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If you are considering investing in an EIS fund, you need to be aware of the top options out there today. Here, we will take a closer look at what EIS funds actually are, why they are worth investing in, and the top 20 funds that you should know about this year.
What Is The EIS?
The EIS or Enterprise Investment Scheme is a scheme that is run by HMRC to help higher-risk, recently launched businesses that are seeking to raise more funds by giving investors an incentive of tax relief at the rate of 30%.
The EIS was first set up back in 1994, and the Labour governments continued to support it until the arrival of the coalition government almost two decades later in 2011 at which time the EIS was made even more attractive for investors. Since that time, it has undergone further modifications in recent years to encourage more investors to put money into start-ups that focus on innovation.
It is possible to raise as much as £5 million via EIS funds, and in a few cases, as much as £12 million. In just one tax year alone (2018/2019), about four thousand businesses raised around £1.8 billion via the scheme.
Across the same time period, the size of investments made via EIS funds continued to rise, and it is likely that this situation is set to continue in the near future, making this scheme the top way for today’s early-stage companies to obtain reliable capital.
EIS funds are an easy way to build an investor an investment portfolio of start-ups or early-stage companies. Typically, the decision regarding the opportunities to be chosen for the portfolio’s make-up will be taken on the investor’s behalf by the fund’s manager.
Who Is Interested In Investing In EIS Funds?
EIS fund investment is designed for individuals who are keen to have shares in smaller companies that have great potential to expand to several times their existing value, but who also feel comfortable with embracing the risks associated with backing recently launched businesses and remaining invested over a long period of time.
Why Should I Invest In EIS Funds?
There are several reasons to consider investment in EIS funds. They include:
- High potential for growth – EIS investments can give an investor access to businesses that they may be otherwise unable to hold and that have potential to greatly increase in value.
- Tax relief – Due to the higher risk of investing in EIS funds, investors are given a valuable tax relief package which includes loss relief, tax-free capital gains, income tax upfront relief, inheritance tax relief, and deferral of capital gains tax.
- The chance to support UK businesses – When you invest in EIS funds you can help smaller innovative companies in the UK to create more jobs, enjoy greater prosperity, and promote improved economic growth nationwide.
- A complement to long-term investments – Investing in EIS funds is a good option to complement your other longer-term investments when it comes to diversifying your investment portfolio.
Which Tax Incentives Are Offered For Investing In EIS Funds?
EIS funds were created to encourage investors to back small-scale start-up companies that need backing to commercialise their entrepreneurial concepts and enable them to scale-up accordingly. Research and development, along with other cash-intensive processes like concept providing and marketing would often be impossible with no external investment.
For this reason, the government decided to offer tax incentives for investors who were prepared to take the risk of making an investment in this early-stage businesses, and EIS can help to mitigate the risks of investing in start-ups thanks to the taxa breaks that, in effect, reduce the funds that the investor is risking on the start-up’s success with no reduction in their business stake.
Essentially, EIS helps to reduce losses if things fail to go according to plan for the start-up company, but also helps to maximise the reward of making an investment in a start-up that achieves success. Via EIS, if a tax payer at the additional rate made an investment in a new business that failed to deliver returns, they could expect, at the worst, to lose just 38p on each £1 that they invested.
There are multiple tax incentives in place to encourage investors to add an EIS investment into their portfolio. These include:
- 30% income tax relief – investors can claim this against the annual maximum £1 million of EIS investments that can be made, equating to £300,000 of tax reduction per year, or as much as £600,000 for investors who are married and opting to double their investments with their spouse. Investing in EIS is, therefore, an excellent choice for investors who want to cut their high income tax bill while also making good use of their wealth.
- Deferral and exemption of CGT (Capital Gains Tax) – if an investor holds shares in their chosen start-up for at least 3 years and claimed income tax relief on that investment, any gains that they make will not be subject to Capital Gains Tax. For most start-ups, the shares can be hold over many years, allowing the investor to enjoy CGT exemption for far longer than just 3 years. Also, it is possible to defer CGT payments if the investor invests their gain into a company that qualifies for EIS. In such cases, any gains that are accrued for selling any type of asset is able to be investment but the invested has to be completed a year before or 3 years after making the gain.
- Loss relief – should an investor realise a loss on their investment, EIS rules allow for loss relief. Like other kinds of investment, losses from EIS investment can be considered as a capital loss, allowing them to be deducted from the investor’s liability for CGT for that year or, alternatively, carried forward. However, a significant plus of investing in EIS is that any losses may also go against the investor’s liability for income tax at the marginal income tax rate of either 20% for basic rate taxpayers, 40% for higher rate, and 45% for additional rate tax payers. Doing so compares very favourably to off-setting Capital Gains Tax with the basic rate of CGT being 10% and the higher rate being 20% (or 18% for basic rate and 28% for higher rate for any gains that are made from the sale of property).
- ‘Carry back’ – this feature of EIS allows investors to apply their investment in EIS funds to the previous tax year when they have not surpassed their £1 million limit for tax relief during that year.
- Inheritance tax – investments in EIS are able to be passed to beneficiaries without any inheritance tax having to be paid if the investors pass away having held their investments for a minimum of 2 years.
What Are The Risks Of Investing In EIS Funds?
No investment is entirely risk free and there are some significant risks associated with investment in EIS funds. They include:
- Your capital could be at risk – EIS investment values may rise but equally, they may fall and as an investor you may not be able to recoup the entire amount that you invest.
- Tax treatment – The tax treatment of your EIS investment will depend on your individual circumstances. It could also change at any future time. Your tax reliefs will depend on the company maintaining its qualifying status for the EIS.
- Long term investment – An investor must hold their shares for a minimum of 3 years in order to keep hold of any claimed tax reliefs, but you should be willing to hold your shares for much longer in order to allow sufficient time for the business to grow and to exit your investment.
- Liquidity and volatility – If you invest in a small company, you can find that its value can rise or fall far more sharply than investments in more established, larger companies. Not only that, but you may find that your shares are more difficult to sell.
Passive And Active EIS Funds
If you are interested in investing in EIS funds, a significant consideration to keep in mind is whether to invest in a passive or active fund. If you choose to make an investment in active funds, the money will go to the fund manager who will then choose investments based on expertise, intuition, and research. If you opt to invest in passive funds, there are rules that define an index that then will determine what the funds invest in.
How To Choose The Right EIS Fund
There are several different forms of EIS funds, and although each one comes with its own potential benefits, it is important to carry out some research so that you can gain a clear understanding of which one is likely to be the best option for you. Some questions to consider include:
- Does the investment portfolio have a significant amount of sector diversification? Typically, funds will specialise in one area or sector, and this may be a benefit, but equally, it can be a drawback too. Funds focusing on a single sector usually have a manager in place with extensive experience in the field and, therefore, is likely to have the necessary skills to access these kinds of opportunities. But, conversely, if you invest only in one sector, your entire capital will be exposed should that sector be negatively affected by market changes. If you build a portfolio of investments across several sectors, your risk exposure from any single source is greatly reduced.
- How many businesses does the fund make investments in? In most cases, EIS funds will invest in between 5 and 8 companies, but some invest in more.
- How much will be charged in fees? It is important to remember that EIS funds may charge high fees. Usually, funds charge fees in alignment with the traditional VC model (i.e. 2% for management over 5 years with 20% carry) however this can differ between funds.
- Am I willing to wait for a minimum of five years to see a return? Generally, EIS funds are illiquid investments – once you have made an investment it is impossible to get your money out easily. You are also highly unlikely to get any kind of return for a minimum of 3 years (which is the shortest length of time that the shares must be kept for to retain your tax reliefs). In most cases, returns will not be seen for at least five years or even longer.
Is It Worth Making An Investment In An EIS Fund This Year?
A number of investors make their initial investment in EIS after they sell shares that they currently hold, their property, or their business, so that they can defer Capital Gains Tax on the gains that they make. Some investors use a lump sum that they withdraw tax-free from their pension to make their initial investment in EIS funds.
For a lot of investors, start-ups are a very alluring class of assets. Offering portfolio diversity and strong returns along with the excitement of helping to guide the business’s founders towards greater success are top reasons for investing in early-stage enterprises. Not only that, but you can also seize the chance to support greater innovation and cause a shake-up in markets where there has long been a need for greater disruption.
Furthermore, there is an even greater benefit that comes with investing in start-ups in the UK since tax breaks are offered as incentives for angel investors. An individual investor is permitted to invest as much as £1 million every year into start-ups that qualify for the EIS and reap the benefits of the government’s generous array of tax reliefs for EIS investors. If you are prepared to invest a minimum of £1 million in companies that are “knowledge intensive”, you can invest up to £2 million per year.
Although the various tax breaks that are offered by the government for investing in EIS funds are very attractive, there are other characteristics associated with EIS funds that make them worth consideration for addition to your investment portfolio this year.
One of the top advantages is the longevity of EIS funds. Although government initiatives are regularly introduced and then are taken away again then ministerial personnel change or the political direction shifts, EIS has now been in existing for several decades and there is no sign that it is likely to be discontinued any time soon.
Further, there are no limits imposed as to how many companies an investor can make an investment in each year. Frequently, a start-up investor will choose to back several firms in order to continually diversify and strengthen their investment portfolio. Via EIS, so long as an investor does not exceed their maximum investment amount each year, they can choose to back as many businesses as they want.
With this benefits of making an investment in EIS funds in mind, it is certainly worth considering adding them to your investment portfolio this year, and if you are wondering which funds are worth knowing about, we have put this list together of our top twenty choices that cover several sectors, regions, and investment sizes so that you can make a well-informed decision.
1. ARIE Capital
The ARIE Capital Technology EIS Fund 3 has taken advantage of today’s EIS legislation in order to make investments in a broad spectrum of businesses. Harnessing ARIE Capital’s ability to access technology opportunities, this fund provides an investment structure that is highly efficient and that is designed to enable both investors and start-up companies alike to thrive.
Covering the entire UK region, this fund offers investment sizes between £350,000 and £1 million, with between 3 and 5 investments made each year. The sectors that are covered by this fund are all highly innovative including data, tech, the IoT, food-tech, software, and medical devices, with previous investments having included Integra Holdings, Net4, Engage, Eysight, and Satixfy.
2. Committed Capital
This corporate advisory and investment management business was first established back in 2001 with a focus on the maximisation of growth in organisations through human capital injections in order to help leading entrepreneurs develop and grow their companies to reach their full potential. Committed Capital’s EIS Growth Fund’s managed portfolio service is designed for individuals who want a tax-efficient portfolio of investments.
This fund covers the entire UK and makes ten investments per year of around £3 million to each company in the portfolio. This fund makes its investments in smaller UK-based companies in highly dynamic market sectors that potentially can reap the highest returns for investors.
The aim of Committed Capital is to deliver the strongest returns, regardless of tax benefits provided via EIS’s structure, covering a broad spectrum of innovative technology sectors including edtech, fintech, insuretech, digital advertising, SaaS, the IoT, electric motors, and gaming.
Previous investments made by the fund including those in Data Cloud, Lightwave, Kortext, Living Map, Konsileo, Knowledgemotion, Ceed, Seenitk, Saietta, Stormagic, Smartology, TradeRiver, and Fairstone.
3. Draper Esprit
Following a strategy of co-investment, Draper Esprit’s EIS invests using balance sheet funds from one of the top venture capital firms in Europe, Draper Esprit PLC, along with those from Draper Esprit VCT, and other managers and funds. The focus of this fund is on later stage investments for growth in companies that already have high growth, established revenue, and an attractive upside.
Covering both the UK and the rest of Europe, this fund makes around 12 investments of between £5 million and £50 million each year, covering several innovative sectors that include consumer technology, SaaS, enterprise technology, deep tech and hardware, and healthcare. One of the most significant previous investments made by this fund is in the “unicorn” Graphcore.
4. Endeavour Ventures
Having first been established in 2005, Endeavour Ventures places its focus squarely on enterprise software and scalable technologies, with a lesser focus on Greentech. Covering only companies in the UK that qualify for EIS, this fund makes between 6 and 8 investments per year of between £500,000 and £5 million in businesses within the technology, software, paytech, proptech, and fintech sectors.
Some of its must successful previous investments include those in Boku plc, Prot-x, Ebury Partners, and Blue Prism Plc.
For investors who have a conscience and who are seeking an EIS fund that is in alignment with their own values, Earthworm is an ideal choice having built its own investment model around backing only ventures that have a positive social or environment impact and that are sustainable. Earthworm is seeking to improve the environment and achieves this via companies that are forward-thinking enough to have found innovative ways of doing things differently.
To this end, the companies that Earthworm invests in have been carefully selected with an aim to increase revenue and boost employment. Although the primary focus of this fund is on UK businesses, it does also invest in UK entities that have global operations, making between 5 and 12 investments per year of at least £10,000.
There are three main sectors covered by this fund – waste, energy, and food – with previous investments having been made in Shepherd, Naked Energy, Firglas, Weedingtech, and Vertical Future.
6. Force Over Mass
Force Over Mass’s EIS funds make their investments in technology early-stage companies benefit from tax relief under the EIS. They deploy their committed capital over a period of 12 months, with investors being able to participate from just £25,000 onwards.
The focus of this fund is on B2B technology innovations including AI, Fintech, and Industry 4.0 and to date, it has managed to deliver consistently strong performance across all of its funds, with its oldest one still having an 84% survival rate.
Making between 15 and 20 investments of £100,000 - £150,000 per year, Force Over Mass’s previous investments include Drover, Autonomous Manufacturing, Flux, Globe Chain, What3Words, and FindMeCure.
7. Great Point Investments
Great Point Group’s unique offering is a blend of alternative investment and entertainment experience that solely focuses on creative industries around the globe. Operating out of its Covent Garden head office, Great Point also has an expanding presence in New York, focusing on the North American and UK creative industries markets and offering EIS qualifying opportunities for investment focusing on venture capital for retail investors in the UK as well as large-scale production studio/finance investment strategies for institutional global investors.
Making between 5 and 8 investments per year worth between £100,000 and £1 million each, some of Great Point’s previous investments include Factual Fiction, Seven Seas Films, Looper Insights, and Camden Productions.
8. Haatch Ventures LLP
Having first been set up in 2013 by Fred Soneya and Scott Weavers-Wright, Haatch Ventures LLP has been making investments in early-stage startups in the technology sector under its Haatch Angel brand as well as its Haatch Ventures EIS fund. The focus of this fund is on seeking out start-ups that have disruptive and highly scalable growth models and thanks to its hands-on group of value creators who themselves have built up then sold on companies, it has a wealth of experience and knowledge to draw on in order to accelerate growth in the companies that it chooses to invest in.
Covering the UK region, this fund makes between 5 and 10 investments per year of between £150,000 and £500,000 each in early-stage businesses that aim to enable greater digital transformation. Some of its previous investments include Elevaate, 1 Second Everyday, Scurri, Iterate.ai, Veritonic, Codices, VuePay, Marvel, Deazy, Eleanor, Poplar, and Buymie.
9. Jenson Funding Partners
Having been founded back in 2012, Jenson Funding Partners initially launched with its Seed Enterprise Investment Scheme and, over the years, has continued to make over 100 investments in companies qualifying for SEIS. It launched its initial EIS fund in 2015, with a significant amount of follow-on funding rounds having been raised for its company portfolio and an investment having been made in nineteen companies of more than £3 million.
The core offering from Jenson Funding Partners is investment through its EIS and SEIS funds to invest, support, and grow innovative start-up companies that focus on disruptive technologies. A key element of this fund’s investment criteria centres around its own support programme that provides vital technical, sales, marketing, operational, and financial support to its investee companies right from the get-go.
The funds’ investment mandate also includes nurturing its chosen early-stage businesses. Making between 5 and 10 investments each year worth £1.5 million each, some of Jenson Funding Partners’ most recent investments include Voneus, Whispering Gibbon, LiveIT, Dame, RotoVR, Tapfuse, IBC, Treefrog, Equus, Fiovana, Warwick, The LinkApp, BrainBroker, Eylog, Dream Reality, Whitehall Finance, Tailwise, Angoka, and FrontM.
10. MMC Ventures
Designed to fund and help to scale up technology businesses that are helping to transform the markets of today, MMC Ventures is committed to gaining an in-depth understanding of every company’s underlying business model and technologies in order to help them make improved decisions and become the most effective partners.
Covering both Europe and the UK, MMC Ventures makes 15 investments each year worth from £100,000 for Pre-seed companies to a minimum of £5 million for Series A businesses across the B2C, B2B, and technology sectors. Some of its previous investments include Interactive Investor, Gousto, NewVoiceMedia, Current Health, Signal AI, Peak, and Bloom and Wild.
11. Newable Ventures
NVL or Newable Ventures, was initially formed when LBA (London Business Angels), one of the UK’s longest-standard networks of angel investors was acquired. Part of Newable, a wider group that was formed as long ago as 1979 by London’s 32 boroughs under the name GLE (Greater London Enterprise), this early-stage investment company now invests in an extensive variety of deep tech businesses occupying the space, digital, and health sectors.
The Newable EIS Scale-up fund was launched in 2017 to run alongside the angel network and over the last 5 years, its business core structures have been scaled up to offer SMEs and start-ups access to offices, finance, light commercial spaces, and advice with regard to exporting and innovation. Primarily covering the South East and London, NVL does also have a few companies based in Newcastle, Edinburgh, and Cardiff.
Making between 5 and 7 investments per year of between £500,000 and £1.5 million each, NVL has previously investment in Sustainable Marine Energy, Echion, and Cognism.
12. Nexus Investment Management Ltd
Established in 2014, Nexus Investments represents the Nexus Group (an AUM asset manager worth £2.5 billion)’s ventures arm. Its focus is on investment in early-stage high growth businesses across the health, education, digital, and data sectors to enable investors to benefit from the tax relief venture capital schemes offered by the government, specifically EIS and SEIS.
Since 2014, around £10 million of funds has been co-invested by Nexus Investments into about 28 businesses that are operated by its mission-driven founders and since 2019, HNW investors have been provided with the chance to invest via Nexus Investments’ own Scale-Up Fund that has now reached around £2.8 million AUM and that gives investors an impressively diversified investment portfolio of at least 8 to 10 investments across data, education, health, and digital EIS companies.
Covering the whole of the UK, Nexus Investments particularly focuses on the South East and London, making around six investments per year worth between £200,000 and £1 million. Some of its previous investments include Huma, Knowledgemotion, Perfect World Ice Cream, digi.me, Soupologie, Benivo, Vivid, FreeMarket, Snaptrip, Pobble, Smarter, Scene, Purearth, Stylepilot, TrackMyRisks, HubBox, iPushPull, Heartier, RSL, Trueinvivo, Everpress, Cyance, Marco Polo, Perkier, Fundamental VR, Medic Spot, Pi-Top, Compleat, and Kafoodle.
13. O2h Ventures Ltd
One of the UK economy’s leading sectors at the moment is the biotech industry, with large pharmaceutical companies now relying on smaller and more innovative biotech companies to uncover new concepts in neurosciences and disease areas like cancer. As a result, higher possible exit valuations are now increasingly likely for these small biotech organisations.
This fund is designed to help broaden the investor community that will aid in expanding early-stage research within the UK. O2h’s team are leading the way within the UK’s biotech community, having been involved actively as investors, and having held various positions in the industry and on boards as well as having been engaged in scientific grassroots activities for more than two decades. O2h’s EIS human health fund is making investments in and helping to nurture emergent life sciences.
By combining an incubation and access model to deal-flow via grassroots experience, this fund has the unique potential to offer its investors greater access to potentially transformational and innovative seed stage businesses covering biotech, AI technologies, and the discovery of novel drugs.
Covering the entire UK region, this fund makes 13 investments per year with minimum investment amounts of £25,000, and has previously invested in Stemnovate, NeoPhore, Arecor, Privitar, PharmEnable, and Repositive.
14. Praetura Ventures
With a focus on supporting companies across the Northern regions of England, Praetura Ventures represents a leading provider of early-stage equity, investing in early-stage, ambitious companies so that they can achieve sustainable long-term growth. Praetura Ventures is not a new organization, having been established in 2011 with the aim of supporting entrepreneurs via a “more than money” approach that sees its team using its network, resources, and experiences to enable entrepreneurs to expand their businesses and achieve greater success.
With its headquarters in Manchester, this fund invests a minimum if two thirds of its raised capital into companies based within Northern England. Making around 20 investments each year worth on average £1.3 million each, Praetura Ventures invests in a broad spectrum of exciting sectors including tech and digital, creative, financial, business and professional services, environment and energy, and life sciences and health.
Some of its previous investments include Peak, Sorted, Inspired Energy, Culture Shift, Patchwork, Dr Fertility, SteamaCo, FeedStock, Inotec AMD Ltd, XR Games, and Futr.
15. RLC Ventures
This early-stage capital ventures fund backs companies within the enterprise, entertainment, and fintech sectors, with an aim to building a stronger future. Covering the entirety of the UK, this fund makes between 8 and 10 investments each year worth between £50,000 and £300,000 each. Some of its recent investments include Greendeck, Scribeless, Organise, Labworks, and Workscope.
16. Sapphire Capital Partners LLP
This Belfast and London-based multi-award winning company specialises in EIS and SEIS funds. Currently, Sapphire Capital Partners LLP manages more than thirty EIS and SEIS funds across an enormous range of different sectors so that the partners’ own expertise in corporate finance, investment management, taxation, and accounting can be used to their greatest advantage and in a highly cost-effective way to ensure the success of the funds themselves.
Founded back in 2009, the partnership is FCA authorised to act in the role of an investment manager. The services offered by Sapphire Capital Partners are all delivered by a team with an extensive level of experience that provides high-quality yet cost-efficient services. The individuals who operate Sapphire all have a wide knowledge base within the financial industries.
Covering the entire UK region, Sapphire makes around 25 investments per year worth between £50,000 and £1 million each, with its previous investments including Harty Nutrition, Regvoltuion, Phos, Bondford, and Medesk.
SuperSeed, also known as Supersede Ventures, is operated by highly seasoned entrepreneurs who are keen to invest in early-stage AI and SaaS B2b companies that are both promising and exciting. The top reason for start-up failure is poor sales, so SuperSeed is focused on finding businesses that have a proven fit for their product in the marketplace.
SuperSeed often sells the products of a prospective company before it makes an investment, then uses its six decades of experience in the management sector to help the company scale up once the investment has been made.
Covering the whole of the UK, SuperSeed makes between 8 and 12 investments each year worth between £100,000 and £500,000 each, and its previous investments include ThingTrax, SuccessData, Scribeless, and DoPay.
18. The Side By Side Partnership Ltd
This EIS UK-based venture capital firm specialises in finding technology companies with high potential that have already firmly established themselves in the market with strong growth and revenue and giving them the support they need to become even more successful in the commercial business sector.
Combining capital investment with support and experience from people who have built strong successful public, private, and international companies previously. The Side By Side Partnership Ltd covers the whole UK region making between 3 and 5 investments per year worth between £200,000 and £1 million in technology-enabled companies.
Some previous investments made by this partnership include Dendrite, Groovy, Maritime Technology, GSS, Prism Sola, Go Now, Solar Centre, Sky City Apartments, CTSO, Community First Bank, EKR Therapeutics, Pervasive Tech, InstaMed, Systech, Untethered, Bluum, Sintan, Healthsquared, Fusar, Structured Web., Mouse House, Fuss Free Technologies, Skin Analytics, Caervest, and Enclothed.
19. Triple Point Investment Management LLP
Triple Point Investment Management seeks out growth businesses which have already annualised revenues amounting to more than £100,000 and that also make positive social contributions. Focusing on investments in the healthcare, environmental, and educational sectors, Triple Point is keen to address issues surrounding inequality and aims to support young people while protecting the environment and ensuring better health for all across the UK.
Making ten investments each year worth between £200,000 and £600,000, some of Triple Point’s previous investments include VYNE, Quit Genius, Capital on Tap, and Flatflair.
20. Worth Capital
Worth Capital’s Start-Up Series Fund is focused on hunting for sales channel, service, and product innovation across growth and underserved markets to create habitual B2B or B2C consumption and a well-loved brand.
EIS and SEIS funds are Start-Up Series’ winners with the entirety of the UK being covered. Between 12 and 25 investments are made each year, worth as much as £250,000 per each investee, and while a broad spectrum of sectors are covered, some of Worth Capital’s previous investments include Uniblock, Kanda, Virtue Health, Bedfolk, and Weekly10.
Now that you have our extensive list of the top 20 EIS funds that you should be aware of you can make a well-informed decision about whether investment in this type of asset is the right option for you this year.