Jasper Smith is the CEO at Vala Capital and has overall responsibility for Vala EIS Portfolio’s deal flow and mentoring services. He is an entrepreneur who has founded and invested in many companies in the media, technology and engineering sectors. He has generated a number of highly successful exits, creating significant shareholder value along the way. He was kind enough to tell us more about the company.
What Will Be Vala’s Approach In 2020 And Looking Forward To 2021?
Vala Capital is committed to supporting the best of the UK’s SMEs through the provision of capital and mentoring. The Enterprise Investment Scheme is a long established government scheme that aims to encourage investment in smaller companies and is a vital source of funding for SMEs, the lifeblood of the UK economy. Vala extends its support to businesses through institutional funding and debt too, and our first Institutional Fund is expected to launch in the second quarter of 2020.
What Would You Say Is Vala’s Usp?
Firstly, we are truly entrepreneur-led. Many companies claim their founders have entrepreneurial backgrounds but no other team in UK VC can match the experience of Vala’s investment veterans in using their own capital to conceptualise, build and ultimately exit businesses.
Secondly, it is those entrepreneurs who not only decide how we will invest theinvestors’ capital but also consistently commit their own capital to these enterprises and then mentor them throughout the lifecycle of the business. Finally, we have a unique approach to fees: no initial or ongoing fees are charged to investors. There is just one initial fee of 6% charged to the underlying investee companies on deployment of capital. No further ongoing, administrative, transactional or other fees are imposed and only on profitable exits will we take 20% of any profit on return of capital. This is not only a simple and transparent approach to fees but is a fairer balance of risk-sharing between investors and those who manage the investments.
Has Vala Changed In Any Way During The Past Year?
Vala has expanded over the last 12 months almost doubling in size in terms of personnel, particularly focused on fund management and investor services, and as a result we have more than doubled our office space. We expect to continue to grow our hard-working team as our funds under management develop in the coming months.
The Uk Appears To Have A Strong Start-Up/Entrepreneurial Culture – What Do You Put That Down To?
The UK is generally a good environment in which to start and grow businesses. We have comparatively low business taxes and business friendly legislation, and dynamic financial markets that provide sources of start-up funding. We also have a highly-skilled workforce and a culture of innovation and R&D.
What Are Your Views On The Government’s Recent Changes To EIS?
A lot of work has been put in by the government to support EIS structures that focus on companies with high growth potential. Our view is that this benefits the investor with potentially attractive investment returns, but also the EIS-qualifying innovative startups and early-stage companies which find it difficult to obtain traditional finance. It is the provision of alternative finance to ambitious young businesses with significant potential for gains where Vala has always operated, so we welcome the changes and see them as an endorsement of our investment strategy
Do You Have Any Fears That Future Government Changes Could Undermine The Schemes’ Effectiveness?
No. The changes over recent years focusing EIS capital towards growth or patient capital has been GB Investment Magazine · April 2020 25 a positive one and underlines the Government’s commitment towards SMEs. The Conservative manifesto trumpeted EIS as a great success story and the new Chancellor looks to be a source of support for SMEs.
If You Could Influence Changes To The Schemes, What Would You Suggest?
Increased digitization of the EIS investment process we feel would be of benefit to all stakeholders; making it administratively more straightforward for individuals to claim their reliefs and for businesses to obtain their initial advance assurance.
How Can Eis Investments Continue To Help Diversify Client Portfolios?
We have seen that capital markets remain volatile and that so-called ‘safer’ assets are struggling to deliver on or above inflation growth. Accordingly, alternative investments such as EIS, which can actually reduce systemic risk, can be a very useful constituent of a diversified client portfolio. Further diversification can be achieved where investors pursue an EIS portfolio versus a single company, and where that portfolio adopts a generalist versus a specialist investment strategy. UK SMEs have an important role to play as the engine room for growth of the UK economy, and for some investors this represents a sensible investment.
Which Sectors Do You Specialise In And Why Are These Important?
Vala EIS adopts a generalist strategy because we believe this provides both opportunity and diversification for investors. Nevertheless we look for growth in sectors where the UK has a leading edge in expertise. For example, we have made, and will continue to make, significant investments into sectors of the UK’s engineering industry – such as marine engineering, which has deep roots in Britain’s history with skills and experience that are second to none in the world. We make similar focused investments in other high-skill, knowledge-intensive areas such as FinTech, as well as food & beverage brands that are growing well in the UK.
Are Advisers Becoming More Receptive To The Schemes?
Many advisers are already experiencing the benefit of having made recommendations to their clients. Many others are on a journey to understand not only the taxplanning opportunities to their clients, but how these kinds of alternative investments bring diversification to their clients’ portfolios.
Are Clients More Savvy About EIS And SEIS Nowadays?
Investors are possibly more aware of the tax reliefs on offer, but we think it’s still difficult for some – and indeed their advisers – to navigate the market and find and compare investment opportunities.
Are There More Clients Becoming Interested In The Schemes?
The EIS market as a whole has decreased in size in recent years, but that seems to be largely because of the disappearance of some of the ‘asset-backed’ and ‘lower risk’ investment opportunities in the wake of the rule changes. As far as we can tell, demand for true VC-style EIS investments remains buoyant.
How Can Advisers Continue To Educate Their Clients About The Investment Opportunities In EIS?
Working with Vala means that advisers get full transparency over the investee companies that are expected to be included in their clients’ – the investors – portfolios. This unique insight removes the opaqueness of EIS, which is all too commonplace within the market, and gives advisers confidence of understanding not only the companies likely to be included in portfolios but also the timing of when those investments (and the corresponding EIS3 certificates) will be made.
Does The Industry Need To Do More To Promote The Schemes To A Wider Investor Base?
It is important to remember that EIS investments are only suitable for investors with a certain profile. As such, broadening the reach for EIS to a wider investor base needs a reasoned approach, but the industry should certainly continue its efforts to provide easily understandable information and improve transparency.
Has The Continued Confusion Over Brexit Affected The Future Of EIS?
No, we don’t think it has affected the future of EIS and now that there is a little more political certainty we think business confidence is on the rise. Prior to the recent General Election there was certainly some unease among advisers when considering whether to make a recommendation to their clients. This underpins an important role for managers like Vala to talk openly and honestly about risk management – how we select and mentor the investments we make; how we build diversified portfolios, and how fees play a crucial part in sharing the risk with investors.
Are There Any Clouds On The Horizon, Such As Trade Wars, Slowing Global Economy Or Interest Rate Rises That Might Spoil The Party?
All of the above! But one of the advantages of investing in smaller companies is that they tend to be agile and resourceful, making them potentially resilient in the face of changes and uncertainty.
Many thanks for your time, Jasper.