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£1.929bn raised under EIS for 3,920 companies in 2017/2018 and set to grow


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HMRC has just released its statistics for companies raising funds covering the tax year 2017-2018.

Highlights:

  • £1.929bn raised under EIS for 3,920 companies – (HMRC estimate this will rise to £2.041bn and 4,130 companies as more returns are received) one of the largest raises on record;
  • £189m raised under SEIS for 2,320 companies;
  • London and the South East accounted for 67% of all EIS investment;
  • EIS has now raised over £20bnn since 1994 funding 29,770 companies;
  • information and communication sector received 33% of all EIS investment;
  • HMRC approved 62% of all Advance Assurance applications compared to 75% the previous year;
  • More companies are raising money through EIS for the second, or third time;
  • 43% of companies raise funding of less than £150,000;
  • 33,605 investors claimed EIS tax relief in 2017-2018 (estimated to rise to 37,350).

EISA

Mark Brownridge (above), Director General of the Enterprise Investment Scheme Association, commented: “2017-2018 has seen another bumper year for EIS with fundraising reaching record highs and for the first time, potentially topping the £2Bn mark in a single tax year. EIS continues to be a success story in helping entrepreneurs, start up and scale up businesses achieve their funding needs.

“Interestingly, the figures also show that an increasing number of companies are using EIS not just for initial funding but also for follow on, second or third round funding proving that EIS is a popular and well established funding option and that the experience of raising money via EIS is usually a positive one.

“2017-2018 of course represented the last year under the “old HMRC rules” and do not show the effect of the Risk to Capital Condition introduced in April 2018. However we are given a glimpse of the future as these figures show us that AA application approvals are significantly down on 2016-2017 – that may well have a marked effect on companies fundraising.

“Additionally, unofficial data shows us that funds in particular have had a much harder time in raising money from investors and my own prediction is that we will see these figures decrease by circa £350M in 2018-2019. For the official figures we will need to wait until May 2020.

“Elsewhere we continue to see the rise of Tech in the companies that are being funded with Information and Communications the sector receiving the largest amount of investment

“Largely however, the data continues trends from previous years and merely gives us a retrospective snapshot. What’s important now is for our industry to focus on the Financial Planning community and to educate them on the risks and diversification potential of investing in EIS in the face of the risk to capital condition and effective shutdown of capital preservation and asset backed investments. We have a great investment story to tell planners and should taking the opportunity to do so.

“It’s interesting to note in the market a number of company blow ups in funds once marketed as capital preservation or asset backed. It goes to prove that all EIS investment is money at risk, whatever the marketing blurb may say and that EIS is much better served by focusing on entrepreneurial, growth focused businesses. The changes to the scheme have been welcomed by our industry and it now our job to educate financial planners so they see those changes in the same light.”

IW Capital

Luke Davis, CEO of EIS specialist IW Capital, added: “These figures really reflect what we have seen at IW Capital in the last year or so, with a record amount of deal flow in terms of the number of business making use of EIS and a huge appetite from our investor base to support small businesses through the scheme. The increased focus on knowledge intensive companies for EIS has changed the landscape slightly but we see that as a positive thing, increasing the demand for investments where the confidence in the company’s growth is key and not whether or it is asset backed or not.

“This already opened up potential for huge growth, particularly in the technology sectors, and in future will allow other knowledge intensive businesses to flourish.”

The full report can be read here.

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