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.
In July 2021, the UK Government published its UK Innovation Strategy; a document outlining how they plan to make the UK a “global hub for innovation by 2035”. A key part of this strategy is to “unleash businesses who want to innovate” and make the country an attractive place for global talent – fuelling job creation, startup growth and economic growth. Early-stage investors may be encouraged by these words, but what is the plan exactly? What might it mean for an investor’s opportunities to generate returns in the startup space, if followed?
Below, our team at Bure Valley Group examines these questions in more detail. We hope you find this content useful. To find out more about our EIS and other investment opportunities, visit our portfolio page here. To enquire regarding our latest projects and funding (for investors and founders, respectively), you can reach us via:
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A summary of the plan
There are many possible reasons behind the publication of this new Innovation Strategy. One is that the Government is keen to be seen as a “pro-business” administration in the context of a year of spending increases and tax rises (e.g. the new Health & Social Care Levy). Another is that the UK is still struggling to define itself to the world after fully leaving the EU at the end of 2020. Many commentators believe that Johnson’s Government is keen to not portray Brexit as the UK “pulling up the drawbridge”, but opening its doors wider to global talent and investment.
In this light, certain aspects of the Innovation Strategy stand out: “Now we have left the EU, we can move quickly to respond to [global] challenges” such as “climate change” and “global pandemics”. A key goal is to encourage investment into industries and companies which help the UK meet its “net zero target” and turn the country into a “a global science superpower”. This suggests that the UK’s tax, regulatory and investment landscape is likely to favour the kinds of “knowledge intensive” early-stage companies favoured by the UK government under schemes such as EIS (the Enterprise Investment Scheme) and Venture Capital Trusts (VCTs).
Notable developments
To compliment the Innovation Strategy, other announcements have been made. Notably, the Government also announced in July 2021 that a new “£375 million scheme to drive investment in innovative firms” had opened. This scheme has been targeted at “deeptech” companies in particular, as well as science-based startups. Whilst this is a pittance amount compared to other countries (e.g. Germany with its €10bn future tech fund), it is still a positive signal for early-stage investors and also pension funds considering moving funds into this space.
Whilst some argue that this scheme mainly targets “scaleups” which already have plenty of opportunities to raise £30m from global investors, this is arguably a step in the right direction to strengthen the UK’s funding ecosystem. For the UK to grow its competitive edge as a place for later-stage companies looking for investment or acquirers, a friendly domestic environment is needed to give startups a clear path as they scale upwards.
The early-stage landscape
In 2021, there are still three primary schemes for investors interested in committing capital to high-growth-potential, early-stage companies: the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs). Determining differences between these can be useful when deciding which may be suitable for your portfolio:
- EIS. Companies qualifying for EIS can raise a maximum of £5m per year from investors, and a total of £12m over their lifetime. “Knowledge intensive” companies, however, can raise more. Investors are offered a range of attractive benefits to draw them to invest in such businesses. These include income tax relief – which lets you claim back up to 30% of your EIS investment (maximum of £1m per tax year) against your tax return. You can also claim “loss relief” on your EIS investment if it fails, equivalent to your highest rate of income tax (e.g. 45% for those on the Additional Rate).
- SEIS. Similar to EIS, the Seed Enterprise Scheme is targeted more at companies earlier in their lifecycle. A company can receive a maximum of £150,000 via SEIS investments, provided they meet the government’s criteria (e.g. performing a “qualifying trade”). For investors, SEIS offers individual income tax relief of 50% of the amount invested. Also, any earnings from shares are free from capital gains tax (CGT), and profits realised within three years are also exempt if reinvested back into the SEIS company.
- VCTs. A VCT is a publicly-listed company which you can invest in. The company, then, invests into early-stage companies meeting pre-defined criteria. To draw investment into these “higher risk” VCTs, the government offers some attractive tax breaks to investors such as 30% income tax credit (on VCT investments up to £200,000), tax-free capital gains and tax-free dividends.
Invitation
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:
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