Chancellor Phillip Hammond offered a nugget of good news for early-stage investors and growth companies in today’s Autumn Budget announcement, particularly regarding the Enterprise Investment Scheme (EIS), a brand new injection of capital, and the outcome of the Patient Capital review.
“A new tech business is founded in Britain every hour. And I want that to be every half hour.” – Phillip Hammond.
Hammond also stated that the EIS limit will be doubled, and that the government will be taking additional steps to make sure these investments weren’t misused as tax shelters.
The government also published an ‘action plan’ to unlock over £20 billion of new investment in UK scale-up businesses, a key priority for the new BBB fund. “And we stand ready to step in to replace European Investment Fund lending if needed,” Hammond added.
A new £2.5 billion fund through the British Business Bank, combined with the other measures announced today are expected catalyse SMEs to scale up as we prepare to replace funds that have historically come from the European Investment Bank.
“Doubling the EIS limits for innovative companies will encourage even more private investment – the Government now needs to simplify the EIS rules!” said Nimesh Shah, partner at Blick Rothenberg. Currently, EIS rules are notoriously complicated.
According to HMRC figures from earlier this year, EIS and Seed Entreprise Investment Scheme (SEIS) has seen a 20 per cent decline in applications from start-ups and SMEs over the last 12 months due to the complexity of the rules.
For David Mott, managing partner at Oxford Capital, and chair of the BVCA Venture Capital Committee, the new announcements are a positive sign of things to come as the government kicks business growth into gear from the investment side.
“EIS is rocket fuel for entrepreneurs – it helps brilliant new businesses take flight. The Chancellor’s announcement will help get more money to the most ambitious entrepreneurs looking to scale up their businesses and build global leaders in the UK,” Mott said.
For EIS investors, this means they can continue to support companies providing patient capital and generate returns through the company’s life cycle.
“The Chancellor has presented a Brexit budget for ambitious entrepreneurs. Focusing EIS tax reliefs on tech-focused investments will help to launch thousands of new UK businesses, creating high value jobs and investing in the R&D that will make the UK a force in the global markets for the years to come.”
Tech companies can now raise up to £10 million a year from EIS and VCT investors, double the current rate. “We are all excited about building bigger and stronger businesses,” he added.
Mott anticipated massive investment in the British Business Bank, which he believes will play a vital role in supporting the venture capital sector over the next decade. “The venture capital sector exists to provide the capital and resources to help entrepreneurs reach their full potential and build great companies. The measures announced today to support the venture capital sector show that the government is committed to building a successful enterprise economy for the future,” he said.
The measures announced in today’s Budget also unmistakably recognise the valuable contribution VCTs make to the economy. “VCT investments have created thousands of UK jobs and transformed small, innovative businesses into household names,” Patrick Reeve, managing partner of Albion Capital said. “The Treasury’s intention to focus the industry on innovation and growth is welcome.”
Reeve predicts excellent growth potential in sectors such as digital healthcare, automation, cyber security and data analytics, all of which may get a boost following today’s announcement.
For David Owens, COO of Edinburgh-based angel investment syndicate, Archangels, the Chancellor’s focuson the need for investment in innovative early stage companies suggest a growth mindset for post-Brexit UK. “Today’s start-ups are the success stories of tomorrow and they require the support of government and investors if they are to succeed and become major employers and contributors to our economy,” he said.
Investors have closely watched the outcome of the Patient Capital review, which could potentially unlock huge returns as slow-to-grow businesses are given time and support to mature. Angel CoFund investment director Tim Mills sees the fact that the government has taken consultation from the industry is a positive sign.
“The EIS plays an important role in supporting and encouraging significant amounts of new investment by the angel community. This investmenthas had great effect, especially regionally, where increasing investment in local startups is a priority. The result has been clear: an increase in startups year on year since the recession – with more than 550,000 founded this year alone,” he said. “All the same, the tightening of rules around the use of the EIS is needed to ensure the tax advantaged capital continues to be used in the way it was intended.”
The announcement has come at the right time, Mills added.
“Now, we’re seeing a maturing of the market. The UK is launching higher quality start-ups, backed by larger angel investment rounds, and increasingly angels are co-investing alongside venture capital firms and larger funds.”
“These are all signals that business angels are a vehicle of patient capital, and that the UK’s investment in early stage companies is beginning to bear fruit,” Mills said. Now it’s a matter of keeping up momentum by boosting later-stage funding to support UK scale-ups as they grow into multi-million pound businesses. “This is where the increased scope of the British Business Bank will have significant impact, as well as adding considerable to funding security as we move through the Brexit process.”