EIS Investments
Over to Marble Arch for the Platform One conference on EIS investments.
For those that don’t know, Enterprise Investment Schemes provide by far the most attractive tax breaks available in the UK. When it comes to tax efficiency, EIS investments beats ISA, SIPPs and pensions.
For more detail on those tax benefits and the companies that qualify, check out our overview here.
For me the best session of the day was the very first one – bad news for latecomers!
Richard Hargreaves, co founder of Endeavaour Ventures puts it all into perspective from the investor’s view point. Firstly, if they are going to build their own portfolio in conjunction with an adviser there are a few key points to bear in mind:
1. They must enjoy it. It may well be stressful at times!
2. They will need to build a portfolio of investments. According to figures from NESTA (and he revealed over lunch that his own experience bears this out) while slightly more than half of the investments fail, one in ten will return ten times capital. Richard suggests that this means when it comes to EIS investments you need a portfolio of at least ten investments. According to my calculations, if you want a 95% statistical confidence that you will have one of these ‘ten baggers’ you need at least 28 EIS investments (if you want to check my maths and see how I arrived at this number, let me know on daniel@intelligent-partnership.com or @DanKiernan77.
3. They must be systematic – every single investment they make must have a realistic possibility of being the one that returns ten times capital, and they must spread their investment equally around all of their EIS investments.
All of this points to an area where advisers can really help their clients – help them to identify opportunities they may not have uncovered for themselves, and help to ensure they are systematic about their EIS investments. As Simon Willcox, the chairman for the day pointed out, these investments will be the ones that clients want to discuss with their advisers. The majority of most client’s portfolios will consist of a range of familiar funds – UK equity income, some bonds etc… EIS investments give advisers the opportunity to differentiate themselves.
If investors don’t want to take these steps – then a fund is the answer.
I was lucky enough to chat to Richard over lunch and he revealed his biggest bugbear was not the EIS investments that failed – it was the middling ones that drifted on for years, with no exit in sight, profitable or otherwise!
Matt Taylor of Rockpool was as interesting and insightful as always. His angle was the tax benefits on EIS investments are now so generous, it is no longer just the preserve of business angel investors, but in fact suitable for a much wider audience. He gave three case studies of the sorts of people who might be interested – and three of the categories of EIS investments that might suit them – exit focus, exciting growth and next generation – all with slightly different risk and reward profiles that would match different investment objectives.
Susan McDonald of Calculus Capital made it clear that as a minority shareholder of an unquoted company, you are in a very weak position – and therefore due diligence before investing is of crucial importance, including building trust and rapport with the management team. Again, investing via funds can help mitigate these issues.
Overall, it was an excellent morning and a great chance to learn more about EIS investments.