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Investing For a Modern Economy


  • By Jason Stockwell

EIS and VCT are crucial to health of the UK economy and a solution to the government’s ‘Grand Challenges’, says Calculus Capital


The UK government has long been keen to see the flow of investment funds towards innovative smaller growing businesses. For this reason, EIS and VCT legislation has provided attractive tax breaks to investors since the mid-1990s. It’s widely accepted that entrepreneurial, smaller companies can create jobs and economic growth in communities and bring innovation in products and services which can sometimes have the effect of turning an industry on its head.

Earlier this year, the government announced the UK industrial strategy, which aims to tackle the ‘Four Grand challenges’ facing the world today along with a target that the UK research and development (R&D) spend reaches 2.4% of GDP by 2027. This highlights not only its continued support for smaller companies that have the capability to grow and create prosperity but also how the government sees the challenges as crucial in shaping change across the world, as well as providing an enormous opportunity for the UK economy. The government’s commitment was reaffirmed during the last Autumn Statement by ensuring that a wellcrafted legislation for the EIS and VCT industry provides the right incentives to boost the economy through SMEs.

At Calculus Capital, as managers of EIS & VCT tax incentivised products, we have long been advocates of supporting growing business and as uncertainty surrounding a post-Brexit UK increases, it is clear the government believes our dynamic, smaller companies’ sector will play a key role in keeping the UK at the forefront of not just entrepreneurship but innovation too.

To put this into context, the FTSE 100 and other large-cap quoted stock market indices in the UK may be dominated by financials, fossil fuels and natural resources companies but on the ground, a newer generation of innovative companies is harnessing the science and technology sectors. This growth of opportunities and investment within these sectors mirror the deal flow that we are seeing across EIS and VCT. By way of example, 70% of the opportunities Calculus have reviewed to date have been in healthcare and life sciences or have a strong technology dimension which is where, overall, the UK economy is moving towards.

Many of these innovative, entrepreneurial companies are capable of becoming incredible businesses, but there are practical challenges too. For example, there is a shortage in the major skills required particularly in technology. In fairness to the government, it is trying to address these longstanding problems and subsequently in August this year, the Chancellor announced £780 million of funding towards supporting the technologies of tomorrow — this is in addition to the £180 million previously pledged to the North East. But does investing in these business go beyond innovation?

Measuring impact

For many years at Calculus, we have tried to measure the impact of what our investments contribute beyond obvious financial returns. In the past, this was done, primarily for our dialogue on the impact of VCT and EIS investing with the Treasury and other government departments and agencies. However, the world is changing and there is a growing consciousness amongst investors to see that investments are not only aligned with a modern and better economy but also have the capacity to make a positive impact.

As managers our job is done if we can exceed expectations on returns for our investors

This phenomenon is also showing with large quoted companies where shareholders are becoming increasingly vocal in asking for responsible and sustainable behaviour in how companies operate. However, one of the rewarding things about working in the EIS and VCT industry today is that we can look to invest in companies that are in alignment with a developing, modern world and have the capability of making a positive contribution to society. This can manifest in many ways. Whether it is investing in faster, lower cost ways of providing an established service through the use of technology; developing a test to identify a genetic susceptibility in babies that means some antibiotics can cause permanent deafness; a world beating, environmentally-friendly technology for treating weeds in public spaces to compete against established products that many fear are carcinogenic; or simply providing authentic Mexican food at affordable prices to make somebody’s bad day better. Each of these is a Calculus investment.

If you would like to know more about the Calculus Capital EIS fund or Calculus Capital VCT, please visit their website ww.calculuscapital.com or contact the Investor Relations team on 020 7493 4940 | email info@calculuscapital.com for further information

Responsibility

As pioneers in EIS and VCT investing, it is our responsibility to invest our client’s money wisely in investments that produce capital growth, after all, they trust us to manage their money for on average four to five years. Part of our role is to promote a culture of excellence and best practice with a strong capital discipline in our investment. Now though, discernibly, investors are more caring about how and what those companies do and whether they are positively aligned with a modern world. At Calculus, all of this must be incorporated within a robust assessment and due diligence process. Fundamentally, we look for good management which acts responsibly, with a clear market opportunity and, competitive products or services that are capable of scaling to become significant enterprises.

But investors also want to feel positive about the investments made on their behalf. This should not be confused with social investing where the investor really does not expect to make a return or with monies applied for charitable purposes. Those are very different activities. This is about supporting investments aligned with the modern, forward-looking world, which have the capability of bringing genuine positive change to society.

As managers our job is done if we can exceed expectations on returns for our investors, and also actively encourage and support companies that play a positive role in the modern world.

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