS Portfolios invest in high-growth technology companies throughout the UK, which operate across industry sectors. We’re focused on disruptive businesses, offering products that address real-world needs. These firms have the potential to change the way we live and work, and are set to transform global markets. 06/07/2018 Our Ventures EIS Portfolios invests in start-ups and early-stage companies in the tech space that qualify for EIS funding. 10 per annum Target returns are 3-5x N/A Growth – with an expected timeframe of around 12 months to deploy clients’ capital. Blackfinch has an ESG focus and invests in companies that it believes can deliver a positive benefit. 4-7 years £10,000 3% 2% p.a. (only for the first four years) 20% performance fee, after a minimum return of 130%. Please see brochure for full details of costs and charges.
Praetura EIS Growth Fund 2011 £440m / £170m Praetura is an award-winning fund manager that has been investing into early-stage businesses since 2011. The Praetura EIS Growth Fund is an ‘Evergreen’ fund structure, with two soft closes each year. The Fund invests across a range of sectors, with a focus on tech and life sciences. Praetura expects to fully deploy capital within 6 months of each relevant close date, with investment into c. 8-10 promising young businesses. The aim is to provide investors with capital growth from businesses in the North of England and beyond. Praetura use their More Than Money approach to grow portfolio companies and generate returns for investors. 2019 Early-stage EIS-qualifying businesses with high growth potential, mostly in tech or life science sectors based in the North with b2b models. 8-10 per tranche minimum 2x return pre tax relief on exit Evergreen - up to £30m per annum Discretionary Portfolio Service which will provide a portfolio of investments of circa 8-10 unquoted companies with a focus on capital growth. The businesses will predominantly be tech or IP enabled and will all share particular characteristics. The target return is 2x over 4-7 year period. The Fund will predominantly invest into Northern businesses., circa 70%. 4-7 years £25,000 1% 1.50% Annual Custodian Fee - £85pa Custodian Dealing Charge – 0.35% (on exits only) Performance Fee – 20% of profits above a hurdle rate of 120% of the subscription amount
Offer Name Year Founded AUM (total)/AUM (EIS) Description of offer Launch Date Underlying assets Target no. of holdings Target annual return Target Fundraise Investment Objective Investment horizon Minimum Investment Inital Fee AMC Other Fees
EIS solutions comparison
Oxford Capital Growth EIS 1999 Total AUM - £140m The Oxford Capital Growth EIS offers investors the opportunity to invest in a portfolio of shares in early stage technology companies that have the potential to grow rapidly and provide exposure to sectors in which the UK is a world leader such as financial technologies and future of retail. January 2011 Early stage UK technology companies 8-12 per annum 2x subscription (net of fees) during the life of the investment. N/a - Evergreen Growth - we aim to invest in businesses that are solving commercial, technical or scientific problems in innovative ways. The companies in our existing portfolio operate in a number of sectors such as software, consumer internet, digital media and healthcare. When selecting new investments, we look for companies that exhibit high-growth characteristics or potential. 5-7 years £25,000 2.5% of the initial subscription An annual management fee of 2% of the net subscription is charged quarterly. If the value of the companies held in the portfolio decreases below the net subscription amount, we will decrease the annual management charge commensurately. However, the annual management charge does not increase if the value of the investments exceeds the net subscription. 2% annual management charge, 20% profit share – of returns above the amount invested (after the deduction of any adviser charges). Our Custodian, Mainspring Nominees Limited, charges a quarterly administration fee of £20.00, a purchase transaction fee of 0.20% of the cost of purchase made on your behalf; and a sale transaction fee of 0.30% on the value of the sale made on your behalf. For additional charges, please see the Information Memorandum
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Copycat: UK seeks to replicate EIS’ success to nab tech firms Startups: Key to UK’s economic recovery Britain to ditch EU financial regulation for UK-specific ones What the managers say
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“Rather than trying to reinvent the wheel, build on to that which is already excellent,” wrote social investor Oscar Auliq-Ice.
The government’s new initiative intended to lure more tech companies into listing in the UK, a scheme designed to mirror the Enterprise Investment Scheme (EIS), is an application of that wisdom. Flushed from the impressive success of the EIS scheme, the UK aims to replicate that achievement through a major overhaul of its listing regime to bring more tech firms to the public marketplace. The government started by consulting with various stakeholders, with the goal of identifying obstacles that are preventing technology companies from listing in the UK. The Financial Conduct Authority (FCA) has pledged to “reduce barriers and costs for companies considering listing, which should encourage more companies to become or stay listed in the UK.” This should also increase broader investor confidence in the UK listed markets and the reputation of UK listing. In addition, more companies listing at an earlier stage in their life cycle would mean more opportunities for investors to share in the returns of those companies as they grow. Post-Brexit UK has more leeway in how to organise its financial markets. “A consequence of EU withdrawal is that we are now able to act more nimbly and have more freedom to reform the regime. We can act to better tailor the regime to meet the needs of the UK market,” says the FCA. With a free hand, the government is reportedly keen to replicate the success of the EIS, which has led to a boom in investment in startups, and may roll out similar incentives to encourage investors to back listed tech firms. In particular, any changes to tax rules are likely to mirror the structure EIS, which allows investors to claim tax relief on investment into smaller firms.
Copycat: UK seeks to replicate EIS’ success to nab tech firms
data point
X%
EIS was launched in 1994 by the UK government as a way to encourage investment in small UK companies. The scheme has been hugely successful. Today, there are thriving entrepreneurs around the country who claim their companies would not have survived without the support of EIS. To date, 36,720 companies have received investment and around £25.7 billion of funds have been raised. The majority of investment through the scheme (51%) since the launch of the EIS has been investment into companies raising EIS funds for the first time.
Amount of funds raised under the EIS by new companies and old companies (April 1993 to 2020)
The proportion of investment into new companies compared to that for companies raising further funding has declined since the peaks in 2011 to 2012 and 2014 to 2015. This coincides with the investment in renewable energy and the progressive exclusion of these activities from the EIS. In spite of government tinkering over the years, the scheme remains a lifeline for companies and profitable for investors. There are a vast number of start-up companies seeking funding to pursue new opportunities. Scores of struggling small firms are looking to raise investments to grow their businesses. EIS is at the very heart of the UK's economic recovery from the Covid-19 pandemic.
UK listings overhaul: boosting growth and markets
For a number of years, efforts have been underway to boost London’s global standing as an equity market, which has weakened in recent years as the US and Hong Kong have swept up the majority of in-demand tech listings. The departure of some large technology stocks such as Arm in recent years has cemented the blue-chip FTSE 100 index’s bias towards financials, energy and mining stocks. A loss of trading businesses to European rivals since Brexit has also further dulled the allure of the London market. The Kalifa Review of Fintech, published on 26 February 2021, recommended amendments to the UK listing rules to make the country a more attractive location for fintech public listings. On the listing regime, the review recommended: • reducing free float requirements on the premium listing segment from 25% to 10%, for a limited time post-IPO; or putting in place a minimum threshold. • enhancing governance rights by a golden share or dual class share structures in the premium listing segment. In November 2020, the Chancellor of the Exchequer, Rishi Sunak, announced a review by HM Treasury of the UK listing regime. The objective of this Review, to be led by Lord Jonathan Hill, was to seek proposals for reform that will attract the most innovative and successful firms to list in London. The proposals would aim to “help companies access the UK capital markets against the backdrop of the UK regaining responsibility for its financial services rulebook in connection with its exit from the European Union.” The review was to consider whether more significant structural changes to the regime would be beneficial in the medium term. It examined how companies raise equity capital on UK public markets and made a series of recommendations to improve the process.
On 3 March 2021, Lord Hill published the recommendations. The Review’s key recommendations include:
modernising listing rules to allow dual class share structures in the London Stock Exchange’s (LSE) premium listing segment, giving directors (in particular, founders) enhanced voting rights on certain decisions, with safeguards to maintain high corporate governance standards reducing free float requirements – the amount of a company’s shares that are in public hands – from 25% to 15% and allow companies to use other measures to demonstrate liquidity an annual report on the state of the City, and its competitive position, delivered to Parliament by the Chancellor rebranding and repositioning the LSE’s standard listing segment to increase its appeal to companies of all sizes and types a fundamental review of the prospectus regime so that in future, admission to a regulated market and offers to the public are treated separately – this will ensure it reflects the breadth and maturity of UK capital markets and the evolution in the types of business coming to market liberalising the rules regarding special purpose acquisition companies (SPACs), with appropriate safeguards for investors
“The Review has more than delivered and I’m keen we move quickly to consult on its recommendations, cementing the UK’s reputation at the front of global financial services,” said the Chancellor. Provided investor protection is not eroded, better and improved UK markets will benefit all market participants and the economy at large. The recent fallout from the pandemic has amply highlighted the benefits of well-functioning capital markets. When the effects of the pandemic were most acutely felt in 2020, listed companies were able to use primary markets to quickly raise much needed emergency capital.
Capital alone is insufficient at driving returns from early-stage businesses. Fund managers should consider how they can support founders on their journey through additional operational leverage through those with critical industry experience.
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EIS: a model of small business empowerment
Helping UK build a knowledge-based economy
Early-stage investing can be tremendously beneficial for early-stage technology companies, the broader start-up ecosystem, and of course, investors. The UK has been using EIS as a potent tool to increase private investment into innovative companies and thus help to stimulate the economy. Startups often find it challenging to raise money, and EIS has been helping them to attract equity investment at an early stage when they need it to fund their growth. At the same time, investors have been enjoying the benefits of highly attractive reliefs on income tax and capital gains tax. They even get additional relief should they lose money on their investment. Thanks to all these advantages, EIS features prominently in the government’s plan to create a successful, knowledge-based economy which rests on innovation and a highly skilled labour force. This goal, which revolves around boosting investment in the tech sector, has prompted one of the most notable changes to EIS. It involves a government effort to divert investment away from ‘asset-based’ businesses, and into ‘knowledge-intensive’ ones instead. The former include companies such as restaurants where the property is owned by the EIS investor, which decreases the amount of risk. The UK government now considers this type of investment activity primarily as capital preservation on the investor’s part, rather than encouraging the kind of innovation EIS was originally intended to promote. Knowledge Intensive Companies (KICs), on the other hand, are seen as pivotal to the country’s technological innovation. HMRC defines KICs as companies that are carrying out research, development or innovation at the time that they are issuing shares. The government has set specific requirements a company must meet to be categorised as knowledge intensive. Still, a wide variety of companies could qualify. Scientific companies are probably the first that spring to mind but are not the only ones. These companies get preferential treatment under EIS. Most notably, they can receive more EIS funding over a longer period of time. Ultimately, both the public and private sectors need to commit themselves to investing in the earliest stages of research in critical areas like biotechnology, digital technology, renewable energy sources, and the like. Through different governments over the years, the UK has sustained a continuing effort to attract private sector investment into the early-stage market. EIS, one of the UK's most popular routes for investing in early stage companies, has been at the forefront of this effort. The various rule and tax changes over the years have been intended to abide by the original purpose of the EIS scheme: to encourage investors to take the risk of investing in an early-stage company. Because the venture capital scheme evolves in a dynamic environment, government tinkering is necessary to keep EIS both relevant and fit for purpose.
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Jonathan Prescott
Startups: Key to UK’s economic recovery
praeturaventures.com +0161 641 9475 ventures@praetura.co.uk
As EIS shifts from one-off deals to more structured fund managers, investors are being offered more differentiated services than was available previously.
he pandemic shook the UK economy. Last year, the number of private sector businesses reduced by 6.5% – the worst contraction in decades. Despite this, new UK business openings have now outpaced global averages and remain consistent to pre-pandemic levels; these figures are also now expected to rise sharply. As we’ve seen in previous economic cycles, innovation and great entrepreneurship are often born out of unlikely periods of turbulent markets, structural change and challenging financial times. A recent study by Tech Nation points towards Tech SMEs being a driving force in post-COVID recovery. Even in the height of the pandemic, 72% of UK tech businesses surveyed saw an increase in demand for their services throughout 2020. The UK also attracted the third highest level of tech investment globally, totalling £10.1bn. “Pre-COVID-19, the tech sector was growing six times faster than the rest of the economy and it already employs almost three million people, representing an engine room of high-value, highly-skilled and well-paid jobs, with salaries that are, on average, £10k higher than other sectors. Clearly, it is time to think about tech as core to UK employment, prosperity and productivity,” said Stephen Kelly, Chairman for Tech Nation. Nevertheless, tech’s ability to fuel our economic recovery isn’t straightforward. Kelly has previously said that growth can only truly be harnessed if we offer our tech entrepreneurs support combined with the capital they need to scale. As the government slowly moves towards its capital commitments, internationalisation ambitions and digital upskilling goals, some of this blended support can already be found in areas of the private sector throughout the UK. One example is Praetura’s operational partner programme, which takes industry heavyweights and matches them to our portfolio founders for consultancy and mentorship. Outside of Praetura, many investors are beginning to see the benefits of marrying capital deployment with operational expertise. This shift has been reflected in the market for early-stage business investments as the asset class continues to evolve. EIS will undoubtedly play a critical role in the UK’s economic recovery. Since its inception in 1994, EIS legislation has helped over 33,000 companies raise a total of £24bn. Incentivised by tax benefits, this is one of the most successful government vehicles for connecting investors with entrepreneurs in a meaningful way. EIS has helped founders start and scale so many of the success stories we see today across the investment landscape. But the industry is changing. As EIS shifts from one-off deals to more structured fund managers, investors are being offered more differentiated services than was available previously. But whilst EIS offers an attractive proposition for tax-efficient capital deployment, investors should demand more from fund managers in terms of mitigating risk and maximising returns by supporting the businesses they back. In turn, this can attract better deal flow from potential investees when venture capital companies cultivate a reputation for adding value beyond money in the bank. As the market stabilises, we’re now seeing over £2bn raised a year by 2,500 companies. Whilst the risks of early-stage business investment are well-known, the likelihood of success drastically increases when investors understand the challenges entrepreneurs face and put steps in place to help them overcome them. SMEs are the lifeblood of the UK economy and EIS deployed in the right way will help pave the way on the road to recovery.
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Votes, as they say, have consequences.
On 23 June 2016 the United Kingdom voted in a referendum to leave the European Union. Almost six years later, the government has announced plans to scrap EU financial services regulation and replace it with new rules which are "designed for the UK". “[The] new legislation will strengthen the United Kingdom’s financial services industry, ensuring that it continues to act in the interest of all people and communities,” said Britain's heir-to-the-throne Prince Charles, who delivered the Queen's Speech at the State Opening of Parliament for the first time on 10 May 2022. The government’s priority, he said, is to grow and strengthen the economy and help ease the cost of living for families.
Britain to ditch EU financial regulation for UK-specific ones
Among the new legislations being considered, the following could have a direct or indirect bearing on EIS:
New bills relevant to EIS
UK’s growth challenge and EIS’ opportunity
“My government’s priority is to grow and strengthen the economy…,” was the first line of the Queen’s speech. The UK economy has had a growth problem for a number of years, stemming in part from the lower level of capital investment by businesses. “This is a pervasive economy wide issue. It has been persistent for decades, and we must fix it to improve productivity, growth, and living standards. Indeed, we need the private sector to invest to level up this country,” Chancellor of the Exchequer Rishi Sunak said in a speech in February. The government recognises that in order to accelerate growth, “the first [priority] is to encourage greater levels of capital investment by our businesses,” Sunak said. “Our vision,” he went on, “is for the UK to be a global hub for innovation.”
The Brexit Freedoms Bill
To enable laws inherited from the European Union to be more easily amended. Regulations on businesses will be repealed and reformed with the goal of “support[ing] economic growth.”
i
The Financial Services and Markets Bill:
to strengthen the UK’s financial services industry, “ensuring that it continues to act in the interest of all people and communities.”
The Draft Digital Markets, Competition and Consumer Bill
to promote competition, strengthen consumer rights, and protect households and businesses. Designed to create new competition rules for digital markets and the largest digital firms.
The Genetic Technology (Precision Breeding) Bill
to encourage agricultural and scientific innovation at home. This legislation will “unlock the potential of new technologies to promote sustainable and efficient farming and food production.”
Procurement Bill
designed to simplify public sector procurement in order to provide new opportunities for small businesses.
The Levelling Up and Regeneration Bill
to drive local growth, “empowering local leaders to regenerate their areas, and ensuring everyone can share in the UK’s success.” The planning system will be reformed to give residents more involvement in local development.
Data Reform Bill
to reform the UK’s data protection regime.
Trade (Australia and New Zealand) Bill
to enable the implementation of Britain’s first new free trade agreements since leaving the European Union.
Economic Crime and Corporate Transparency Bill
to further strengthen powers to tackle illicit finance, reduce economic crime and help businesses grow.
Investment and innovation make up the turf of the Enterprise Investment Scheme (EIS), which helps innovative companies with growth potential to attract investment. This means that government action and regulation in this area can hardly bypass EIS. Many of the anticipated regulations are likely to impact the government-supported venture capital scheme, one way or another. Take the Procurement Bill. Every year, the government purchases billions of pounds worth of goods and services from private businesses: everything from medicine to food to digital equipment and consulting services. By targeting small businesses, public sector procurement will invigorate these businesses, some of which may well be EIS backed. The Genetic Technology Bill is another example. It could be a windfall for some knowledge intensive companies, those favoured businesses under EIS. By stimulating local economies, the Levelling Up and Regeneration Bill can energise local businesses, thereby encouraging EIS investment in them. And the Trade Bill could open overseas markets to some EIS-backed businesses. The legislative changes promise an extensive overhaul of the EU’s sweeping rules for markets. So, the United Kingdom is uncoupling from the rules, regulations and institutions of the European Union to make its own laws, unhindered by duties to a supranational organisation. Whatever one’s sentiments about Brexit, it seems likely that the new regulations, tailor-made for Britain’s unique circumstances, and seeking to promote growth and innovation, will benefit EIS and its investors.
The UK economy has had a growth problem for a number of years, stemming in part from the lower level of capital investment by businesses.
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The AIC has called on the Treasury to conduct a review of the current disclosure regime for UK retail investors. In the light of FCA’s amendments to the PRIIPs rules, what further changes would you like to see?
The Subsidy Control Bill promises a new system for subsidies focused on key domestic priorities, such as levelling up economic growth across the UK and driving our green industrial revolution. What impact do you foresee for the EIS sector?
EIS has served the UK extremely well over many years, helping establish twice as many high-growth companies here than in any EU country. The Subsidy Control Act now gives the government much greater flexibility in the subsidies it offers. We expect to see the core EIS scheme retained, if not extended, and potentially supplemented in target sectors or regions.
Income tax revenues are soaring. More people are brought into paying income tax, and others are brought into the higher rate band by the freeze on personal allowance and higher rate thresholds. How will all this affect EIS investment?
It is the freeze on the higher rate threshold that is particularly likely to drive more people to seek ways of reducing their income tax. EIS investments will be increasingly attractive given the high rate of relief available. Total EIS investment is therefore likely to increase, both in terms of the number of investors and the amounts invested.
A level playing field across providers is welcomed. We are all for ensuring that only the correct type of investors gain access to venture capital, and that they are fully aware of all of the features of the investment they are getting in to.
Any initiative that helps to boost the growth of early-stage companies and supports the sustainable agenda is positive for the EIS sector. In our own portfolio we place a huge emphasis on supporting our companies in developing their own ESG metrics and drive to be more sustainable and a number of them have achieved or are working towards B-Corp status.
Investors can mitigate their income tax lability, assuming they have the correct level of risk appetite through several ways. The headline tax benefit of an EIS is 30% income tax relief, so for someone who invests £100,000, they will receive up to £30,000 of income tax relief, which they can offset against either the current, or previous tax year’s income tax liability. So, if investors find themselves paying more income tax due to the freeze on the personal allowance and higher rate thresholds, there will actually be more scope for EIS to help mitigate that liability.
Business Development Manager Oxford Capital
Overall, we’ve seen these amendments as a positive step. The FCA has actively listened to the market players and made changes accordingly – for example, with the introduction of the implementation period. However, this is only the first stage and the FCA has indicated that it plans to overhaul large parts of the disclosure regime for UK retail investors.
As one of only a small number of North West focused VCs in EIS, we see the funding gap in the region as a unique opportunity for investors. We’ve played our role in the levelling up narrative and see this as pivotal for the UK economy’s overall performance. Likewise, investors are increasingly interested in the investee company’s effect on society. Ultimately, as the market matures, investors now hold the power in terms of their ability to vote with their feet and choose a fund manager who considers their own personal objectives and beliefs.
The investment landscape has seen a steep rise in consumer interest, fuelled by a number of factors including tech-enabled solutions and a focus on smarter financial wellbeing. As a VC fund manager, we’re completely focused on the quality of the underlying portfolio companies. However, EIS does offer unique access to an exciting asset class with very attractive tax benefits. EIS will continue to play a part in tax planning as a complementary solution to the other more mainstream solutions being used by financial planners.
The FCA’s recent PRIIPs changes are welcome, for example in tightening risk scores in KIDs. However, there remains too much inconsistency. Why is a KID required for some EIS products and not for others? Similarly, the new narrative performance descriptions, while a great improvement on the old performance scenarios, may not deliver a clear like-for-like comparison of different EIS products.
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Learning objectives CPD and feedback About Intelligent Partnership Disclaimer
Learning objectives
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Covered in section 2, Market Update
Identify main developments and news in the EIS market
Evaluate the key fees and charges applied by EIS managers
Covered in sections 3, Fees and Charges
Outline the statistical trends in EIS investment and tax relief in recent years
Covered in Section 4: Industry Analysis
Benchmark products and providers in the market against one another
Covered in section 5, Managers in Focus
Define some of the key events likely to impact EIS in the near future
Covered in Section 6: What’s on the Horizon
Outline regulatory developments that could impact the EIS in the near future
How did you do?
CPD and feedback
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This publication is not included in the CLA Licence so you must not copy any portion of it without the permission of the publisher. All rights reserved. No parts of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means including electronic, mechanical, photocopy, recording or otherwise, without written permission of the publisher. This publication contains general information only and the contributors are not, by means of this publication, rendering accounting, business, financial, investment, legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser. Neither the contributors, their firms, affiliates nor related entities shall be responsible for any loss sustained by any person who relies on this publication. The views and opinions expressed are solely those of the authors and need not reflect those of their employing institutions. Although every reasonable effort has been made to ensure the accuracy of this publication, the publisher accepts no responsibility for any errors or omissions within this publication or for any expense or other loss alleged to have arisen in any way in connection with a reader’s use of this publication. This publication is based on the authors’ understanding of the structure of the arrangements detailed, the current tax legislation and HM Revenue & Customs practice as at May 2022 which could change in the future. It is not an offer to sell, or a solicitation of an offer to buy, the instruments described in this document. This material is not intended to constitute legal or tax advice and we recommend that prospective investors consult their own suitably qualified professional advisers concerning the possible tax consequences of purchasing, holding, selling or otherwise disposing of EIS-qualifying shares. Intelligent Partnership is not authorised and regulated by the Financial Conduct Authority and does not give advice, information or promote itself to individual retail investors. It is the responsibility of readers to satisfy themselves as to whether any arrangement contemplated is suitable for recommendation to their clients. Tax treatment depends on an investor’s individual circumstances and may be subject to change. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.
