Enterprise Investment Scheme (EIS)  investment managers have already started to shift their focus onto technology companies, research from Intelligent Partnership has found, and it could be vital to the scheme’s future.

Legislation for the Treasury’s new knowledge-intensive fund was included in the Finance Bill published earlier this year and was due to come into force at the next Budget. While the General Election has impacted the timing of that Budget, it is still expected that the fund will be part of that bill, whenever it eventually comes forward. Together with the fact that more money can be invested in knowledge-intensive companies (KICs) under the recent rule changes to EIS, it is expected that technology companies are going to be the big beneficiaries.

This appears to be confirmed in Intelligent Partnership’s Enterprise Investment Scheme Industry Report 2019/20, which found that 41% of open offers in September 2019 were focused on the technology sector, compared to 38% for general enterprise, which has previously been the leader.

While the focus on KICs will not solely benefit the technology sector – the Report also notes that at least one film and media company has successfully applied to become a KIC in the past year – it is likely that companies with a commercial technology focus are going to benefit the most from the changes, because they will often be a clear fit with the requirements of research and development.

Our report also reveals that experts predict that medical and financial technology sectors will be particular beneficiaries of EIS over the coming years, in part because they are likely to be less impacted by economic and political upheaval and uncertainty, thereby offering a safe haven for investors during uncertain times.

As the country goes to the polls and the prospect of a new government raises its head, targeting tech companies and helping young UK businesses develop and prosper could help EIS to position itself as an important, forward-thinking initiative, making prospective new governments (even a Jeremy Corbyn-led Labour government) recognise its importance.

While managers are making moves to create more funds focused on technology, the evidence from our report also indicates that a growing number of investee companies are moving in this direction as well. Between April 2018 and July 2019, 199 EIS companies successfully applied for confirmation of KIC status, HMRC told us through a Freedom of Information request. Momentum appears to be growing, too, with more successful applications in the first seven months of 2019 than during the last nine months of 2018.

However, the overall picture could be even bigger: HMRC does not keep track of unsuccessful applications and therefore there could have been many more companies that were rejected for KIC status.

As technology goes from strength to strength, the report reveals a further decline in the media & entertainment sector. From over 30% of all open EIS offers in 2017, the sector now accounts for less than 10%. 

However, the report does suggest that EIS will continue to be a possible route for funding of media and entertainment companies. As Mark Brownridge, director general of the EIS Association told us: “I think the sector will come back in a new guise, although it probably won’t be as big as it once was.”

To find out more about the EIS market and to get a clear snapshot of what has been going on in this area over the past 12 months, simply click here to download our EIS Industry Report 2019/20 free of charge. And to hear from some of the EIS market’s top providers, next week we kick off our EIS Showcase series. With six dates around the country, delegates will hear from a range of investment managers, giving an insight into what the opportunities are in this diverse market. To find out when we’re in your area and to book your place, click here.