Modwenna Rees-Mogg looks forward to a post-budget lively debate at the VCT and EIS Investor Forum
With the Budget days away, the calls I am taking at the moment are asking one of two things.
Will the Chancellor do anything that impacts on this vital part of the investment market? and Am seeing any signs of the economy weakening, given the challenging state of the equity and currency markets?
Just to recap, almost £3bn was raised via the SEIS, EIS and VCT schemes, to back our most exciting British companies in 2017/18, with low thousands of companies receiving funding to move to the next stage. That investment will predicate a lot of growth in the next 2-3 years. It’s investment these companies need.
Since the outcome of the Patient Capital Review last year, which led to the implementation of rule changes to direct investment into higher risk opportunities, investors whether private individuals or fund managers have risen to the challenge and its with great pleasure that I read www.AngelNews. co.uk each day to learn of yet more deals that have been done to back great technology companies.
The consensus amongst the industry leaders is that the Government has done enough to stop any “naughty boys” from using the schemes for “low risk” investments that could raise funding without the need for tax breaks. But the view is also that our technology research base and entrepreneurial dynamism means an ever-growing supply of deserving technology companies seeking funding. If the Chancellor hoped that making the scheme more focused would reduce levels of investment, I fear he will be disappointed.
My guess is that neither EIS or VCTs will get a mention, excepting only a bit about the Government’s plans for its Knowledge Intensive EIS Fund concept. When it comes to the Government showing its support to British enterprise generally, expect some news on additional funding for the British Business Bank, especially around BBI and its co-investment schemes to encourage angel investment in the regions. Now the Business Bank is delivering a positive ROI for tax payers those who might prefer the State to leave such activity to the private sector should be quietened.
So what news about signs from the investment market about the state of the economy? You can tell a lot about the direction of travel from the early stage investment market (particularly the angel market) as this type of investing is reduced when investors are nervous. We are seeing early signs of stress, but in the context of the final lap on the Brexit negotiations this is not surprising and not necessarily the start of a trend.
If the Chancellor attacks pension tax breaks, this will provide a useful fillip to the VCT and EIS markets as investors and their advisers seek out ways to invest the final 5-10% of their portfolio. It’s no surprise that our stellar VCT and EIS fund managers have never been busier as they get ready for investor commitments to start arriving in the post.
VCTs and EIS funds offer slightly different tax breaks over and above the upfront income tax breaks. The other major difference is that there is a secondary market opportunity for VCTs, but far less so for EIS. So, any investor considering just one or the other should look closely at the options and look to create a blend that works for their personal tax circumstances.
Of course, they should also look underneath the bonnet to see how what companies their money will be invested in. It’s the quality of the portfolio that will make the difference to returns, not the tax breaks.
Given the stage of investment portfolio diversification matters. More research is needed, but few people would disagree that given the fact that younger companies are more risky than older larger ones, gaining exposure to more rather than less investments should help to ensure overall returns are de-risked. People often say to me that they think 10 is enough. I disagree – think 20-30 instead. The easiest way to build up these volumes is to invest all or in part via a selection of funds.
At the VCT & EIS Investor Forum on 30th November, we will be debating the best fund structures and investment strategies for investors. It will be lively with valuable in-sights and conclusions that will not be heard elsewhere.
The Invested Experience EXPO on the same day. will be an opportunity for delegates to meet and trial the technologies and services for which Britain is renowned. I have no doubt, it will help them make better investment decisions!
To get your ticket, go to www.thevctandeisinvestorforum.com