The Enterprise Investment Scheme is not over, says David Lovell of GrowthInvest. Its success has been based on a small number of investors. It's time to bring the crowd in.
it seems like only yesterday we were reporting on a decline in the uptake of EIS (It was Tuesday - Ed.) There are too few opportunities for investors who want to put money in. So why is a director of a platform telling Professional Adviser magazine the market needs more participants, not fewer?
Well, possibly because he is talking to the community professional advisers, and because his platform GrowthInvest offers tax efficient investments to UK financial advisers and wealth managers. You can read the full article online: David Lovell: Could the EIS market grow to a million investors? (registration may be required)
The EIS market may have proved a great success but it is still built around a surprisingly small number of investors
Mr Lovell has a point. We checked the latest statistics from GOV.UK and found that in the most recent tax year for ehich data is available, 3,265 firms raised money qualifying schemes, and the number of subscriptions was 146,000. Note that a subscription means one investor putting money into one company, of course many investors invest in several schemes at the same time. So, could we realistically attract 8 -10 times the number of investors?
One data point mentioned in the article is that the UK has a quarter of million taxpayers earning in excess of a quarter of a million pounds a year. It's realistic to think that many of those have an incentive to put money into EIS schemes. It's possible to inevst through one of a many EIS funds, as well as subscribing to firms one at a time. Syndicate Room even offers a Passive EIS Fund called Fund Twenty8.
So Mr Lovell is quite right to point out to financial advisers that EIS, whiich offers separate tax benefits if you make a profit, or if you make a loss, can be an attractive addition to many higher interest rate taxpayers' portfolios. But, given the news we reported on Tuesday, are there going to enough deals to satisfying demand, when startup funding in this country is at a five-year low?
The main change we've seen in the last year is the closing up of loopholes. Some people have been terribly grumpy about that, but as far as we're concerned, it's good news for investors. If the revised rules make it harder to dress a wolf of a company in sheep's clothing, that can only be good news for sheep, and bad news for wolves. We have heard from some commentators that the anti-business European Union is to blame, but consider this: if the owners have to bend their business out of shape to qualify with the rules of a scheme, maybe they are not complying with the regulations, but gaming them.
We rather like the idea that the downturn in EIS investment will prove to been a temporary one, and will be watching for evidence of it starting to grow again.