Leading the way with EIS & SEIS A look at why tax efficient investments are now a hot topic amongst advisers
A GBI MAGAZINE SUPPLEMENT
Make It Your Business
The tax efficient investment market has changed significantly in recent years. There has never been a better time to get involved, as high value clients are gaining interest in this sector and it’s exactly where you can add tangible value. Complex structures and investments with higher risk profiles mean that clients would benefit from your advice. Without it, they may invest anyway and could make ill-informed decisions, whilst dis-intermediating you from the process and reducing your revenue potential. Whether you’re already advising on SEIS, EIS, BPR or VCT products, or perhaps considering them for your clients’ portfolios then contact us at GrowthInvest. We’ll show you how you can consolidate historic investments onto our platform and build a diversified portfolio from a wide range of managed fund or single company investments. Through our intuitive online platform you’ll be able to offer your clients exclusive access to real portfolio growth, secure in the knowledge that these government-backed schemes offer unique tax efficiencies. Visit us to learn about the products, the pitfalls and how best to advise on this dynamic and evolving sector. So make it your business, before someone else makes it theirs... Find out more at growthinvest.com
City Editor Neil Martin introduces this special GrowthInvest supplement from GB Investment magazine.
06 EIS — how they work and the benefits they offer Jack Rose, Head of Tax Products at LGBR Capital
08 EIS — should it be attracting a million investors? The Enterprise Investment Scheme has been an undeniable success, but it’s a success built on just a small number of dedicated investors who are enjoying the rewards. Operations Director at GrowthInvest David Lovell argues that EIS should be attracting nearer a million investors.
10 Pension changes encourage greater use of alternative investment platforms. Neil Martin talks to GrowthInvest Managing Director Daniel Rodwell about how the changes to pension allowances and the rise in interest in the Alternative Investments sector are driving business towards Alternative Investment Platforms.
12 Breaking down the barriers: the rise of technology Operations Director at GrowthInvest David Lovell looks at how advisers can use technology to meet client expectations.
14 How diversification builds EIS success GrowthInvest managing director Daniel Rodwell came up with a conclusion that might shock both investors and their clients. Here we go beyond that claim and look at how diversification plays a key role in creating the ideal EIS platform, and how there’s still much to be done to achieve the perfectly balanced portfolio.
15 GrowthInvest launches new portfolio Platform boosts range of services with much anticipated new discretionary managed portfolio service
16 Investment opportunities
Contents
04 Leading the way with EIS and SEIS
Leading the way with EIS and SEIS City Editor Neil Martin introduces this special GrowthInvest supplement from GB Investment magazine. I have to admit that before I spoke in depth to the investment team at GrowthInvest, I was unware of how few people are active investors in the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). If you had to guess, to the nearest say ten thousand, of how many investors do regularly place money in companies backed by EIS and SEIS, what would you honestly say? To find out how close you are, check out the article entitled EIS – should it be attracting a million investors on page 8 to get the answer. When you talk to the team at GrowthInvest, you get a sense of why they spend a large proportion of their time being advocates for these schemes. Which is odd, given that successive
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Governments have bent over backwards to help cushion investors, via some significant tax incentives, against the knocks that inevitably happen when investing in early stage companies. These are by their very nature ‘fragile’ companies, but when I spoke to the managing director of GrowthInvest Daniel Rodwell about the element of risk in an EIS profile, the expectations were much the same as most fund managers. Daniel explains further: “within a typical portfolio, which could consist of between five and fifteen investee companies, it is fair to expect that alongside a small number of very positive outcomes, there will be some negative outcomes as well. Where portfolio providers will differentiate is in how they support investee companies and reduce negative outcomes.And what’s more, that risk can be further diluted with a strategy that incorporates a
spread of portfolios: “What we’re talking about is a multitude of managed portfolios that each have say between five and 15 companies, so that you are getting not only investment manager and investment team diversification, but you’re also getting diversification within the underlying assets.” See the article entitled How diversification builds EIS success on page 14 to get the full picture. In this area we can genuinely say that the Government does need a round of applause for helping out both early-stage companies and their investors. It is heartening to see such support, what is more frustrating is how few people are taking advantage of the schemes. David Lovell, in his article EIS – should it be attracting a million investors? [page 8] estimates what the number of EIS and SEIS participants should be.
When you talk to the team at GrowthInvest, you get a sense of why they spend a large proportion of their time being advocates for these schemes
What will drive EIS and SEIS further forward of course is how the recent pension changes are encouraging greater use of alternative platforms. As Daniel says: “more advisers are beginning to understand how these investments can be used within pension planning for appropriate and suitable segments of their client base.” Learn more by reading Daniel’s full piece entitled Pension changes encourage greater use of alternative investment platforms on page 10. As the saying goes we live in interesting times and for those looking at alternative investments, these are very interesting times indeed.
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EIS — how they work and the benefits they offer Jack Rose, Head of Tax Products at LGBR Capital Background The Enterprise Investment Scheme (‘EIS’) is a government initiative launched in 1994, designed to encourage investment by individuals into early stage companies as an alternative source of funding to more traditional sources of capital. To balance the increased risk of investing in smaller companies there are some attractive tax breaks to try and balance the risk, and reward of the investment. Although over 20 years old, the EIS heritage actually stretches back to 1981 through its original guise of the Business Start-up Scheme (‘BSUS’) and then latterly the Business Expansion Scheme (‘BES’) in 1983.
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It finally became the Enterprise Investment Scheme we know it as today in 1994. Since then over 24,600 companies have received investment through the scheme and over £14.2bn has been raised. According to the HMRC & National Statistics Report October 2016, last year alone over £1.8bn was raised under the EIS scheme.
• They must undertake a “qualifying trade” – certain trades, such as dealing in securities/financial instruments and forestry and farming are excluded;
How they work
• The company’s gross assets must not exceed £15m before the investment, or £16m post investment
Unlisted, or AIM listed companies can apply to HMRC to become “EIS Qualifying.” This means meeting several investment criteria, including:
• They must have fewer than 250 employees, unless it is a ‘knowledge intensive’ business; • The company must not be controlled by another company;
• An investee company cannot be older than seven years, unless it is a knowledge intensive business. It is also important to note that despite often being referred to as ‘EIS Funds’
they are not collective investment schemes. An investor in an EIS will be the owner of shares in its underlying companies, rather than owning shares, or units in a fund. Tax Benefits to EIS Investors Given the investment criteria above, EIS companies are smaller and less liquid than larger, listed investments. To compensate investors for the extra risk taken, EIS offer a number of generous tax incentives, including: • 30% upfront income tax relief (subject to £1m investment in any tax year and provided shares are held for a minimum of three years); • 100% inheritance tax relief after two years; • 100% capital gains deferral for the life of the investment;
increases diversification. However, tax relief on cash is available only from the date of investment into each underlying EIS company, not the date of the initial investment into the service. • EIS Funds - These vary in structure. For instance they can be under a DFM agreement, or structured as an AIF among others. The asset manager invests into a basket of investee companies that fit the fund’s investment mandate. The fund will target a specific amount of capital and will close once it reaches capacity. The number of investments will vary within the fund depending on the investment criteria. As with the Portfolio Service, tax relief on the investment is available only from the date of investment into each underlying EIS company.
• tax-free growth; • loss relief. Ways to Access EIS Companies Investors can invest in single EIS companies, or an EIS ’fund’. Despite the name, an EIS ‘fund’ is actually a Portfolio Service, structured as a discretionary management service in which a manager with expertise in EIS, or unquoted companies, will use their knowledge to select a portfolio of EIS qualifying companies. Within each of these categories there is a multitude of different investment strategies covering multiple sectors. • Single EIS Company – Investment is made directly into just one EIS company, meaning investors take on the risks/rewards of the company, which lacks diversification. However, there is often more clarity with the timings on the EIS tax certificates. • EIS Portfolio Service – The asset manager invests into a basket of what they believe to be robust EIS companies usually under a DFM agreement with the investor. They are usually evergreen meaning they are always open for investment. Each client portfolio can be slightly different, depending on the tranche and is usually made up of between five and ten underlying companies, which
Over 24,600 companies have received investment through the scheme and over £14.2bn has been raised • Approved EIS Funds – like an EIS Fund (above) with the addition that the fund has received advanced assurance from HMRC that it will qualify for EIS status before an investor’s investments are made. The manager must invest 90% of the money within 12 months of raising capital to qualify, but it does ensure EIS tax relief will be on the full amount at the initial date of investment into the Approved Fund. What type of clients are EIS suitable for?
for a client, to use the ever popular tax cliché; ‘the tax tail should not wag the investment dog’. EIS should be considered on their investment merits rather than simply a way of accessing tax reliefs. Given their focus on smaller, less liquid companies and therefore their increased risk, EIS will not be suitable for every client. It is important to mention that EIS legislation has recently been through a period of transition and change in the last 12-24 months, which has altered the EIS landscape considerably. The removal of energy generating assets (such as solar) and the seven year rule have restricted and tightened what investment managers are able to invest in. This has affected manager’s deal flow and correspondingly the products that are available in the market for investors. For financial advisers looking to recommend EIS investments, it is important to research the specific strategy and the market thoroughly. There are a number of independent sources such as: Hardman, The Tax Efficient Review, The Tax Shelter Report and MiCap, all of which provide a lot of useful research and information in this regard. The 30% upfront tax relief makes EIS attractive for clients looking to offset a large income tax liability. The maximum you can claim is £300,000 in any one tax year. For those that have made a capital gain that is taxable, this can be deferred by investing the gain in an EIS. This will be deferred for the duration of the EIS investment. The capital gain liability can be from three years prior, or one year post your EIS investment (note this is the date from investment into qualifying EIS companies – something to watch for when using an EIS Service). Because EIS also qualifies for 100% inheritance tax exemption after two years, it can also play a role in clients’ estate planning. If an investor holds the EIS investment at the time of death, the deferred capital gains liability is also removed along with the investment being zero-rated for IHT.
Firstly, although it is important to consider the tax planning implications
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EIS – should it be attracting a million investors? The Enterprise Investment Scheme has been an undeniable success, but it’s a success built on just a small number of dedicated investors who are enjoying the rewards. Operations Director at GrowthInvest David Lovell argues that EIS should be attracting nearer a million investors.
Part of the problem of why EIS has yet to achieve the number of investors it deserves, reckons David, is down to the poor coverage within the wider media that the government-backed Enterprise Investment Scheme receives, which exacerbates the sometimes lukewarm reaction from advisers. “Consider that since its creation, it has raised over £14 billion for around 25,000 companies. When HMRC released its latest figures back in October, 2016, it showed a record year, with £1.812 billion being raised for 3,264 companies. “That’s an incredible amount of money for small companies that are the lifeblood of the UK. And not only that, it offers those investors who back EIS and Seed EIS investments some incredible tax advantages. Taking this altogether, then it’s hard to understand why so few UK investors make the most of the schemes. “Because, when you mine down into the figures, you can see that its only around 30,000 investors who have taken part. Frankly, it’s hard to believe, especially in this environment of low interest rates and the introduction of new pension caps. “The attractions are obvious, but those involved in EIS and SEIS, such as
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ourselves, still spend a great deal of our time being evangelists, explaining the basic background and the key tax advantages. Of course, there is a need to help with education, and we work closely with the EIS Association and industry partners to do so, but we certainly look forward to the time
The attractions are obvious, but those involved in EIS and SEIS, such as ourselves, still spend a great deal of our time being evangelists when we can focus on the nuances and some of the incredible investment opportunities available.” Forecasts suggest that EIS and SEIS will raise a larger sum than ever before, even though there are some issues around
capacity (many schemes close earlier than their deadlines) and the availability of some products. David has a raft of figures which backs up his case, the most important of which show that the last record sum was raised by just a small amount of individual subscriptions, some 145,765 to be precise. “Now, bear in mind that the figure of 145,765 does not equate to the number of investors, due to people making multiple investments. You can see for example, from examining 2014/15 self-assessment tax returns, that 29,380 individuals made EIS and SEIS investments. If you look at the figure in 2012, it was as few as 21,835.” David explains further: “It therefore seems clear that there are a lot of high net worth individuals who are not making use of the tax advantages offered by EIS and SEIS. “Because, if you look in more detail at the size of each investor’s overall EIS investment, it appears that the recent increase in the maximum annual investment level from £500,000 to £1m has had a positive effect, with 17% of all EIS investment coming from this higher band. And what’s more, it comes from less than 2% of all EIS investors.
“However, although there has been a small overall increase in numbers, this needs to be viewed in the context of overall wealth and earnings in the UK. There over 250,000 people in the UK earn £250,000, or more, per annum. And, nearly 350,000 earn more than £150,000 per annum. “So, if you take those numbers, the basic conclusion is that given the inherent tax advantages with the schemes, and the growth that can be offered by earlier stage investments, there should already be nearer 50,000 investors.” So, with a base figure of at least 50,000 investors, where does the one million ambition come in? David lays out his case: “There are 4.9 million higher tax earners and 350,000
earning more than £150,000, many of whom will be affected by the new lower Lifetime Allowance pension cap of £1 million. This should encourage a strong hard look at what EIS and SEIS has to offer. “But, advisers and their clients need to realise that this is only one part of EIS investing. Yes, the tax advantages are a big draw, but it doesn’t touch on what we see on a daily basis, and that’s the sheer excitement of earlier-stage growth investing and the search for returns in a low interest rate environment. This is what is behind the near exponential growth of alternative investment platforms, such as ours over the last few years” “Arguably, to get a better idea of the size of the potential market, you could look at the one million plus investors
who used alternative investments platforms in 2015.” David concludes that if the national media were to give more exposure to EIS, and take financial advisers with them, then the number of potential investors could increase tenfold to 300,000 without much trouble, and then steadily march towards one million over the coming years. “If the media and advisers could see what passes through our office on a daily basis, then they would understand the excitement as well. EIS and SEIS are far more than taxadvantage schemes, they offer a solid backbone which reflects the true entrepreneurial spirit in this country and one which will help us prosper in the future.”
If the media and advisers could see what passes through our office on a daily basis, then they would understand the excitement as well.
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Pension changes encourage greater use of alternative investment platforms. Neil Martin talks to GrowthInvest Managing Director Daniel Rodwell about how the changes to pension allowances and the rise in interest in the Alternative Investments sector are driving business towards Alternative Investment Platforms.
Daniel says that the recent pension changes are fuelling interest in alternative investments and driving a lot of new enquiries to the platform from advisers, and direct investors: “More advisers are beginning to understand how these investments can be used within pension planning for appropriate and suitable segments of their client base. “The unshakable logic we have here is that EIS and SEIS are a realistic alternative for those people hitting the upper limits of their lifetime allowances” (Reduced from £1.5m to £1.25m in 2014 and then again to £1m in 2016). Daniel and his team have worked closely with the Enterprise Investment Scheme Association (EISA) and calculated various scenarios of what will happen over a typical period of the 15 years leading up to retirement age. They have explored the options and clearly demonstrated what GrowthInvest can offer advisers and their clients. He explains: “Our conclusion was that there are a significant number of advisers who are now looking to EIS, and potentially SEIS, as an alternative
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There are a significant number of advisers who are now looking to EIS, and potentially SEIS, as an alternative investment vehicle for high-value clients investment vehicle for high-value clients, those impacted by the pension caps. This is backed up by a recent industry poll which showed that over 60% of advisers believe that they plan to place more investments into EIS as a direct result of the recent pension changes. “We are in dialogue with a large number of advisers on a regular basis. We know from these conversations that even though more advisers took advantage of EIS last year, many are still not used to it, or saw it as part of their education. They know that they need to find an alternative, as some of their clients can now only contribute £10,000 to their annual pension pots. Others have to find new solutions for clients who have capped out already. They are increasingly receptive to the alternatives we offer and many of them are actually surprised
when they learn about the governmentbacked nature of the tax efficiencies.” “There are very few options and it’s our view that EIS is a very realistic one. We strongly believe that a diversified portfolio of EIS investments can deliver long term growth. There are not many places you can look for that alongside tax efficiency right now. “The beauty of using EIS as an alternative to pensions is very obvious to us. There are two considerable elements of liquidity. Every time you exit an EIS investment you are able to draw down those funds tax-free, which is very different from a pension, and equally, with all of your EIS investments up to retirement age, you get a tax free lump sum, there are no restrictions on that at all.”
Daniel has crunched some figures and come to a remarkable conclusion: “If you built a hypothetical portfolio of EIS investments and they all achieved their target returns, and you reinvested those consistently until retirement age, it actually transpires that the vast majority of those EIS investments could fail and you would still have outperformed a traditional pension. “The point is that all EIS investments carry inherent risks, but the reality is that you are rolling up significant gains and you get more tax efficiency on the way through, so the outcome can be extremely positive.” The case for investing in EIS for pension planning is strong. For suitable investors, who have taken the appropriate advice, EIS can offer a tax-efficient investment structure and a generous set of tax breaks. Daniel expects to see the influence of pensions play an ever-more prominent role in the promotion and distribution of EIS and SEIS. “As well as the record years for EIS, there is a real growth in the wider alternative finance market, mainly driven by direct-to-consumer platforms, and
it shows an appetite for earlier stage, tangible investment.
longer term, with the added benefits of the tax incentives.”
“As previously mentioned, we’ve seen new advisers, who haven’t historically been comfortable with EIS, looking for information and education, and asking, ‘how do I take this to my clients?’
Director General At EISA Mark Brownridge
“That is a really positive sign. We believe that there is a much larger demand for EIS, SEIS investments amongst both advised clients and amongst UK Investors as a whole. We think that the pensions cap angle in time may well prove to be the driver to a much broader use of EIS amongst their affluent as well as HNW/sophisticated clients. “Whilst the investments should stand on their own two feet, and investors and advisers should always be carefully looking at the investments themselves, whether in directly in qualifying single companies, or via a managed fund or portfolio, the generous tax reliefs from the government make it an attractive proposition for a wider market. These earlier stage investments should make them a great fit with pension investors looking for a potential growth over the
agrees: “EIS do not have tax-free dividends as VCTs do. Yet they can still play a part in overall pension planning. EIS do not have tax-free dividends, but we see them as being complementary to pension planning. Pension freedoms have been a game-changer in how people view their savings and investments, and they are increasingly building different pots of money through different investments. EIS will certainly play a part in that.” Daniel was a founding investor in GrowthInvest (originally Seed EIS Platform) and has been Chairman of the Investment Committee since June 2012. He became Managing Director in late 2014. During his tenure he has overseen numerous investment rounds into SEIS and EIS qualifying companies. Prior to this he worked in finance for nearly 20 years, managing institutional and private funds focusing on equities and derivatives. Daniel managed the UK division of Van der Moolen Equities AG and more recently founded the equity derivatives boutique Ten Derivatives LLP.
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Breaking down the barriers: the rise of technology Operations Director at GrowthInvest David Lovell looks at how advisers can use technology to meet client expectations.
As the technology-focused adverts try to move the collective focus and attention onto the very latest wireless tech offering, VR headset or Alexa from Amazon, it is all too easy to shrug shoulders, switch media, and revert to the potentially slightly lower technology expectations of the current financial adviser workplace. However many times we hear talk of robo-advice, the rise of artificial intelligence within financial services, the all-consuming Internet of Things or similar and there is no escaping the fact that the tax efficient investment landscape for the adviser and their clients is usually quite some way from being on par with the technology now considered commonplace. HMRC Chasing HM Revenue & Customs or providers for hardcopy paper forms arriving in the post is now foreign for many standard fund and pensions investments founded on traditional adviser platforms, let alone what clients are beginning to experience and take for granted in their everyday lives. This potential disparity needs to be overcome very quickly if tax efficient and alternative investments are going to play the important role they should be in appropriate advised clients’ portfolios over the next few years. The alternative finance sector is booming and growing at a phenomenal rate, with over £3.2 billion invested, loaned or
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donated by over one million individuals in 2014/15. This was primarily conducted through online platforms, of which there are now well over 100 of in the UK marketplace. This was a mixture of P2P lending, equity crowdfunding and donations or rewards-based crowdfunding, and there is, of course, a growing institutional influence in these figures, particularly within the lending marketplace.
The technology itself is expected to be safe, secure, and very easy to use, to the extent that it becomes invisible While growing at a staggering rate of nearly 300% per annum, equity based crowdfunding already accounts for just over 15.6% of the total UK seed and venture-stage equity investment. This is a method of investing, lending or using otherwise latent cash assets that clearly has a wide and growing appeal to the UK marketplace, and is certainly extending
beyond the younger generations into the traditional advised marketplace. Technology boom These transactions are being conducted online, by the individuals themselves, on secure online platforms which make the process as seamless and painless as possible for the customer: the technology itself is expected to be safe, secure, and very easy to use, to the extent that it becomes invisible. This is not something that is the reserve of the tech-savvy “millennials”, but technology that is now welcomed and understood equally well by the pre- and postretirement demographic segments that sit at the heart of nearly every financial adviser firm in the UK. “Any sufficiently advanced technology is indistinguishable from magic”, as goes an oft-quoted Arthur C. Clarke foresight quote from 1973. As we now finally get to a stage where technology can deliver the type of advances such as driverless cars that were until very recently the preserve of Clarke’s science fiction, we are faced with an end customer who has very quickly changing and liquid expectations of service levels, in every aspect of their life. These customers may not expect “magic” but they certainly expect technology to be near invisible. The liquid wealth is set behind these increasingly liquid expectations, and transparent, flexible technology is taken entirely for granted,
even by those that are not necessarily using it themselves. Liquid wealth Thus, we are not only contending with the need to identify those with liquid wealth, but also match those liquid expectations – and those that can do this are coming out clear and demonstrable winners. This is not based on the particular technology used, but rather the use of the increasingly invisible technology as part of a wider customer offer. This is well demonstrated within the adviser platform marketplace, where the 15-plus platforms are now concentrated onto only a very few technology providers. Over the last decade or so the focus has been on how technology affects the “user experience” (UX), and UX consultants have quickly become considered a staple in many product teams. This is starting to change and evolve as the user experience with the technology being satisfactory (at worst) is taken for granted, and the battle is about the overall experience of the customer both on-and-off- line – the ‘customer experience’, or CX. There Is this a return to the good old fashioned values of looking after the customer? Something the financial adviser world has generally prided itself upon, at least for the most valuable clients. Certainly these values, that of treating the customer as an individual, are at the very heart of any CX experience, but now we have the underlying technology and integrated data to ensure that the experience is equally tailored online, and allows the client to have a seamless experience however they are interacting, just as they would expect to with their current account or airline. Industry verticals Such things are notoriously difficult to measure but Forrester’s latest research from June 2016 suggests that across a number of different industry verticals, including investment management, there is an incredibly strong correlation between positive customer experience scores and revenue growth, with the higher scoring CX companies
outperforming their competitors – in some instances – by up to seven times (over three times stronger growth in the investment management and finance industries). There are clearly other possible factors at play, but this is a trend that is repeated year on year, and makes perfect sense, where there is a reasonable element of choice for the consumer. The market the million-plus individuals figure referenced in the Nesta report potentially helps to frame a much wider possible universe for tax efficient investing in a landscape of low interest rates and increasingly stringent pensions caps.
There are over 2.5 million advised clients actively investing in the UK marketplace Indeed, at first glance the £330 million of equity crowdfunding confirmed by the same report in 2014/15 seems to sit well alongside the record investment amounts of £1.82 billion (c.20% yearon-year increase from £1.5 billion the previous year) flowing into EIS (with SEIS relatively static at £150 million), as confirmed by the latest HMRC figures for 2014/15. SMEs Certainly the 3,200-plus (over 10% year-on-year increase) SMEs who benefited from this investment last year welcomed the investment and few would argue against SMEs having an even more vital role to play in the Brexit influenced economy. However, behind the headline figures, there lurks a possibly unpalatable truth that EIS and SEIS tax reliefs investments are only being used by a very small number of UK investors, with only just over 145,000 EIS subscriptions, from possibly as few just under 30,000 individuals.
This would seem to point towards a disconnect, both with the many more investors who are looking for higher returns on their investments in the equity crowdfunding market, but not taking advantage of the government sponsored tax reliefs, but also with advisers not directing appropriate clients down this road. There are over 2.5 million advised clients actively investing in the UK marketplace, and while this number will not include all of the 600,000 or so households with more than £1 million in liquid wealth, or indeed the 250,000 that earn more than £250,000 income, it will certainly include a significant percentage of them, many of whom should be considering such investments as part of their overall portfolio. Wider marketplace The data, and the million figure would seem to suggest that many of them are already, but just not necessarily viewing them as part of the financial adviser part of their portfolio. There would seem to be a much wider marketplace amongst UK investors for tax efficient investments via EIS and SEIS, and it would be surprising if these type of investments, alongside other ‘alternative’ assets, do not become a very much more common part of a typical UK investor’s portfolio. The investor will not expect to have to manage these types of investments individually, and nor should they be restricted from being involved and interacting with this more tangible part of their investment portfolio should they choose to do so as their high expectations ensure that they do not face such restrictions in other areas of their lives. Technological advances are breaking down barriers – both real and perceived – across the UK investment marketplace. So much so, that UK investors will quickly tire of the restrictions associated with the archaic, paper based offline world that many feel should have been consigned to the twentieth century. It’s those platforms and providers with the foresight to embrace technology and really bring the potentially dynamic world of tax efficient investments to life, that investors will be drawn to.
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How diversification builds EIS success In an earlier article (see ‘Pension changes encourage greater use of alternative investment platforms’), GrowthInvest managing director Daniel Rodwell came up with a conclusion that might shock both investors and their clients. Here we go beyond that claim and look at how diversification plays a key role in creating the ideal EIS platform, and how there’s still much to be done to achieve the perfectly balanced portfolio. Daniel has run the numbers and came up with this conclusion: “If you built a hypothetical portfolio of EIS investments and they all achieved their target returns, and you reinvested those consistently until retirement age, essentially, it actually looks to me that the vast majority of those EIS investments could fail and you would still have outperformed a traditional pension.” He goes onto the explain that: “The point is that all EIS investments carry inherent risks, but the reality is that you are rolling up significant gains and you get more tax efficiency on the way through, the outcome can be extremely positive.”
GrowthInvest believes that a diversified portfolio of EIS investments can deliver long term growth and what’s more, it should be a core part of pension planner for high earners.
portfolio providers will differentiate is in how they support investee companies and reduce negative outcomes. However, an investor need not invest all his money in one particular portfolio.
But, it’s an accepted fact that investing in companies with a EIS status carries a higher risk than many larger companies. And therefore diversification, as with all investments, is crucial.
“In fact by investing in a number of managed portfolios, that each have between five and 15 companies, the investor is getting not only investment manager and investment team diversification, but also getting diversification within the underlying assets.”
Daniel explains how they build an EIS strategy: “Within a typical portfolio, which could consist of between five and fifteen investee companies, it is fair to expect that alongside a small number of very positive outcomes, there will be some negative outcomes as well. Where
Daniel admits to another issue which should be considered: “Such a large percentage of EIS investment has gone through just a handful of the best managers. These guys are very good and have great track records, but if you are now looking at this from a growth asset perspective, the diversification needs to be broader for an investor not be exposed to the tail risk. “My view is that pensions could be a real driver to the EIS market and as such there should be a sufficient volume going through individuals to diversify across a multitude of managers within one portfolio. This is partly what we offer on our platform.” Daniel believes that as more advisers and clients begin to realise the benefits of EIS and SEIS, a result partly due to the recent pension cap changes, then building diversified portfolios will become far easier as choice and capacity increases.
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GrowthInvest launches new portfolio Platform boosts range of services with much anticipated new discretionary managed portfolio service
GrowthInvest has successfully launched its new discretionary managed portfolio service.
“I am pleased to say that it has received a superb response and we are looking forward to building a premier service.”
The portfolio, which was launched as part of GrowthInvest’s long-term strategy to further enhance its range of services to professional advisers and their clients, has a diversified and generalist approach, and has been designed to sit alongside the growing number of managed portfolios that have now signed up to the GrowthInvest Platform.
At the core of the new portfolio service is the firm’s heavy-hitting investment committee. The members over 100 years of combined investment experience between them, across the whole gamut of the retail and corporate investment sector. As well as Daniel Rodwell, the investment committee includes Mark Brownridge, former Head of Research
The portfolio comes with the added value of being based on its ability to leverage the experience and expertise of the firm’s investment team to select the most promising companies that have passed through their own rigorous, and demanding, due diligence process. Managing Director of GrowthInvest Daniel Rodwell said: “We have introduced this new discretionary managed portfolio not only as part of our long-term growth strategy to strengthen our offering, but also partly due to demand from our clients. The service offers regulated access to the most promising companies on the GrowthInvest platform. Each has been hand-selected by our experienced investment team, based on strength of concept and performance in our stringent due diligence process. We have an excellent pipeline of true opportunities and are delighted to bring the best of these to the market within an FCA regulated fund. We feel that the portfolio service offers advisers a further level of diversification when building a portfolio of the numerous funds on the platform, as they are now also able to access the single company offers through this discretionary wrapper.”
We are very excited about the next phase in our growth as a company & Development at Mazars, Graeme Stenson, former Director at Coutts and Kleinwort Benson and Stuart Jeffrey, an experienced corporate financier. The Service will be managed by Sapphire Capital Partners, under the Investment Direction of Boyd Carson, who has over 30 years’ investment experience and recently took home two EISA awards. Operations Director at GrowthInvest David Lovell added: “Advisers have been impressed with our asset transfer capabilities for clients with off-platform Alternative Finance Investments, and are delighted that our platform and due diligence processes now encompass
funds and portfolios as well as single companies, and include recognised reports from industry providers. However, they have also provided very clear feedback that they often like the look of the single company opportunities available on GrowthInvest, but do not feel comfortable advising their clients to invest outside a regulated fund structure. “That has all changed with the launch of our discretionary managed portfolio and we are very excited about the next phase in our growth as a company.” Investee companies are selected from those companies that have performed best in the platform Due Diligence process. Portfolio construction will be generalist in approach, including high growth and low risk (asset rich) businesses across multiple sectors and company stages. The fund seeks to benefit from the returns available in the sub venture capital equity gap. GrowthInvest will work closely with portfolio companies post investment in order to improve outcomes and optimise time to exit. Allocations can be EIS only, SEIS only, or a blend of the two, and the initial feedback from existing adviser clients has been encouraging. Whilst the Portfolio Service has an evergreen structure, there is currently also capacity for a portfolio of pre-vetted investee companies to be deployed prior to the end of the 2016/17 tax year. GrowthInvest will be actively promoting the service across its co-ordinated programme of pitch presentations, round-table lunches and regular adviser email communication channels.
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Investment opportunities Single companies
Type: EIS PRESTIGE CAR BUYER PCB is focused on the high-end luxury brand and super car sectors through their website which aims to provide a fast, efficient and trusted online car selling service. Private clients sell their car to PCB who in turn sell the car on to the trade, typically within a 48-hour period, providing a fast return on capital outlay.
Amount to be Raised: £400,080
For full details of each offer visit growthinvest.com
Minimum Investment: £5,000
Type: EIS
Type: SEIS/EIS ADAM SIMMONDS RESTAURANT
CARNABY’S FOOTSOLDIER PLC
Simmonds’ will be the flagship restaurant for renowned chef Adam Simmonds, and will mark the start of his journey to infiltrate the UK food scene with his unique brand of eateries. ‘Simmonds’ aims to be London’s new destination restaurant of choice, and the first of a series of restaurants that combine innovative cooking with an outstanding memorable experience.
The Company is seeking to raise up to £2,000,000 (before expenses) for the purposes of financing, producing and exploiting a full-length British feature film currently entitled Footsoldier III The Pat Tate Years. The Film explores and captures the level of violence and corruption that existed in an era where the control of drugs drove the criminal underground to kill for money and power with catastrophic consequences.
Amount to be Raised: £650,000
Minimum Investment: £10,000
Amount to be Raised: £2,000,000
Type: SEIS/EIS/TIER 1 LONDON DIGITAL GAMES LIMITED London Digital Games Limited is an EIS-approved games business, raising £4 million to develop a portfolio of 3-4 video games. A combination of HMRC tax benefits (50%) and a minimum assurance from a video games publishing company (50%) have the effect of reducing the risk of the investment and increasing the potential return. And if one or more of the games becomes a breakout success, the returns could be significant.
Amount to be Raised: £4,000,000
Minimum Investment: £10,000
Minimum Investment: £5,000
Type: SEIS/EIS POCKET HIGH STREET We are on a mission to reinvent bricks & mortar retail; aiming to put the digital high street at everyone’s fingertips. PocketHighStreet is believed to be the 1st Open Platform for the Digital High Street. We integrate with EPOS systems, collecting real-time product inventory data from bricks and mortar shops.
Amount to be Raised: £1,000,000
Type: SEIS/EIS
Minimum Investment: £5,000
Type: EIS
KOUT Kout.io is a gamified e-commerce platform. Customers play free games - similar to a scratch card - for chances to win discounts on millions products from partners like Amazon, Nike, Samsung... Discounts range from 5% up to 99%, giving customers the opportunity to potentially win their shopping for close to free. Our games are designed by behavioral scientists to increase conversion and retention for our retailers.
Amount to be Raised: £500,000
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Minimum Investment: £5,000
KRZANA Krzana is a cloud based real-time search engine that surfaces actionable breaking information and is able to intelligently search over 10,000 sources (inc: Twitter, Reddit, The FT, Zero Hedge, RSS feeds, Blogs etc), combining advanced algorithmic processing with human insights.
Amount to be Raised: £499,660
Minimum Investment: £25,000
Type: EIS
Type: SEIS/EIS
NLB ENGINEERING LIMITED
RECYCLABOX
NLB Engineering Limited is an EIS qualifying specialist engineering company that has created a unique set of innovative, high quality products for the plumbing market under the Aladdin brand. Encouraged by sales and growing interest from international distributors, the company seeks to market their innovations globally.
RecyclaBox aim to be the only self-service machine that allows consumers to conveniently sell their unwanted electronics. After attaining proof of concept through 8 months trading in 3 Sainsbury’s superstores, RecyclaBox is ready to execute the next stage. We have created a service that extracts the re-sale value of household items, provides convenient re-selling and most importantly has the opportunity for global scalability.
Amount to be Raised: £700,000
Minimum Investment: £5,000
Amount to be Raised: £500,018
Type: EIS JOYNER BOLT Joyner Bolt is the patented, revolutionary spiked timber fixing that offers a disruptive, time and cost saving solution to the problems of traditional coach bolts and threaded rods, for global mass market application.
Amount to be Raised: £350,000
Minimum Investment: £5,000
Minimum Investment: £15,000
Type: SEIS/EIS REZURVIT Rezurvit aims to be the world’s first virtual booking platform, allowing users to reserve tables at restaurants, bars & clubs through a 360° virtual tour. Rezurvit aims to deliver a unique and truly immersive booking experience and provide partner venues with an innovative solution to increase the number of reservations.
Amount to be Raised: £499,668
Minimum Investment: £25,000
Type: SEIS/EIS/TIER 1 Type: SEIS/EIS
VELOSCIENT Veloscient is clinical notes for mobiles. It liberates hours each day, unlocking a $60 billion market with a mobile App that eliminates keyboards. Its UI breakthrough allows the capture of narrative and logic to configure the mobile App - what takes many minutes of typing can be compiled in seconds using any device’s touch screen. The captured narratives can be shared and optimized to transform care. With freemium pricing adoption is easy.
Amount to be Raised: £200,000
Minimum Investment: £10,000
PROSPER CLOUD Prosper is a cloud-based Practice Management Solution for Accountants that fully integrates their clients into the solution. It enables accelerated work, high-value business intelligence and a platform that can truly leverage on Making Tax Digital (MTD). Manage your Team, manage your Work and manage your Clients.
Amount to be Raised: £350,000
Type: SEIS GIVEPENNY GivePenny is a new fundraising platform that encourages people to build challenges around pledge-based micro-donations. People connect the data they generate every day through apps and websites to fundraising challenges, attracting donations against milestones and on a Per X (e.g. steps, miles) basis. The website allows people to donate in a number of ways: traditional one-off donations, Per X pledges or against userdefined “milestones”.
Amount to be Raised: £150,000
Minimum Investment: £5,000
Minimum Investment: £10,000
Type: EIS INSTREAM ENERGY SYSTEMS Instream is the owner of patent-pending hydrokinetic technology, developed in partnership with BAE Systems, that aims to provide a better solution to generate clean cost-effective power, and an opportunity to capture energy from significant untapped water resources that cannot be captured with conventional hydro technology. Instream is targeting £3B in equipment sales by 2025.
Amount to be Raised: £900,000
Minimum Investment: £10,000
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Funds
Type: EIS
For full details of each offer visit growthinvest.com
THE VELOCITY EIS CONSUMER TECHNOLOGY FUND The Fund will invest in EIS qualifying businesses within the consumer technology sector. Velocity Capital Advisors Limited (the “Investment Consultant”) will provide comprehensive investment consultancy services to Thompson Taraz Managers Limited (the “Investment Manager”), including identifying, monitoring and seeking exit opportunities in respect of Investee companies.
Amount to be Raised: £10,000,000
Type: SEIS/EIS
Minimum Investment: £25,000
Type: EIS
BRITISH DESIGN FUND
THE SEED ADVANTAGE EIS FUND
The British Design Fund (the “Fund”) is an early stage investment fund that specifically invests in, and provides support for, early stage UK product design and manufacturing companies. The Fund seeks to work with extraordinary entrepreneurs, with scalable products, who are ready to accelerate growth into the retail space and build long term value and thriving stand-out businesses.
The Seed Advantage EIS Fund is a discretionary portfolio service that will invest in startup or early stage companies. Almost all the investments will be follow ons for companies in Seed Mentors’ SEIS Funds.
Amount to be Raised: £2,000,000
Amount to be Raised: £1,500,000
Minimum Investment: £250,000
Minimum Investment: £25,000 Type: SEIS Type: SEIS/EIS
GROWTHINVEST PORTFOLIO SERVICE A discretionary investment management service leveraging the experience and expertise of our investment team to select a diversified portfolio of the most promising companies that have passed through the GrowthInvest due diligence process.
Amount to be Raised: £25,000,000
Minimum Investment: £10,000
THE BRITISH ROBOTICS SEED FUND The British Robotics Seed Fund offers investors the opportunity of investing in potentially fast-growing robotics companies in the UK whilst significantly reducing the inherent risks involved in funding early-stage businesses. It does this by focusing investment solely on a diverse range of robotics businesses where investors are eligible to protect potentially 70% of their capital invested if a higher rate taxpayer via the SEIS scheme.
Amount to be Raised: £2,000,000
Type: EIS
Type: SEIS THE VELOCITY SEIS CONSUMER TECHNOLOGY FUND The Fund will invest in SEIS qualifying businesses within the consumer technology sector. Velocity Capital Advisors Limited (the “Investment Consultant”) will provide comprehensive investment consultancy services to Thompson Taraz Managers Limited (the “Investment Manager”), including identifying, monitoring and seeking exit opportunities in respect of Investee companies.
Amount to be Raised: £2,500,000
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Minimum Investment: £25,000
Minimum Investment: £10,000
THE SYMVAN TECHNOLOGY EIS FUND The Symvan Technology EIS Fund (the “Fund”) has been established to enable investors to invest in technology companies with high growth potential. Symvan Capital Limited (the “Manager” or “Symvan Capital”) considers that companies in the technology sector that have high growth potential and which also qualify for EIS tax reliefs which fit with the Fund’s focused investment criteria have the potential to offer investors an attractive return.
Amount to be Raised: £10,000,000
Minimum Investment: £20,000
Type: EIS
Type: SEIS START-UP SERIES SEIS FUND ONE
INDIE CAPITAL
The Start Up Series SEIS Fund One is a discretionary portfolio service investing in the winners of a monthly competition run by Worth Capital and promoted by startups.co.uk. The target return on capital is 219% before tax relief (287% post tax relief) after seven years. Returns will be focused on capital gains and investors are unlikely to receive any dividends. The fund is split across the 2016/17 and 2017/18 tax years.
Indie Capital is a media investment vehicle set up by Oscar-winning producers and finance professionals to produce a portfolio of independent film, television, and digital media content.
Amount to be Raised: £2,100,000
Amount to be Raised: £5,000,000
Minimum Investment: N/A
Minimum Investment: £10,000 Type: SEIS/EIS Type: SEIS/EIS
PLAYFUND PlayFund invests equity across a portfolio of video games, predominantly in the mobile game sector. It targets a 2.5x return across the portfolio within 5 years.
Amount to be Raised: £5,000,000
Minimum Investment: £20,000
CHF MEDIA FUND The CHF Media Fund offers an opportunity for UK Tax Payers to invest in both SEIS and EIS qualifying Family Entertainment companies, whilst also benefitting from risk mitigation in the form of S/EIS reliefs and Government backed animation Tax Credits. The Fund invests in companies which individually own the intellectual property rights to a family entertainment TV show or family entertainment concept.
Amount to be Raised: £20,000,000
Minimum Investment: £20,000
Type: EIS
Type: EIS PARTICLE 1 BY IRON BOX CAPITAL
ATLANTIC SCREEN SCORES LIMITED
Particle Fund 1 represents an opportunity for UK taxpayers to invest in a managed portfolio of independent filmed entertainment projects with potential for capital growth, coupled with certain tax advantages in an uncorrelated asset class, with continuous demand for new product by audiences worldwide. The Fund will finance projects that the adviser and manager consider to be commercial, audience-driven and internationally appealing.
The offer is an opportunity to invest in the ownership of the copyright and income for the music scores created by ASM for international film and TV which earns income in the form of royalties each time the film or programme is aired worldwide. The abilities and experience of the founders and management of ASM add significantly to the investment case and to the constant acquisition of new copyright.
Amount to be Raised: £20,000,000
Minimum Investment: £20,000
Amount to be Raised: £2,000,000
Type: SEIS/EIS
Minimum Investment: £10,000
Type: SEIS/EIS
JENSON SEIS & EIS FUND 4
ARIE EIS & SEIS TECH FUND
Fund 4 is a combined SEIS & EIS structure which is designed to provide increased diversification as a portfolio investment. The balance between capital growth, portfolio risk and time horizon is maximised, whilst enhancing the tax advantages available. This offering allows investors to choose whether they want to invest solely via SEIS or EIS or to split their funds across SEIS and EIS investments.
Arie EIS & SEIS Tech Fund is a growth fund that commercialises Israeli and European technology in the UK. The purpose of the fund is to provide access to high tech foreign investments with the risk mitigation of EIS & SEIS. The Fund sits alongside the $19M institutional fund Arie Capital, that was established in 2014 to participate in, and benefit from the growing relationship between China and Israel.
Amount to be Raised: £5,000,000
Minimum Investment: £10,000
Amount to be Raised: £2,000,000
Minimum Investment: £5,000
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THE GROWTHINVEST PORTFOLIO SERVICE.
OPEN FOR BUSINESS.
We are proud to announce the launch of our brand new GrowthInvest Portfolio Service which allows Advisers to introduce their clients to the best of our SEIS and EIS qualifying Investment opportunities in a single discretionary managed fund.
of tax-efficient investments, then contact us to find out more. We are helping UK small businesses to realise their full potential, whilst giving Advisers the tools to introduce their clients to this exciting investment category.
If your clients are interested in a diversified portfolio
For more information contact us now at growthinvest.com
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