Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
Have you recently considered EIS for the first time (the Enterprise Investment Scheme)? It can be a valuable tool to include within an investor’s wider portfolio. Yet it pays to understand the core features of the scheme before diving in – helping to ensure you get the most out of it.
Below, our team at Bure Valley Group offers some key tips for first-time investors in the EIS space. We hope these insights are useful to you. To learn more about our EIS projects and other early-stage opportunities, visit our portfolio page here. For enquiries regarding our latest projects and funding, you can reach us via:
+44 160 334 0827
Take time to grasp the essentials
The Enterprise Investment Scheme (EIS) offers a range of tax benefits to investors as well as attractive funding terms to early-stage founders. However, the rules can be nuanced and it will help to have at least a basic understanding of EIS before committing large sums to it.
In 2023-24, an investor can invest up to £1m into EIS shares (or up to £2m if they qualify as “knowledge-intensive”) and receive 30% up-front tax relief on the value of their EIS investments(s). Any EIS shares held for at least two years can be exempted from inheritance tax (IHT) upon the investor’s death.
In the meantime, an investor can invest chargeable gains (from other non-EIS shares) into EIS-qualifying shares to access “deferral relief”. If you eventually sell your EIS investment at a lower price than the original purchase, then you can claim loss relief equivalent to your highest marginal rate of Income Tax.
Assess the risks
Early-stage companies, such as those qualifying for EIS, can have a lot of growth potential. Yet they are also in a younger phase of their lifecycle, bringing additional risk compared to larger, more established companies with a proven track record.
It is vital, therefore, that new EIS investors take time to fully understand the risks of different EIS opportunities and ensure they are comfortable with these before investing. Diversifying your early-stage investments across multiple markets, sectors and geographies can help to mitigate the risks and improve your prospects for generating overall returns.
Think about the investment horizon
EIS investors need to strike a careful balance when it comes to their investment horizon. Many EIS companies are not “pure startups”; they have at least a few trading years behind them (although not more than 7 or 10). As such, EIS investing is not exactly the same as angel investing where investors are often looking for an exit strategy in 3-6 years.
On the other hand, investors are often drawn to EIS companies because they are in their “growth phase” or “adolescence”. They have not fully matured like publicly traded companies (which may have switched their strategy of distributing dividends, rather than ploughing profits back into growth to provide returns to their investors).
Think carefully, therefore, where your EIS investment(s) might sit within your portfolio’s time horizon(s). Remember, to access various take reliefs from HMRC you will need to hold the shares for at least three years.
Do your due diligence
It is easy to get caught up in the excitement of a particular EIS company’s idea or proposition. Yet it is important not to forget to run a strict series of checks to maximise the chances of generating a return on your investment. Just because a business has succeeded in applying for EIS status does not mean it is automatically suitable for your portfolio.
Take time to scrutinise the founder(s) and the company’s business model. How scalable is their model and what kind of competition does the business face? How might are the barriers to entry for new potential market entrants? What sorts of regulatory hurdles could the business face as it grows and the political landscape shifts over the coming years?
Explore co-investment and mentorship
One of the best ways to learn any skill – including EIS investing – is to rub shoulders with other people who have a wealth of experience which you can learn from. A great way to do this is to join an EIS investor network (like ours here at Bure Valley Group!).
This allows you to access a range of pre-vetted EIS opportunities, relieving some of the due diligence burden from your own shoulders. It also opens more doors to build professional connections with other investors who may specialise in other sectors or industries. By exchanging knowledge together, EIS investors can deepen their understanding of different EIS opportunities before committing capital. Indeed, a professional network can also facilitate co-investment opportunities – helping you to spread out your risk more by accessing a wider range of EIS investments via pooled investor funds.
Invitation
The Enterprise Investment Scheme is one of the UK’s proudest early-stage investment “vehicles”, helping the country to position itself as a global leader in venture capital.
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group?
Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827
