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25 Years Of EISA


  • By Jason Stockwell
  • EIS
25 Years Of EISA

To mark the 25th anniversary of the Enterprise Investment Scheme Association (EISA) we asked Mark Brownridge, Director General, to give us his thoughts on the past, present and future for EIS”


It seems 2019 will be a momentous year. With all outcomes still possible, Brexit is set to dominate the political headlines once again as we career chaotically towards the 29 March. Its frightening to think that the future direction of our country for years to come could be decided in 2019.

But 2019 is set to be a special year for another reason. It was 1994, when Michael Portillo, the then Chief Secretary to the Treasury announced that “The purpose of Enterprise Investment Schemes is to recognise that unquoted trading companies can often face considerable difficulties in realising relatively small amounts of share capital. The new scheme is intended to provide a well-targeted means for some of those problems to be overcome.”

2019 then marks the 25th anniversary of the Enterprise Investment Scheme, making it one of, if not the, longest running tax incentive investment schemes in the world. In that time, EIS has helped over 27,000 companies start and scale up their business and provided over £18 billion over equity funding. It’s a phenomenal success story and has helped companies across a wide range of different sectors and industries to achieve their goals and ambitions, including companies that have gone on to become multi million pound generating, globally recognised names, such as Gousto, Eve Sleep, Graze, Brewdog and Ten Lifestyle Group.

Over the past 25 years, EIS has continued to support the next generation of entrepreneurs, innovators and disruptors and EIS investors have stepped in and provided much needed funding when no other source of funding was prepared to. A common thread amongst entrepreneurs and business owners who have received EIS investment, is that EIS investment was vital to their success, particularly in the early stages when access to growth capital was thin on the ground and the banks didn’t want to know. Alex Cheatle, Chief Executive and Co-Founder of Ten Lifestyle Group, an AIM-listed lifestyle management business, has gone so far as to say “It’s absolutely fair to say that we probably would not have a business today without EIS”.

Cheatle was able to provide his EIS investors with a 15x initial investment return but of course, not all of the 27,000 companies that have so far received EIS funding have been able to match that. It’s the unfortunate nature of a start up that failure rates are high and investors lose money. A tax incentive scheme like EIS isn’t able to “pick winners” and the government fully recognises that they rarely, if ever, have the necessary resources and information to successfully target support to specific firms, sectors or technologies. Instead, the government relies on such schemes, to target entrepreneurial firms based on a number of criteria, such as age and size (financial and headcount). They do so because empirical evidence over a 25 year period has shown that young and innovative businesses have been key drivers of job creation, innovation and productivity in a number of studies. Moreover, companies that receive equity investment are more likely to grow faster, particularly in terms of turnover. More of the companies with turnover growth of more than 100% each year has used equity financing than those growing less quickly. Two important investment lessons emerge from this. One, EIS funded companies are more likely to succeed when compared to companies with no EIS funding. Two, there are winners out there but picking them is extremely difficult so you’re better off investing across a diversified portfolio of EIS qualifying investments to increase your chances of success.

Over the course of 25 years, EIS has faced many challenges. Not least that it has survived 5 different Prime Ministers and 3 different governing administrations (Labour, Conservative and a coalition) in that time. New governing administrations, as we know, like to tinker with long established schemes (think pensions!) particularly those introduced by the previous administration. So whilst we’ve experienced yo-yoing rates of income tax relief, certain areas of investment encouraged and then excluded from investment and of course the intervention of the EU, to have survived relatively unscathed over such an extended period is a testament to the significant contribution EIS has made to the UK economy. Every government since 1994 has recognised this. The government doesn’t undertake statistical analyses of the impact of the effectiveness of tax incentive schemes but anecdotally for every £1 invested via tax efficient schemes, the Government gets back £4.

But that’s the past. What about the future?

It’s clear that in a post Brexit environment, the government wishes to reiterate that the UK is open for business and establish it as the place for entrepreneurs to start, develop and grow a small business thus creating an “Innovation Nation”. Indeed, KPMG’s 2018 Global Technology Innovation Report recently ranked the UK as the third most promising market for innovation, disruption and technology breakthroughs that have global impact.

The challenge, however, as Mel Stride, Financial Secretary to the Treasury has put is “to encourage our entrepreneurs and help their bright ideas to become productive businesses”. This is where EIS will have an important role to play in the coming years. In effect, we have come full circle. Further in fact. Compare these comments made by Geoffrey Howe, Chancellor of the Exchequer in 1983 in respect to the introduction of EIS’s forebearer, the Business Expansion Scheme (BES) to Mel Stride’s above “by concentrating help on those companies which do not have ready access to outside capital, the scheme will assist many more small or medium companies to realise their undoubted potential for growth”. The services and sectors in which our small businesses operate today may have changed beyond all recognition in those 25 years but they still face the same funding problems their predecessors were facing. EIS remains both relevant and required.

So, 25 years on its really a case of back to the future for EIS. The focus going forward is firmly on three areas: growth, innovation and technology. For investors and advisers, the portents are exciting; Dealflow in the UK in these areas looks particularly strong as increasingly, does the prevalence of exits, EIS remains one of the most tax efficient investments available and small businesses still require and respect EIS funding. EIS has been and will continue to be a British success story to be proud of. At the EIS Association, we will be celebrating those 25 years in a number of ways over the course of 2019, culminating in a gala dinner on 20th June. Please do help us celebrate!

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