For those clients who are planning to invest in enterprise investment schemes (EIS), being able to access them easily and transparently is important.
Of course, those who seek advice from a financial adviser in the first place to ensure the investment is suitable for them, may be guided by them as to the best route to invest.
But understanding how to invest is vital and may depend on the type of EIS investment chosen.
Charles Owen, founder and director of CoInvestor, points out: “The first step is to determine investor preference for direct single company investments or fund investments.”
He outlines the differences:
- Single company investments provide greater risk through (i) lack of diversification, (ii) potential non-market valuation (ie set by company not by third party new investor), and (iii) potential for limited due diligence (unless professional lead investor in place).
- Fund investments provide mitigated risk through management by a professional fund manager who will conduct full due diligence, negotiate valuation and then monitor investor subsequently. Investments into a fund will provide diversification through multiple sub-investments.
While there are platforms offering EIS, investors may have to do their research as not all platforms do.
The specialist route
“EIS is not typically available from mass market investment platforms, but can be accessed through specialist platforms and services,” suggests Mark Brownridge, director general of the EIS Association.
“Some of these provide research and analysis into the sector - something that can also be obtained from specialist providers. I wouldn’t want to name names but some desk research should help advisers find out more, or they could contact the EIS Association and we can help.”
CoInvestor is one such platform which provides access to alternative investments and assets online.
Mr Owen explains: “CoInvestor allows investors to view and allocate to a wide range of EIS fund investments and single company investments on a single platform. All single company investments are co-investments, allowing all the benefits of investing with a fund manager.
“All investments can be accessed, and completed directly on the platform removing all requirement for paperwork and better reporting.”
In the mix
Dr Ilian Iliev, managing director at EcoMachines Ventures, a UK-based venture capital fund, notes EIS funds on a platform can be accessed directly or via a financial adviser, which “gives you access to professionally managed pools of EIS investment opportunities – akin to a mini-VC fund”.
“Depending on the amounts you can commit, you may be able to develop a mixed portfolio of individual company investments and EIS funds,” he adds.
One of the more recent developments in EIS has been crowdfunding. This is a different type of platform altogether and is certainly not likely to be suitable for every client.
This is where companies get financing through small amounts of funding from people over the internet.
Those who donate may do so in return for equity, or those who invest may do it to receive free products or services from the business they are backing.
Dr Iliev suggests: “A good first step could be to join one or more of the crowdfunding platforms, and simply research a few investment opportunities to get a sense for how different companies are presented, and what information is available.”