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Everyone has been affected by the 2020 pandemic. Yet not much media attention has been devoted to the impact upon the Enterprise Investment Scheme (EIS), startup businesses using the scheme and their investors. This is surprising, since many of the least-worst affected companies during the pandemic have been those in the EIS space (although, of course, this does not describe all EIS businesses up to this point).
In this short guide, our investment team here at Bure Valley Group offers this round-up of the EIS market so far in 2020 for our investor network. We hope you find this content helpful. Find out more about our EIS and other investment opportunities by visiting our portfolio page here. To enquire regarding our latest projects and funding, you can reach us via:
+44 160 334 0827
EIS and the lockdown
The Conservative manifesto leading up to the 2019 UK general election was notably scant on the topic of EIS or SEIS (the seed enterprise investment scheme). At the time, it appeared that the victorious party seemed content to let both continue as normal. Global events so far in 2020, however, have thrown questions into the air about how taxes might be changed in the coming months to help pay for the financial support measures introduced by the UK government in March (e.g. the Job Retention Scheme).
In January 2020, for instance, the government was warned by industry groups that cutting or scrapping Entrepreneurs’ Relief (a £2.2bn-per-year tax break) could hurt business owners. Yet in March, the Chancellor announced that the lifetime limit would be cut from £10m to £1m. EIS and SEIS, however, were not touched although the Enterprise Investment Scheme Association (EISA) called for an increase to the rate of income tax relief to 60%. These recommendations and others have not yet been adopted, despite the fact that “every Chancellor improved and/or widened the scheme prior to the 2015 changes.”
Arguably, the exceptional circumstances brought about by the pandemic present an important window for the government to bring in temporary changes to EIS/SEIS legislation, in an attempt to encourage more equity finance for high-potential startups which may otherwise be hindered by lockdown measures and changing consumer behaviour. Time will tell whether the Chancellor might listen to the proposals of EISA and others, although the political climate suggests that the government may be more inclined to raise certain taxes (e.g. capital gains tax) in the coming months as a higher priority.
Notable EIS successes amongst harsh conditions
Research suggests that the EIS market could drop in value by as much as £100-£200 million due to COVID-19 if government action is not taken. Yet amidst the recession that is emerging in 2020, many EIS companies have continued to thrive and some have even been on the forefront of supporting the NHS by fighting the pandemic through their innovative solutions. EIS companies do often possess certain advantages which give them an edge in the kinds of conditions we are currently witnessing. First of all, many EIS-qualifying companies operate in industries which are less vulnerable to business interruptions caused by a pandemic (e.g. technology). Secondly, these businesses are also typically quite nimble and flexible due to their small size – allowing for quicker adaptation to harsher market conditions.
It’s worth mentioning some notable examples here which have been recognised by managers of EIS funds across the industry. Bramble Energy is a great case in point – an interesting UK-based company producing innovative hydrogen fuel cell stacks and systems in a manner that respects the environment. One interesting side-effect of the COVID-19 crisis has been the reduction in carbon emissions across the UK as more people have self-isolated and worked from home. This has brought more awareness to the issue of climate change (with notable help from efforts such as David Attenborough’s “A Life on Our Planet” documentary). The company has seen notable investment since March 2020, with $5m raised in August alone.
Another compelling EIS case study from the pandemic is Patchwork – an HR platform dedicated to helping ease the pressures of temporary/short staffing on the NHS. A significant number of London-based doctors are currently signed up to the Patchwork smartphone app, which also assists more than 10,000 NHS workers across nearly three dozen hospitals across the country. It is little surprise that an EIS company such as this has gone from strength to strength even in the height of the COVID-19 lockdown, attracting £3m investment earlier in the year.
Conclusion & invitation
EIS companies continue to play a vital role in supporting jobs, growth and innovation in the UK economy even as it struggles through the biggest national crisis witnessed since the Second World War. Here at Bure Valley Group, our investor network offers the opportunity for investors to access many of these pre-vetted startup projects and access the promising returns they offer.
Get in touch today to start a conversation with our team and discuss some of the investment memorandums we have available here:
+44 160 334 0827