by Mark Brownridge, director-general of the EIS Association
2019 marks the 25th anniversary of the Enterprise Investment Scheme. In that time, EIS has helped over 29,770 companies start and scale up their business and provided over £20 billion of equity funding. It’s a phenomenal success story and has helped companies across a wide range of different sectors and industries to achieve their goals and ambitions.
It has continued to support the next generation of entrepreneurs, innovators and disruptors and a common thread amongst those that have received EIS investment, is that it was vital to their success, particularly in the early stages. Alex Cheatle, CEO and co founder of Ten Lifestyle Group, an AIM listed lifestyle management business, has gone so far as to say: “We probably would not have a business today without EIS.”
Alex was able to provide his EIS investors with a 15x initial investment return but of course not all of those that have so far received EIS funding have been able to match that. It’s the unfortunate nature of a start-up that failure rates are high and investors lose money. A tax incentive scheme like EIS isn’t able to “pick winners” and instead, the government relies on such schemes to target entrepreneurial firms based on a number of criteria, such as age and size. The government doesn’t undertake statistical analyses of the impact of the effectiveness of tax incentive schemes, but anecdotally for every £1 invested via tax efficient schemes, the government gets back £4.
It’s clear that in a post-Brexit environment, the government wishes to reiterate that the UK is open for business.
In effect, we have come full circle. Further in fact. See these comments made by Geoffrey Howe MP, Chancellor of the Exchequer in 1983, in respect to the introduction of EIS’s forebear: “By concentrating help on those companies which do not have ready access to outside capital, the scheme will assist many more small or medium companies to realise their undoubted potential for growth.”
So, 25 years on it’s really a case of back to the future for EIS. In recent years, the government has changed the EIS rules to ensure every pound invested in the scheme is a pound at risk. The end result has meant the focus is firmly on three areas: growth, innovation and technology.
The portents are exciting: dealflow in the UK in these areas looks particularly strong as, increasingly, does the prevalence of exits; EIS remains one of the most tax efficient investments available and small businesses still require and respect EIS funding. EIS has been and will continue to be a British success story to be proud of.
This piece has been published as part of the first Adviser’s Guide to the Enterprise Investment Scheme. For the full guide go click here