The key question is about personal objectives and what the individual wants to get out of their investment. If they are looking to diversify their portfolio and pursue a more passive investment strategy, they might consider a mixture of investments into individual companies and EIS funds.
If, on the other hand they want to learn more about angel investments, joining an angel group might be a good alternative to a crowd funding platform. Some EIS funds might be willing to give access to deal flow and co-investment rights on larger deals, especially if the investor’s professional skills are useful to the company. Any of your clients who want to go down this route might also consider joining the UK Business Angels Association (UKBAA) to meet like-minded investors and learn more from peers.
EIS investments in entrepreneurial companies naturally carry risk. There are several common-sense risk management strategies that can be considered. Risk can be diversified by investing in a mix of companies and EIS funds. As with any investment, it is important to do due diligence to understand what is being invested in. The specific EIS tax break dynamics can sometimes act as a veil to detract from the type of analysis that investors and their advisers ought to be undertaking. Another important risk mitigator is to invest in companies that have already received an advanced assurance by HMRC regarding their EIS status, but this is not binding.
There are benefits to co-investing alongside those with greater experience who are putting in more time and money and have the capacity to support the company if it runs into financial difficulty. This can be in the form of a syndicate of experienced investors, or even through a specialised EIS fund offering that has the appropriate infrastructure. Investors should not be afraid to ask for the due diligence pack or the investment paper – at the very least they might have a good conversation with the investment lead.
All investors like to talk to other investors to see if they have missed a trick. If one of your clients is investing in an EIS fund, make sure they read the fine print in the investment memo to understand the selection and management strategy.