Dear Secret IFA
In December, HMRC released the latest figures for EIS fundraising and investment flows. These showed that in the 2011/12 tax year – the most recent period for which the data is available – there was an almost 50 per cent increase in the number of smaller, unlisted British companies receiving EIS funding for the very first time – 1,498 businesses to be precise.
In total, the number of firms to benefit from EIS investment was 2596 – approximately a 25 per cent rise on the previous year.
These are encouraging figures. They show that smaller British companies – the foundations on which the economy is built – are tapping into EIS as a funding source in ever greater numbers. Yet I was not surprised by them. As Director General of the EIS Association and someone who has spent more than a decade in the venture capital sector, I know first-hand the great potential of local, grassroots businesses. These businesses can be found in towns and cities across the UK, from high streets to business parks, industrial estates and university faculty buildings.
I was therefore concerned when I read your recent comments in FTAdviser’s Secret IFA column, the broad sentiment of which were that EIS and VCTs were, in the main, little more than mechanisms for ‘securing tax relief for the greedy or the gullible’.
I do not doubt this is your honestly held opinion but it would be a shame if it were representative of the wider professional financial advice industry because, as far as the majority of the EIS sector is concerned, it does not hold true.
While there may be some schemes which are created for investors to receive tax relief with little or no risk to capital, they are in the minority and subject to ever closer scrutiny from HMRC. Much more representative of our industry’s positive contribution to the economy are the companies I meet, speak to or hear about on a daily basis that are growing and enjoying success as a result of our members’ – and British taxpayers’ – vital funding via EIS funds.
Where I strongly agree with you is that venture capital is about taking risk in return for potential profit (as is any investment). How much risk is a matter for individual investors, their advisers and investment managers. Investing in smaller, unlisted companies is inherently riskier than investing in blue chip FTSE stocks and, as a result, the rewards can be substantially greater – even without factoring in the generous tax reliefs provided by the government through EISs.
To use the example of just one of our members, Calculus Capital - which manages EIS Funds on behalf of hundreds of investors - counts among its recent investments:
a biotech company developing cancer vaccines in Nottingham;