How to access EIS on platforms

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How to access EIS on platforms

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.

Investors do need to be aware that this is a very lightly regulated area and therefore investors need to consider carefully the level of personal due diligence they should undertake. Tim Smith

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.”

Tim Smith, tax partner at RSM UK, says that while EIS is commonly accessed via investment managers and angel networks, crowdfunding can be another useful platform.

“This has attracted considerable interest in recent years and very significant amounts of investment has been raised via crowdfunding,” he observes.

However, Mr Smith cautions: “Investors do need to be aware that this is a very lightly regulated area and therefore investors need to consider carefully the level of personal due diligence they should undertake when considering making an investment.  

“Many crowdfunding opportunities may qualify for EIS, but qualification is not necessarily guaranteed by the crowd funder, so again due diligence may be required by the potential investor.”

The more accessible EIS investments are, the better it is for the EIS industry as it will encourage investment into the sector and for the end investor as the process is more transparent.

If access is seen as being too complex then it may deter prospective future investors.

Due diligence

But Bruce Macfarlane, managing partner at MMC Ventures, thinks EIS investments are easily accessible and points to sites, such as the EIS Association website, which offer descriptions of how the structure works.

He acknowledges: “Some people seem to think EIS investments are all the same and I think that’s a fundamental misconception. 

“So it is critical that investors take a look at the different fund managers and then invest according to their preferences because different fund managers have different areas of focus and different styles of investing. We’re not all interchangeable, by any means.”

Many of those who decide to invest in these types of schemes do tend to be those who are generally familiar with these investments in the first place.

By their nature, they [EIS] must invest the lion’s share of their assets in the direct equity of unquoted companies, meaning they don’t fit easily with most platforms.Hugi Clarke

In which case, as Mr Macfarlane notes: “Most people come through their financial adviser or their private bank, although more sophisticated investors find us directly.

“I think it particularly suits experienced investors who think about risk and think about asset allocation across their portfolio and who think about the economy.”

But Hugi Clarke, a director at Foresight Group, accepts: “By their nature, they [EIS] must invest the lion’s share of their assets in the direct equity of unquoted companies, meaning they don’t fit easily with most platforms.”

The message is, there are plenty of resources available for those who want to research EIS themselves, or find a financial adviser who specialises in EIS investments and be guided by them. 

eleanor.duncan@ft.com