Richard Manley, chief executive of Seneca Partners, told FTAdviser In Focus that the tax reliefs make it "compelling" for investors to put money back into UK businesses.
This makes EIS and venture capital trust schemes important means of boosting British economy - which should encourage the chancellor to continue supporting this part of the investment market, he told the latest Fireside Chat.
However, he said: "There are big bills to pay [post-Covid] and there is going to be some tax impact along the way."
While nothing has been mentioned in the Budget that might affect VCT or EIS investment, it is something Manley said he was paying attention to.
The watchword is probably caution but investors are keen to have access to the best opportunities.He said: "We are keeping a close eye on the markets as to what the potential changes could be. At the moment, Rishi Sunak is still in support mode to keep the economy moving.
"We're not reading anything in the tea leaves that indicates these reliefs are under pressure. If anything, I think EIS and VCT investing has an important role to play in supporting the economy."
He pointed out that when the government is desperate to get the economy moving, encouraging high-net-worth investors to put in 70p in the pound into entrepreneurial businesses through the 30 per cent income tax relief is a vital way to keep capital flowing.
"We need a vibrant SME community [in] the UK and I hope the government does not get involved in this area. I can't see it happening or it would be a massive own goal", Manley added.
Coronavirus crisis
On the subject of Covid-19, there have been many good opportunities for companies working in the tech and biotech sectors, which have seen a boost for companies that are naturally good investment opportunities for EIS and VCT managers, he said.
He said there had been opportunity to deploy capital but of course, one has to be able to sift the winners from the losers in this environment.
Add to this natural investor hesitation over the past 12 months and it is clear that "caution" has been the "watchword" for both EIS managers and for investors in the sort of smaller, start-up businesses and Aim companies that are backed by EIS and VCT.
However, Manley added that while in 2020 people might have held back from making big investments into the sector, it was clear that by the end of the tax year, investors had returned - and in significant numbers.
Manley said: "Early into the pandemic, investment flows naturally paused. And naturally at the onset of something like that, you would naturally get investors sitting on their hands, waiting to see.
Things have moved onto a more positive footing in the past few months."So if you were asking questions last June or even September, you would get the feeling that people were perhaps pausing for thought - both on the investment deployment side of it and the investors looking to take advantage of the reliefs for both EIS and VCTs.
"But as things progressed, people perhaps became more comfortable that the world hadn't stopped turning and you've seen that increase in confidence.
"The watchword is probably caution but investors are keen to have access to the best opportunities."
This has been borne out on the levels of money flowing into these sort of tax-efficient vehicles.
Manley pointed to the VCT market in particular, where fund raising in total reached £685m for the tax year just gone and the third highest year ever for fundraising.
"So I think things have moved onto a more positive footing in the past few months", he added.
To view the full interview, including discussions on the demographic changes within the EIS and VCT sector, click on the image above.
simoney.kyriakou@ft.com
