EIS Industry Report 2019/20

46 47 What is your biggest concern when recommending an EIS investment? NT: It is most important for me at this stage that clients are as aware of the potential risks in making an EIS investment as they are of the potential rewards. This is particularly relevant now as markets have been relatively benign for a number of years, and it is easy to underestimate the potential for loss to capital inherent in EIS investments. As such, I am mindful that clients do need to diversify across investments within their allocation to EIS investments, and need to ensure that their overall allocation to EIS investments is appropriate in the context of their broader investable wealth. It is critical that clients don’t only focus on the tax advantages of this type of investment. KW: One is that it may take longer to exit than the initial Information Memorandum exit strategy timeframe suggests. Another thing that concerns me is that we see a lot of EIS fund managers and investee company founders who don’t have contingency plans for the loss of the key people in the business. For example, for an EIS fund manager with a responsibility to closely monitor and mentor a company through its journey, what happens if that person suddenly passes away or falls ill for a prolonged period? Similarly, I don’t see contingency plans for a lot of investee company founders, if he or she went missing permanently or for a lengthy period. RM: On a client level, it is more about considerations than concerns. As long as we feel it’s suitable and the client understands the product, we will be happy to recommend it. If either of us have slight concerns, we will err on the side of caution. CC: When the EIS is a relatively small amount of the client’s total assets, the collapse of an EIS investment, giving a total loss, could ruin a client relationship. If it has not been positioned properly at the outset with the client, you could be in for a difficult time. The client has to look at the overall portfolio and should expect losses. What would you like to see change in the EIS market? RM: It would make life easier if things were transparent, and we were able to look through the different managers’ offerings on a level playing field. So clarity of charges is important. Having said that, advisers like us have built up knowledge and expertise in this area, so that helps us stand out. NT: Whilst there has been a move towards transparency, especially around fees, I would like to see even greater transparency and alignment of fee structures amongst providers. KW: One thing is for there to be more focus from fund managers on the needs of the end investor. I sometimes feel that everything is done to benefit the fund and the investee companies, with little thought for the people supplying the investment. I would like to see fund managers improve their investee company progress reporting, whilst better illustrating fee transparency and how this translates to the projected net returns expected at exit. I would like to see more lobbying by the industry against HMRC and the continuing problems and delays with the latter issuing tax certificates, as well as challenging the Revenue on the constant changing of goalposts on EIS tax relief eligibility in certain ‘hot’ sectors such as media. I would like all charges to be levied on the investee companies rather than the investor, because some fund managers don’t seem to put enough importance on the negative impact that investor fees have on their reduced income tax relief claims. CC: I would like to see the usual independent report writers executing more due diligence; for example, going in and looking at the underlying data and being more robust in the analysis of that. I would like to have better auditing of figures and data supplied, but I recognise that this is expensive. "The client has to look at the overall portfolio and should expect losses." — CHRIS CLARKE, PARTNERS WEALTH MANAGEMENT Market Research / Adviser Roundtable Market Research / Industry Debate INDUSTRY DEBATE HOW INVESTMENT MANAGERS VIEW THE MARKET Moderator: Paul Jarvis, Intelligent Partnership ATTENDEES REUBEN WILCOCK BLACKFINCH VENTURES ANDREW ALDRIDGE DEEPBRIDGE JOHN DAVIES SENECA PARTNERS PAUL JARVIS INTELLIGENT PARTNERSHIP How have the last 12 months been for your business in the EIS space and what have been your main focuses? RW : Our extensive dealflow network has yielded a strong pipeline, from which we’ve made exciting technology-focused investments. These range from wearables, including award-winning personal safety startup Tended, to education technology company Kinteract, whose portable learning platform enhances student development. AA: Deepbridge’s EIS fundraising continues to grow each year and the past 12 months have very much continued that trend. There is a growing appetite from financial advisers and investors to work with EIS managers that can provide access to growth- focused investee opportunities whilst being able to demonstrate a clear history of making a difference to investor, and investee, outcomes. JD: It’s been business as usual for Seneca, and whilst we have completed 12 investment rounds, investing a total of £9.75 million in EIS qualifying companies, with a diverse sector spread and a healthy mix of AIM and private limited companies, our main focus has been on exits. What have been the biggest concerns for you in the market over the last year? JD: Increased valuations being used by potential investee companies, with supply outstripping demand in certain areas of the UK, due to the amount of growth capital waiting for deployment. This is why “There is a growing appetite to work with EIS managers that can provide access to growth-focused investee opportunities whilst demonstrating a clear history of making a difference to investor, and investee, outcomes.” — ANDREW ALDRIDGE, DEEPBRIDGE