EIS Industry Report 2018/19

64 65 otherwise be able to. They are comfortable with the risks and appreciate the tax incentives that assist with this. MD: There was no such thing as a low-risk EIS investment. Anyone running a growth business, regardless of capital source, will seek to balance risk and return, so EIS investments have always been high risk. However, the adviser and investor must really spend time understanding how the experience of the manager in that sector allows them to manage risk. PM: Low-risk EISs were a good introduction to the benefits of EIS tax reliefs. The challenge is to understand the investment risks (and rewards) of the redefined market. We expect some investors to not have the risk appetite for growth EIS; however, under encouragement from the government, this market will rapidly grow, supporting great UK companies and substantially rewarding patient investors. JD: For non-advised investors, our target market has always been high-net-worth individuals. Whilst we do not insist that an advised investor is a high-net- worth individual, they do have to satisfy our suitability checks and, of course, their adviser will have deemed the investment suitable. BT: The target market remains broadly the same but we have been educating investors as to the risks and time frames for EIS investments which have shifted, and hence we seek to invest over 8-12 companies per client. A significant proportion of EIS offers are now focused on technology. Do you think this poses a risk for investors in terms of lack of sector diversification? DC: Technology is its own sector. Yet tech businesses are, in actuality, operating across every sphere, helping to drive digital change and move us away from traditional business models. EIS managers can ensure diversification by identifying game-changing companies across sectors and spreading investments across multi- sector portfolios of ten or more companies. AA: Technology can be defined as the application of scientific knowledge for practical purposes, especially in industry. Deepbridge has invested in companies that operate within the medical sector, the automotive industry, mobile communications, e-commerce, energy-efficiency, etc. Given the broad reach of technology, it is vital to look beyond the label and explore how the manager derives investor returns. LC: We invest at different stages, seed all the way through to series C meaning investors have a broad portfolio of not only sectors but company maturity too. Our portfolio is generally split into enterprise, consumer and healthcare, though B2B software is our sweet spot. MD: Absolutely. This suggests there are managers chasing the same investments with the inevitable outcome that the cost of investment will be pushed up. Our investments may well benefit from technology, but we are a specialist EIS investment manager in media and infrastructure, so we’re able to use our sector expertise to deep dive and uncover investments which may be missed by others. PM: No, because technology is not a single sector, it is a thousand different sectors and sub- specialisms, many of which are totally uncorrelated. Technology itself cannot fail; technology sub-sectors Moderator: John Schaffer, intelligent partnership “We expect some investors to not have the risk appetite for growth EIS; however, under encouragement from the government, this market will rapidly grow, supporting great UK companies and substantially rewarding patient investors.” — PAUL MATTICK, MERCIA and companies may become irrelevant, as other technologies supersede them. JD: EIS investment is high risk in nature and there have often been sectors that are prevalent at one time or another. Diversification should help mitigate some of the risks and, therefore, investors should consider whether investing in solely one sector (whether that is technology or any other) is appropriate for them. BT: No. Technology is now an intrinsic part of all sectors. Diversification can still be achieved by sector and company. For example, a digital therapy company in the health sector and a Software-as-a-Service company in the education sector will still contribute to diversification given exposure to the different trends in their respective sectors. What changes would you like to see in the market and what are your concerns for the future? DC: A greater drive is needed to give new businesses platforms along with support. Furthermore, those focused on early stage firms must be prepared to take equity. The Government, universities, banks and VC houses all have a role to play in ensuring we build companies that can strengthen the future economy. AA: The EIS market is in a great position, with growth-focused companies seeking to create jobs, exports and further innovation. However, as those who previously focused on ‘capital preservation’ propositions attempt to adapt to the new world, there could be unnecessary deployment delays and reputation damage to the EIS as a whole – sector experience and speed of deployment is crucial. LC: We’d like to see more acceptance of the fact that there are many different types of small businesses that need investment to succeed and can’t get this funding from banks. They won’t necessarily be technology businesses, so EIS funding shouldn’t be simply targeted at this area. MD: None. We wholeheartedly back the changes brought about by the Patient Capital Review and believe there will be a flight to those managers with a clear USP and deep experience in the sectors in which they operate. PM: The market needs to mature, become more transparent and professional. I want to start seeing significant cash returns being delivered in the near term across the industry to technology EIS investors as this will validate the investment strategy. JD: We would like the process around EIS 3 certificates to become much more streamlined. The current rules focus reliefs on younger companies that will likely take longer to achieve a viable exit for investors. Will investors find EIS investment appealing if they find it takes seven years or longer to exit? BT: We would like to see a shortening of the time taken for advance assurance to be reviewed which, despite the aim of a 15-day turnaround, is still taking far too long meaning that investment opportunities are falling down purely due to this delay. But more importantly, we would like to see a period of stability in the regulations surrounding EIS investments so that the market can be confident in the relief and how it is applied post the patient capital review. “Our investments may well benefit from technology, but we are a specialist EIS manager in media and infrastructure, so we’re able to use our sector expertise to deep dive and uncover investments which may be missed by others.” — MATT DICKENS, INGENIOUS “Technology is now an intrinsic part of all sectors. Diversification can still be achieved by sector and company. For example, a digital therapy company in the health sector and a SaaS company in the education sector will still contribute to diversification.” — BELINDA THOMAS, TRIPLE POINT “The current rules focus reliefs on younger companies that will likely take longer to achieve a viable exit for investors. Will investors find EIS appealing if they find it takes seven years or longer to exit?” — JOHN DAVIES, SENECA “The Government, universities, banks and VC houses all have a role to play in ensuring we build companies that can strengthen the future economy.” — DAVID CRAVEN, BLACKFINCH Market Research / Industry Debate Market Research / Industry Debate