EIS Industry Report 2018/19

13 12 Despite the latest dip in fundraising, it’s worth noting that since EIS was launched in 1994, nearly 28,000 companies have received investment, and over £18bn of funds have been raised 1 . Alex Davies, CEO and founder of Wealth Club, said: “Whilst the amount raised by EIS in the most recent figures has fallen slightly, we believe over the long term, demand will grow significantly. Pension and buy-to-let changes, as well as the ever-increasing dividend tax, means that wealthier investors have very few other options left to save simply and tax- efficiently. EIS and VCTs still offer that. “Whilst EIS is certainly a very attractive option for wealthier investors, a tax dodge they are not. The net impact on the economy is far greater than any loss in initial tax revenue. EIS provides valuable funding (which banks won’t give) to entrepreneurs looking to start and scale up businesses.” 2 One of the issues highlighted in last year’s Patient Capital Review was a lack of investment in regions outside of the London and South East bubble. However, this bias may shift somewhat in the coming years. With the new pure focus on growth coming out of the 2017 Autumn Budget, many investment managers have had to pivot their offerings to comply with the new EIS rules. One benefactor of this has been investment in university spin-outs, and this has not merely been restricted to the London, Oxford and Cambridge triangle. We will discuss university spin- outs later in this report, and how they are presenting EIS deal flow for investment managers. EIS is still London centric 60% 50% 40% 30% 20% 10% 0% DISTRIBUTION OF EIS INVESTMENT 2016-17 Northern Ireland Channel Islands West Midlands Wales Scotland North East North West East of England Yorkshire & the Humber South West South East London East Midlands TV, Film and Tech continue to dominate TV/Film and technology-orientated companies continue to be the most popular sectors for EIS investment. However, with the introduction of the new risk-to-capital condition in the 2017-18 tax year, TV and Film are unlikely to feature as significantly. 3 In 2016-17, companies from the Information and Communication sector accounted for £669m of investment (37% of all EIS investment). It’s a similar story for SEIS (39%). This year, HMRC has changed the format of its industry classification from TCNs to SIC 2007, as it believes this format is more detailed and commonly used. However, SIC 2007 is still somewhat lacking as it encapsulates too many sub-sectors into single categories. Information and Communication, for example, includes sectors such as motion picture, video and television programme production, sound recording and music publishing activities, data processing, hosting and related activities, and computer programming activities. Advance Assurance Requests When it comes to Advance Assurance requests, HMRC has published data for the most recent tax year. In 2017-18, HMRC received 3,830 Advance Assurance applications for EIS, an increase of 205 from 2016-17. This continues the year-on-year growth in applications since 2008-09. A number of the applications for 2017- 18 were at the time of publishing still being processed, but as of April 2018, 69% have been approved. Of the 3,625 applications received in 2016-17, 2,945 (81%) have been approved. FUNDS RAISED UNDER EIS BY INDUSTRY SECTOR Amount of Investment (£m) Agriculture, Forestry and Fishing Information and Communication Manifacturing Financial and Insurance Electricity, Gas, Steam and Air Condiitoning Real Estate Water, Sewerage and Waste Scientific and Technical Construction Admin and Support Services Wholesale and Retail Trade, Repaisrs Education Transport and Storage Health and Social Work Other services Acommodation and Food Arts, Entertainment and Recreation 100 0 200 300 400 500 600 700 2015-16 2016-17 London and the South East received 67% of all EIS investment in 2016-17 SOURCE: EIS1 FORMS Market Update / Fundraising Update Market Update / Fundraising Update % OF INVESTMENT % OF COMPANIES