GBI Supplement | EIS Round Table

M AGAZINE

EIS ROUND TABLE LONDON

BUSINESS RELIEF PRODUCTS The truth about what’s underneath

Please contact Vilma Pabilionyte to receive a free copy of this guide: vp@hardmanandco.com / 0207 194 7622

Round Table

PARTICIPANTS Dominic Perks

Nicholas Baker

Co-Founder

Partner

Hambro Perks E: Dominic@hambroperks.com

Baker Jenness Financial Management

Nicholas Sharp

Ollie Povey

CIO

Co-founder and COO, Tempo

Hambro Perks Co-Investment EIS Fund E: Nicholass@hambroperks.com

E: ollie@heytempo.com T: +44 (0)208 634 7137 W: www.heytempo.com

Adam Francis

Richard Angus

Mattioli Woods plc

Hardman & Co, Head of Business Development

T: +44 (0)1638 564230 E: adam.francis@mattioliwoods.com W: www.mattioliwoods.com

T: +44 (0)207 194 7622 E: ra@hardmanandco.com W: www.hardmanandco.com

Andrew Aldridge

Roger Tull

T: 07941 005829 E: Bakerjenness@aol.com

Partner, Head of Marketing

Independent Financial Adviser, Positive Solutions

T: +44 (0)1244 746000 E: Andrew.aldridge@deepbridgecapital.com

T: +44 (0)1702 482021 M: 07780 666782 W: www.rogertull.co.uk

Henry Hall

Stephen Jones

Founder

Clear Solutions Wealth & Tax Management Ltd

HH Kollective E: Henry@henrykhall.com

T: +44 (0)1283 730080 W: www.clearsolutionsifa.co.uk

Jack Curzon

Dr. Rajiv Mathur

Consulting Director

CTO and Director

Thomsons Online Benefits

Chainvine Ltd W: www.chainvine.com

E: Jack.curzon@thomsons.com

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25 YEARS ON, WHERE DOES THE EIS MARKET STAND? On June 6th, 12 delegates with varying backgrounds but a common interest in discussing EIS with their peers gathered in the magnificent Victorian atrium at Hambro Perks in Westminster.

T

he round table discussion was chaired

by Richard Angus, Head of Business Development at Hardman & Co, the independent investment research firm, alongside Alex Sullivan, Managing Partner of IFA Magazine.

After a brief round table welcome and introductions Richard posed the first question of the discussion, asking after 25 successful years “where does the table think that the EIS market stands now?”

Andrew Aldridge, Partner and Head of Marketing at Deepbridge remarked that “the EIS market has never been in ruder health than it is now. It is now established and we recently saw the statistics from 2017/18, which was a record year for EIS fundraising.

There is big money staying in EIS and the prospects are excellent.”

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DO PEOPLE GET EIS? But of course, there are still issues the EIS market needs to address and it was felt that as a slight step aside from standard investment, there is pressure from Prudential Regulation Authority (PRA) industries on ‘outside the box’ ideas. Everybody recognises that EIS is a complicated product, but it can be, and needs to be, simpler to communicate. Correctly, the regulatory stance is that it is a high-risk investment, but it needs to be more specific about high risk so advisers can explain it more clearly.

EIS is still seen as niche, but perhaps not as niche as it was. Some delegates felt the perception among IFAs is that the tax benefits tail is wagging the investment dog, and there aren’t a huge number of mainstream clients who are interested. As Nick Baker, IFA at Positive Solutions in Sussex put it:

Round Table

“There is not enough information for us as advisers to be able to confidently say to a client ‘it starts here, this is what happens, and it ends here’, which is what most people like and can easily understand. Instead you have to say it might be 3, 5 or 7 years. I know it is a tax issue, but they are looking at it as an investment. If you can’t give a defined termination, standard investors will say, ‘Then I’m not interested - what else is there?’”

WHERE ARE THE OPPORTUNITIES? So, if EIS is outside the compass of the ordinary investor, where is the capital funding going to come from?

Richard Angus observed: “We have talked to the biggest wealth managers in the country and there is a concern that if the advisers aren’t informed on EIS some opportunities could get lost in translation – no adviser wants to give a bad sales pitch. We think the 5565 year old bracket of current or ex-businesspeople, if made more aware, would be very interested in putting capital in this area.”

Aldridge agreed, saying: “In any walk of life there are the good and the not-so-good. Any adviser who has worked in this space and knows it well can have an eloquent conversation with clients.

“For many advisers, particularly if they have clients who are business owners, the CGT could be the initial trigger point for considering EIS, rather than income tax relief. If the client wishes to sell their business or property portfolio, they may say ‘What could I do about tax liability?’ The CGT is a huge lump sum – it can be the spur to advisers to investigate EIS. Clients who are selling their businesses are called to this market. They trigger the adviser interest.”

Roger Tull, IFA at Positive Solutions believes the secret is to “Anticipate the demand. I have clients who have property deals happening in a few years who know nothing about EIS now. I will start an education process now. If we know the clients well enough, we know if they are planning to exit the business or having a life change and that they could be brought into the market.”

SMOOTHING THE PATH

entrepreneurs. It does work in the long term if you have diversified risk. If they don’t have access to capital it blows up. Is life easier than a year ago? Is knowledge seeping into the buy side?”

Nicholas Sharp, Head of Co-Investment Fund at Hambro Perks responded: “I have to be careful because we’re only a year old – but one thing is clear, there are a huge number of people who actively want to invest in early stage businesses.

“The issue is finding investees, with the pitch that really resonates. We filter 2,000 or 3,000 opportunities each year. You can be on a distribution list and those brokers only pay if money ends up in the company.

They have no skin in the game. We do and crucially that shows our interests are aligned. Many businesses do fail and they want to know it will hurt you as well as the manager.

“What they want to know is that you will do the work and that you owe money in that. You will work alongside them and so raising capital is not a big challenge.”

Andrew Aldridge again: “It’s about ‘what is the appropriate investment?’ Several years ago, if appropriate meant EIS then off an adviser might go to the largest EIS provider in the market - box ticked job done. That was the status quo and perhaps consideration wasn’t given to the appropriateness of the manager or their investment style.

“That attitude has changed. There are a number of entrants in the market like our peers here today, all great guys, who understand the VC market and the intricacies of supporting early-stage companies, and that is good for the industry. It adds credibility to what people are investing in.”

At this point the chair called for a short break, which meant the Nespresso machine took a caning and Westminster’s mobile network came under severe pressure.

Afterwards the discussion ranged widely, taking in adviser and consumer education, fees, research resources, investor benefits and some investee experiences, which we will report in our next articles. GBI

Angus posed the question, “When you are marketing, is life getting easier? Are you understood by advisers or are there obstacles still to be overcome? I talk to people outside our industry about the nature of investing in

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EIS - EDUCATION, INFORMATION, SIMPLICITY Three words kept being repeated during our round table session kindly hosted by Hambro Perks – ‘transparency’, ‘research’ and ‘education’. All attendees agreed that each of these is vital, and they unanimously declared that there is still a lot of room for improvement.

THE CHALLENGE OF CHARGES Stephen Jones, Chartered Financial Planner at Clear Solutions Wealth and Tax Management, identified transparency as one of the key issues in the EIS market: “There is a lot of work about EIS and Hardman & Co. has provided evidence about the range of charges and there are different descriptions of charges, which is leading to transparency with providers.

“Most people don’t understand the range of charges and how to analyse them. There is the personal issue with carrying interest and people are quiet about it.”

Andrew Aldridge of Deepbridge totally agreed: “There is a range of fees and a range of terminology of fees – it’s an ongoing industry discussion. There is a myriad of providers who are disclosing what they charge investors, but perhaps not what they charge investee companies.

“Charges to investee companies is not simply comparing apples with apples; there is a difference between smart capital and dumb capital. Is it passive capital or is the company getting added value from the manager?”

He went on to explain the difficulties of trying to compare like with like, even when looking at

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his peers. Transparency and disclosure are issues that we advocate and that everybody in our sector needs to take on board. On the plus side, he said the situation was a lot better than even just a few years ago when trying to unravel what exactly was being charged was like trying to tackle the Gordian knot without a sword.

Nick Sharp outlined the Hambro Perks approach: “Our view is that if we are working for our investors, they should pay our fee. It is easy to have a market proposition.

These are small growing companies which need money – if you take out 10%, you aren’t doing them any favours nor, ultimately, are you helping investors. That is an absolute no-no.”

He expanded on how they will charge investors those fees while providing capital to the companies to allow them to grow. Some paid fees he finds surprising; he has co-invested with other funds and on the investment documents they are investing at a different price to provide money back to the fund manager.

“If we pay 9p and they are at 10p that’s just not on.”

RESEARCH RULES Replying to a question about how quickly was it possible to judge that a client was suited to an EIS investment and to select the right product, Roger Tull,

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IFA at Positive Solutions reckoned it was easier now than it used to be.

“If you go back, all you did was get half a dozen prospectuses that were 30 or 40 pages long. How do you make sense of that? The emergence of platforms is a big help to us in terms of assessing what is the market. It’s healthier now.”

Nick Baker of Baker Jenness Financial Management highlighted the importance of decent research: “It’s hard to find – I had to badger Octopus for it. We rely on quality research. Internal research and product information is great, but we all know it is not enough.

Having the independent analysis alongside gave me the impartial point of view so, here is more history and more information on what we are getting involved with, for ourselves and for our clients.’”

Jack Curzon, Consulting Director of Thomsons Online Benefits suggested that while research can be very useful, sometimes “opinionated experts are easier for people to digest. Often research is too advisory when it’s an expert opinion you’re after. There can be too much caution and hesitation when you read the research; the stuff people really want and need to hear often doesn’t come through.”

Financial Planner Stephen Jones added that this is where the analyst adds value, because it’s essential you have time to do due diligence. “I would expect to see a report, so I can take a view on the area of investment. Years ago, sitting down to try and find out about something was very different. Today, the track record is about the people at the top. If they aren’t impeccable, I’m not interested.”

YOU CAN TEACH AN OLD DOG NEW TRICKS Chair Richard Angus, Head of Business Development at Hardman & Co., asked Andrew Aldridge of Deepbridge how, in view of their success in the EIS market, they felt the landscape is changing.

The answer was pretty unequivocal.

“Our growth over the last 5 years is down to education.

If you see us speak at an event, we aren’t doing a hard pitch about our product. It’s about educating advisers and investors about the changing world of EIS. It’s about the Patient Capital Review, supporting innovation and job creation. We try to bring it to life.

“One of our most memorable events was about 18 months ago in Glasgow, which we called ‘Investing in Scotland’. We had invited Scottish investee companies

to join us in order to showcase that EIS is not just a London or Westminster thing, but about creating and supporting jobs and innovation in their own back yard.”

“It’s that type of education that really benefits advisers and investors. Tax might be the initial reason to consider EIS, but when you see the extent to which EIS investment is a genuine economic driver, advisers become aware that it’s about going way beyond tax.”

Stephen Jones concurred: “One reason Octopus is successful is that they have invested in the education stance. They do seminar after seminar. If you’ve been educated by them, it will have worked well and of course, many advisers don’t have that budget and I do appreciate that there are other parties, but there needs to be more.”

The nature of an EIS investment has always involved a degree of exclusivity, but many advisers have clients who might benefit – without either of them being aware of it.

“One of my clients, her brother needed care and he had a £2 million second property which created a huge CGT issue on its disposal”, recalled Nick Baker.

“I knew a little about EIS then, but it wasn’t easy to go to a central place such as Synaptic for research. It is easier to get information now and some advisers are open to learning more but there is still not enough education around this product area.”

Adam Francis, Consultant with Mattioli Woods, noted that “It’s also about changing customer attitudes.

We are investing in long-term growth. Growing 5% a year with pension, do you want to invest in young companies? This is long-term money.

“The worry is that one might only look at fantastic track records and for a client to take that at face value and assume their money is safe. The underlying investment is 5 years down the line and they expect that is what they’ll get so it is important that they understand diversification to mitigate risk.”

COMING UP NEXT...

Deepbridge Capital and Hambro Perks introduce 2 of their investee companies , Rajiv Mathur of Chainvine (blockchain) and Ollie Povey of Tempo (recruitment) respectively. Both gave a fascinating insight into the coal-face of capital investment and impressed everyone present with their passion, conviction and determination, as we shall report. GBI

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FOCUS ON

SUCCESSFUL START-UPS: THE BENEFITS FOR PROVIDERS, INVESTEES AND INVESTORS Understandably, we normally concentrate on EIS from the investor’s perspective; so it was illuminating to hear first-hand from a pair of start-up entrepreneurs.

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t a recent round-table session generously hosted by Hambro Perks, Alex Sullivan, Managing Partner of GBi and IFA magazines, discussed how we need to divert attention away from the tax efficiencies and benefits that an EIS can bring, and rather focus on where the money goes and how it helps the British economy.

Two key EIS providers, Deepbridge and Hambro Perks, each introduced one of their successful start-ups to give us an insight into the coal face of capital investment.

Deepbridge focus on supporting technologies aiming to provide commercial solutions to real world problems, but try to avoid investing to simply satify buzzwords. They say that having previously been approached by many companies claiming to be developing “blockchain” solutions, it was noticeable that many were data-processing tools attempting to jump on the ‘blockchain bandwagon’, rather than creating a genuinely innovative blockchain.

CHAINVINE – THE REAL BLOCKCHAIN DEAL They did, however, find Chainvine – who were genuinely developing an innovative blockchain technology, and were making a practical difference in building a practical business. They had identified

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a clearly defined problem in the market – and were providing a solution, two key criteria for Deepbridge when committing to investment.

Rajiv Mathur is the co-founder and chief technologist at Chainvine. He used to teach computer science at Imperial College and has worked for big banks and Visa on fraud detection security.

“When my partner and I saw blockchain, we wondered how we could utilise it for enterprise. The focus wasn’t on the consumer, but we wanted to have a huge impact on business.

“Consumers don’t care much about the technology, just its application whereas blockchain is a technology, it’s in the back-end. So consumers don’t touch it or feel it and we use DHCP, which is a protocol for assigning dynamic IP addresses to devices on a network. Does this matter to the consumer? No, but using Microsoft Outlook to send an email really does.

“We wanted to create an application to allow companies to use the new technology in the mainstream beyond the hype and this is what we did. We started by creating a platform that allows any organisation to use the distributed technology without understanding it. You don’t need to understand how the email system works to send an email.

Round Table

“Blockchain is forcing people to make decisions about which technology to use but Chainvine’s platform is agnostic about the specific technology. There are 8 or 9 mainstream technologies, and we can use them all in our platform and that’s how we are different from the rest of the market. We don’t join any alliances and we don’t want to create a closed ecosystem but encourage the emergence of an open ecosystem.

“Businesses have shelled out billions on closed ecosystems. Where we see this going mainstream is how these systems can interoperate. Our platform allows that and we want to create a super ecosystem that others can join.”

Before introducing his investee, Dominic Perks, CEO of Hambro Perks, spoke of his company’s passion for backing and building technology companies, which now comprise a portfolio of over 40. Hambro Perks’ point of difference from the EIS perspective is that they invest their own capital in these businesses and then have a co-investment fund. They work closely with ideas-led young entrepreneurs, of whom Ollie Povey, founder of Tempo, is one.

TEMPO – HIRE ASPIRATIONS “Tempo is an end-to-end recruitment business which disrupts how people hire staff and how others find work. Existing recruitment channels are outdated and unfit for purpose from the hirers’ and jobseekers’ perspectives.

“Our workforce grew up with video and technology at their fingertips and they don’t need to go through a 2 – 3 week process. They need to find the job, apply for the job and get hired and that’s how we connect jobseekers and companies. We have technology that matches traditional CV work experience and a series of platform data about how they engage with the platform.

“What we build is a platform which prioritises or streamlines to see the candidates that they want and vice versa a tailored shortlist of candidates. We use video and a platform to speed up the 30-day process to 3 days in a more engaging and personal way.

We launched about 2 years ago with Hambro Perks and have gone from a 2-man band to pushing 30 staff.

We work with 30,000 candidates, 2,500 companies and have placed 1,000 people in work in London.”

WHAT WERE THE BUSINESSES LIKE BEFORE EIS FUNDING?

wanted to develop but couldn’t afford to hire a team, so relied on small third-party suppliers to create code.

They weren’t in control and IP was compromised.

The funding allowed them to assemble an in-house development department and, being based in Basingstoke, they weren’t paying London rents. They offered graduate internships and post-maternity positions. Said Mathur: “Yes, it is from a vested interest, but we want to help society a little.”

By contrast, Tempo started from scratch in collaboration with Hambro Perks. 2 years on they have built a big business which has grown from 2 to 30 employees.

Ollie Povey again: “We have found a gap and said ‘Let’s go for it’, and have built a business which is the upcoming name. Without access to EIS funding someone else would have done it and overtaken us or a bigger company in the sector would have done it.”

APART FROM THE OBVIOUS, WHAT’S IN IT FOR INVESTORS? “If it goes like we want it to and we are working hard to make sure it does, investors should feel proud that they helped build Chainvine and get real satisfaction that they were involved in something groundbreaking,” says Rajiv Mathur. “There are the financial benefits, and the tax benefits. But there should also be a sense of pride in supporting a business that has the right sort of people and realising that you are as crucial as the team itself.

Povey agrees: “The other thing about schemes like EIS is that it allows investors access to businesses they’re passionate about. They might have a prior understanding of it – they might have an involvement in the traditional HR industry, or they have experience related to it. It’s a market they’re genuinely interested in.”

Dominic Perks echoed the sentiment: “Investors want returns. We like to feel warm and fuzzy and get returns.”

Andrew Aldridge of Deepbridge concurred: “Just like us, clients want to understand what they are investing in and when they know what they are supporting, they become passionate. People understand entrepreneurship in the UK and are enthused about it, but perhaps 10 or 15 years ago it wasn’t seen as a career like now. People can really buy into supporting that.” GBI

Chainvine was self-funded for 18 months before Deepbridge stepped in. They had technology they

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Invest in the UK’s most exciting entrepreneurial businesses and benefit from generous tax reliefs

ED

Calculus Capital is celebrating its 20th year, as a multi-award winning leader of tax efficient investment.

The Calculus EIS Fund and Calculus VCT invest in businesses with strong growth potential, over a range of sectors with good quality management teams.

To find out more get in touch on: info@calculuscapital.com, 020 7493 4940 or visit www.calculuscapital.com

Before investing in the Calculus VCT or Calculus EIS Fund, you should read their respective Prospectus and Information Memorandum carefully and take professional advice. EIS and VCT are long term investments, and their value can fall as well as rise. Any person making a subscription to the VCT or EIS Fund must be able to bear the associated risks.