EIS Industry Report 2018/19

27 26 EIS VIA PLATFORMS INVESTING WITH EQUITY CROWDFUNDING Investing in EIS and SEIS via equity crowdfunding platforms has been gaining greater popularity of late. These platforms allow access to investors who may be at the less affluent end of the EIS suitability scale. The UK’s first equity crowdfunding platform, Crowdcube, was established in 2011; Seedrs in 2012; and SyndicateRoom in 2013. Other platforms which focus on specific sectors, such as Capital Cell that focuses on life sciences businesses, have popped up more recently. 22 One difference when using crowdfunding platforms is that there is no investment manager involved to assess the quality of the investment, although the platforms will perform due diligence checks on the companies listed. Investors are generally investing in single company offers, as opposed to the portfolios of EIS qualifying companies presented by investment managers. MAJOR CROWDFUNDING PLATFORMS, 2017 £87.3m 133 deals £55.1m 144 deals £39.5m 58 deals £32.9m 21 deals SOURCE: BEAUHURST The Major Platforms The top four equity crowdfunding platforms invested nearly £215m in UK businesses in 2017. Most of these will have been EIS or SEIS qualifying. According to Beauhurst, Crowdcube was the top-ranked platform by the amount of investment facilitated in 2017, whilst Seedrs participated in more deals. Seedrs’ deal numbers include pre-emption rounds which, though beneficial to shareholders, represent small contributions to rounds that were already completed. Notably, both SyndicateRoom and VentureFounders were involved in deals that were on average larger than those of their more active competitors. 23 Clarity over Advance Assurance HMRC SEIS and EIS guidance released in December 2017 specified that companies applying to HMRC for Advance Assurance needed to demonstrate that they had lined up investors, a promoter, or a sponsor. HMRC was taking this approach to avoid speculative Advance Assurance applications, which would never result in investment. However, this efficiency drive by HMRC resulted in some industry confusion about the point at which companies using crowdfunding platforms could apply for Advance Assurance. 24 HMRC has now clarified the position, and released updated guidance in relation to companies seeking investment through a crowdfunding platform. “Companies seeking investment through a crowdfunding platform: [will need to provide] evidence, for example letters or emails, to demonstrate that the company has engaged with and begun the screening process with the platform. It is not enough for the company to show it has approached a platform; there must be confirmation that the platform accepts the company may be a viable investment for its customers and that further engagement is underway.” 25 John Auckland, founder of TribeFirst, a crowdfunding communications agency, said that the new restrictions on Advance Assurance applications will be beneficial to the sector: “The new guidelines for SEIS/EIS Advance Assurance will provide a significant uplift in equity crowdfunding success rates. There are three reasons for this: 1. Companies that don’t properly prepare won’t receive Advance Assurance. They will realise they’re at a disadvantage and either choose not to campaign, or do the legwork to find lead investors. 2. Companies will seek out more support from intermediaries who will help them find lead investors, and help give confidence to HMRC that the investment is likely to happen. 3. Significantly more companies will launch their campaign to the public with most of their initial target on the board already, which is a good thing for crowd investors because more campaigns will have been first vetted by more sophisticated investors.” 26 The UK’s first equity crowdfunding platform was established in 2011 The top 4 equity crowdfunding platforms invested nearly £215m in UK businesses in 2017 Market Update / EIS Via Platforms AMOUNT INVESTED NUMBER OF DEALS PRE-EMPTION OR FUND CAMPAIGN