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Partner Content by Octopus Investments

The investments this adviser’s clients are always talking about

Nick Bird, Head of Strategic Growth at Octopus Investments, explores how one area of investing could help your clients and business.

Sunny Sonpal is a financial adviser based in Milton Keynes and Managing Director at Collective Financial Planning.

The chances are his business bears similarities to your own. 

Sunny looks after a range of clients. They sit at different places along the wealth spectrum, not just the extremely wealthy. And he spends a lot of time figuring out how he can add as much value as possible for his clients. 

Sunny recently took the time to speak to Octopus about one area of investing he feels has helped his clients and business considerably.

“My clients are always talking about it,” says Sunny.

“It’s totally different. Some of these investments are in the high-tech world. What you have here is young, exciting companies and a lot of clients want to get involved in it.”

Getting in early

Sunny is talking about investments in early-stage companies. 

These are high risk investments, particularly because young companies will have a higher rate of failure than established companies. 

But when a client is suitable, they have an opportunity to access investments with huge growth potential and feel a strong sense of ownership in exciting businesses.

“Clients enjoy seeing companies grow from seed all the way to IPO,” says Sunny. “I first started investing in early-stage companies with my clients many years ago. One of the stories we all still talk about today is Zoopla, where the returns clients saw were fantastic.” 

When someone invests in a company at its initial public offering, there’s a good chance they’ve missed out on some of the most significant growth that company will ever see. 

Taking the risk of backing a business in the early stages of its growth means investors can maximise that growth opportunity.

So how could your clients get involved? 

How clients can invest in early-stage companies

One way clients can invest in early-stage companies is through the Enterprise Investment Scheme (EIS), a government backed incentive available only to smaller companies. With an EIS service, investors benefit from owning shares directly in a concentrated number of early-stage companies. This concentration means where a company succeeds, investors can really feel the impact of the growth. Equally, any losses will be felt more sharply. 

EIS investors can claim generous tax reliefs to compensate for some of the risk they’re taking by investing in small, young companies. These include 30% upfront income tax relief, tax-free growth, loss relief that can be claimed against income or gains, and the ability to defer capital gains. EIS shares also qualify from relief from inheritance tax. 

These reliefs combine to make an attractive high-risk portfolio where investors can get close to the companies they’re backing and feel engaged with their journey. 

Another way clients can access early-stage companies is through a Venture Capital Trust (VCT). VCTs invest in a large, diversified portfolio of smaller companies. Investors benefit from the VCT owning small stakes in a large number of companies across different sectors, and are able to claim up to 30% upfront income tax relief on their investment. Dividends and any growth are also tax free.