At the end of May, HMRC released estimated figures for the Enterprise Investment Scheme and Seed Enterprise Investment Scheme for the 2016/17 tax year
Key points included the number of companies raising funds, number of subscriptions and the amount raised through tax efficient schemes. Due to the timing of the release, the current results for 2016-17 are just estimates.
Since the Enterprise Investment Scheme (EIS) was launched in 1993-94, 27,905 companies have received investment and over £18 billion of funds have been raised.
Here are three key takeaways from the report that you can pass on to your clients, along with some thoughts from the EIS Association (EISA).
1) How much was raised by companies through EIS in 2016/17?
3,470 companies raised a total of £1.797 billion of funds under the EIS scheme slightly less (down by -8%) than 2015/16. On the SEIS front, 2,260 companies received £175 million of investment – down from 2,405 companies and £182 million in 2015/16.
2) Which sector is receiving the most investment from the EIS?
In 2016-17, companies from the Information and Communication sector accounted for £669 million of investment (37% of all EIS investment), making it the stand out sector for receiving investment. It’s a similar story for SEIS (39%). Unfortunately, this classification is still extremely wide ranging and doesn’t give us the detailed breakdown of the sector, but generally it includes tv, media and technology. It comes as no surprise that technology remains popular within EIS, given the new ‘risk to capital’ conditions and focus on ‘knowledge intensive’ investing.
3) Are EIS investments into companies becoming larger?
The report shows that 43% (£774m) of the amount of funds is concentrated in investments above £2m, with 24% (£426m) going to investments over £4m. EISA notes that ‘this is where EIS can make the biggest impact for SMEs seeking high growth. It is hoped that with the new rules in place we will see more higher level investment into EIS funded companies to help them scale up quicker. This feeds in to the Patient Capital effect and the Government’s stated intention to ‘find funding at 2nd/3rd funding round stage’.
Overall the figures in the report are promising, albeit fairly consistent, and it is worth noting that the figures pre-date any recent rule changes from the November 2017 Budget. These changes, implemented from March 2018, have impacted supply of EIS funds and shifted the risk profile for investors, as a result we believe overall EIS funding levels will fall slightly in the 2018/19 tax year.
Along with the rest of the industry, we expect that there will be a sizeable shift into growth EIS Funds given the the new rules focus on growth and development, ‘risk capital’ and ‘knowledge intensive’ companies.
To read the full HMRC report please click here
Please note EIS are high risk investments, please see our full risk warnings.