In particular not-yet profitable start-ups don’t meet the CBILS lending criteria and are falling between the gaps of the package of Government support - a change to EIS relief could be the life-line that provides the urgently need liquidity to be able to ensure those high-growth businesses are able to survive.
Therefore, on behalf of the Enterprise Investment Scheme Association (EISA) would like to share the call to action below and ask any business that may be impacted to urgently share their experience and insight specifically to the questions laid out.
From Mark Brownridge, Director General, EISA:
EISA have been lobbying hard for significant, short term changes to the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) scheme to combat the existential threat to investee companies of Coronavirus. We know others have too.
Nobody wants to see businesses fail through no fault of their own due to the wider macro situation. So our simple objective for the industry at this time is to continue to facilitate and deliver equity funding from private investors to those start-up and scale-up businesses who have been identified as 1) most in need in the short term to keep them going and 2) have potential to be long term, high growth businesses.
Helping these businesses survive the short-term crisis should enable them to achieve their long-term ambitions. Once in that position, they will start to pay back that short term trust and investment through significant tax revenue and employment for the benefit of the UK economy.
Through discussions with HM Treasury this week, we have been told that if we want the Government to direct more taxpayer support into the tax-advantaged VC sector, or remove restrictions on fund-managers, we need to provide them with a clear evidential base for what that increased tax support is expected to produce.
EISA are therefore asking for you to provide us with examples of this evidence – please answer all/any questions you can as relating to your business.
Fundraising - Evidence for how difficulties in fund-raising by fund-managers are already translating into effects on investee companies
Numbers - Evidence of how many firms are failing to get EIS investment they would previously have expected, and over what timescales
Investor retreat - Evidence for how the Government can know whether the reported falls in investment from private individuals is a long-term situation (i.e. they now dislike the EIS category as an asset class); or rather whether this is a short-term pause, as investors wait for market conditions to settle somewhat. Obviously, if investors are merely waiting for short-term volatility to settle, then it’s less clear why the Government should implement a measure that lasts for at least a year (e.g. IT relief) or more.
Pace of change - Evidence for how quickly any increased tax support effect of EIS changes - Evidence for the incremental effects of any new EIS change compared to the status quo will be passed onto businesses that need additional cash injections,
Direct v Indirect - Evidence for why the government should want to support companies only indirectly through investors, rather than pursuing non-tax measures that target the companies themselves