That is why tax incentives are given, but investors will still expect responsible management of their investments and a decent prospect of a good outcome.
What is apparent is that there are clear demarcations in the offers of each of the EIS managers: specific sector specialisms, private versus Aim companies, early-stage/start-up versus later-stage investments, to name a few.
If there has been an increase in the failure rate of EIS investees, whether this is Covid-related or a consequence of the earlier-stage investing, is a matter for debate.
The sobering statistic of so few EIS managers having returned more than 50 per cent of the cash they have raised suggests that understanding the exit track record of the manager is imperative.
While newer entrants would point to the three-year holding period as the reason for their lack of track record, those that have proven over time that they have the capability to deploy capital and manage it through to a profitable cash return would appear to be an attractive starting point for investors with any serious interest in EIS structures.
As Hugh Rogers of Tax Efficient Review observes: “When it comes to the effort to measure how funds are performing an obvious port of call is the track record, and profitable exits are a part of that, but we also take time to understand what has driven underlying valuations.”
Matt Currie is investment director at Seneca Partners
