Thursday, 12 November 2015

Equity Crowdfunding and its effect on EIS and SEIS funding.




A new report put out by HMRC  -

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/448308/July_2015_Commentary_EIS_SEIS_Official_Statistics.pdf

gives some good evidence for the real increase in EIS and SEIS funding since 2011, when ECf started here in the UK. EIS funding relief has been running since 1993 - so it is interesting to see just how clear the 2011 line is.

The graph showing the increase in investment via EIS is particularly clear - initial boost at the end of the 90's then flat until 2010/11 and almost vertical since. Likewise the bar chart with the number of new raises and subsequent rounds is equally powerful. ECf has had a massive impact. Its effect is emphasised by the BofE's figures on SME bank overdrafts, which since 2011 have fallen from £21B to just £13B in 2015.

Which brings us to the point - is this money well spent? Time will tell and it is still early days, but the evidence is certainly not convincing. One very small return via Crowdcube and many of the companies funded bust - figures unknown as the platforms like to keep these as quiet as possible but certainly exceeding the 10's of millions lost.

Hats off to the SEIS and EIS reliefs if they really are going to bring about a surge in sustainable UK businesses. God knows the banks are not much help. But if, as we fear, the vast majority of these businesses either limp along forever or go bust then this money could have been better used.

The rapid rise of ECf has created large disruption and it is to hoped that out of this noise we will start to see platforms who take the matter of creating long term businesses more seriously. The soft launch of Growthdeck this week is one such instance. 


2 comments:

  1. Your link to the report is broken.

    Was it also in 2011 when EIS up-front relief rose from 20% to 30%? That might've had an effect, too. We've seen a rise of managed EIS funds from similar (sometimes the same) teams as VCT managers.

    I wonder if this year's rule changes will put a dampener on it? I'm thinking of changes such as disallowing EIS to investors who have previously bought in the market, thus closing off the route of buying speculatively on AIM when a company seems likely to want to raise new qualifying funds.

    p.s. I like the blog. Should be required reading for anyone venturing into crowdfunding.

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  2. Thanks for comments - new link is up.

    You may well be right.

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