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The latest EIS and SEIS fundraising data from HMRC

Mark Brownridge, Director General of the Enterprise Investment Scheme Association (EISA), comments on the latest HMRC Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) fundraising data, issued (October 27th 2016).

Rising EIS and SEIS flows highlight strength of the sector

“The latest EIS and SEIS fundraising data from HMRC shows money flowing into the schemes continues to rise and break new records. More than £1.8bn was invested in EIS in 2014-15 and £175m in SEIS, both exceeding previous years and maintaining the upward trajectory in fundraising that has been a trend of the past few years.

“Since EIS was created in 1994, almost 25,000 companies have now received investment through the scheme, totalling £14.2bn. This is a fantastic figure that speaks of the success of the scheme in helping UK businesses to grow and succeed, while providing UK taxpayers with thousands of attractive tax-efficient investment opportunities. It is win-win for both and the wider economy too.”

Increase in companies seeking EIS and SEIS funding for the first time

“The number of companies seeking EIS funding for the first time has been growing year-on-year, reaching 1,660 in 2014-15, representing more than half of the total raised. This shows that EIS is becoming part of the equity funding mix for more and more companies as they look to develop and grow, a trend that is also seen in Seed EIS.”

Tech and business services sector dominate fundraising

“More than £600m, one third, of EIS investment in 2014-15 went to companies in the business services sector. This is a positive sign, suggesting funding is flowing to growth companies that are delivering products and services that are needed by the private sector and employers and points to a degree of robustness in the economy.

“The tech sector also continues to see higher levels of funding. More than a third of Seed EIS investment went to tech companies in 2014-15, while almost a third of companies that received EIS funding were in the tech sector. When combined with the high proportion of EIS and SEIS funding that goes to London, I think it’s fair to say that the capital is fast-becoming a technology hub that is producing some really exciting businesses with very bright futures.”

Small decrease in energy and water supply investment

“There was a small year-on-year decrease in EIS funding to these types of companies in 2014-15, the same year in which companies in these sectors benefiting from government subsidies were excluded from EIS eligibility. I would expect this figure to fall again, more significantly, in the 2015-16 fundraising totals. This may have a knock on effect in terms of the availability of EIS schemes operating at the capital preservation end of the market and capacity could well be limited this tax year.”

South-East and London dominate fundraising but North West sees 51% increase

More than 65% of EIS funding went to companies in London and the South East in 2014-15, with a similar regional split seen for Seed EIS. While the regional figures can be misleading because they reflect a company’s registered address, which is not necessarily the same as where it carries out its business activities, we would like to see funding spread more widely to the regions. On that note, it was encouraging to see the North West region record a 51% year-on-year increase in EIS funding. As the Northern Powerhouse becomes a reality, we would expect to see further increases in EIS and Seed EIS funding in the north of England.”

Crowdfunding and decrease in number of EIS investors seeking tax relief on sums below £500

“It was curious to see a small drop in the number of EIS investments of £500 or less. Though the decrease was very small – 1,890 investors in 2013-14 versus 1,830 in 2014-15, in previous years there has been very strong growth in this area, with investments of £500 or less, more than doubling from 550 in 2011-12 to 1,205 in 2012-13, a rise largely attributable to the growing popularity of crowdfunding. However, this is only one year’s data, so it’s far too early to draw any conclusions. We certainly do not think we will be seeing crowdfunding plateau just yet.”

Advance Assurance backlog

“The latest data does not include information on the Advance Assurance system. We know that companies are seeing delays in the time it takes for them to be processed and receive Advance Assurance – which is vital to them being able to secure EIS and SEIS investment. The next data on Advance Assurance will be published in April and hopefully we will see some progress then in the backlogs affecting the system.”