EIS season in full swing

Alongside appreciating the nature of growth investing from a risk perspective, Ian Battersby argues it is critical advisers obtain comfort from providers over both deal-flow quality and deployment capability.

So the dust is settling in the aftermath of the Patient Capital Review and Enterprise Investment Scheme (EIS) season is in full swing. The future is all about growth companies. It now seems to be accepted that EIS offers generous tax benefits for investments into qualifying growth companies – and yet what is the reality behind such a broad statement?

The ‘lag’ effect of the seven-year rule has started to have an impact on the open offers available in the market, with the age and maturity level of potential EIS investee companies showing a tendency towards earlier-stage companies and, in some cases, start-ups. The risk/reward equation that is driving HMRC’s approach to EIS qualification will be central to the investment decision faced by investors going forward.

EIS product providers appear to be finding opportunities in niche sectors, such as tech, biotech, life sciences and general enterprise. Understanding the credentials of these providers in their specialist areas is important due-diligence for advisers and, in some cases, there is little in the way of consistent exit track record to assess.

Undoubtedly, there are some genuinely exciting prospects across the sector spectrum but these are young businesses and investors should be aware of the investment risk and cognisant of both upside and downside variables.

It seems the days of vast fundraising targets at EIS provider level are a thing of the past – largely because many of the qualifying businesses are now less mature than in previous years and therefore potentially unable to justify initial investment much north of £1m at this point in their development.

The due-diligence process alone ought to mean that transacting more than 20 deals a year at provider level is a challenge. This combination of factors is likely to reduce market capacity, which brings the crucial element of deal-flow and deployment into sharp focus.

To read the full article including Ian Battersby’s view on a ‘Reasonable Timeline’, click here.

Source: Professional Adviser



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