Growthdeck: UK Crowdfunding Industry Success Fueled by EIS & SEIS Tax Exemptions

,

Equity crowdfunding platform Growthdeck is highlighting the importance of the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme, two tax benefits to encourage individuals to invest in small companies.  In a company statement, Growthdeck said that the success of the UK’s crowdfunding industry has been driven by the Government’s tax efficient investment schemes and these programs play a vital role in aiding the growth of the smallest businesses usually passed over by banks.  Growthdeck explained that most offers are SEIS or EIS eligible.  According to Growthdeck, these programs are vital to the the health of the “UK start-up and Fintech economies” in the country.

“Crowdfunding platforms have become a vital conduit for small businesses to access they funding they need to exploit their growth potential, providing a much-needed boost to the UK’s SME sector,” stated Gary Robins co-founder and CEO of Growthdeck. “These start-ups and microbusinesses are exactly the type of companies that have found it the most difficult to access bank lending – the crowdfunding industry is making great strides to fill this gap.”

Robins believes this is “welcome news for UK businesses”.  UK investors are not only attracted to the chance to support SMEs they believe in but also the substantial tax breaks available.

“Government schemes such as the EIS and SEIS offer investors attractive tax breaks which remain vital in facilitating growth of UK SMEs,” continued Robin. “With bank lending remaining in short supply for many start-ups and early stage businesses, the EIS and SEIS schemes are vital in encouraging investment to ensure that SMEs can implement their growth plans and their ambitions for success have a chance of being turned into reality.”

Growth deck’s data indicates that two thirds (66%) of all investment opportunities on crowdfunding platforms claim to be EIS eligible, while 39% claim SEIS eligibility. Some offers may be eligible for both programs.

This article was written by  and published on CrowdfundInsider.com, on 23rd April, 2016.

Cleantech innovation: Navigating the minefield of investment

,

Innovation holds the key to unlock the global green industrial revolution. But how easy is it for low-carbon entrepreneurs and cleantech start-ups to secure vital funding and ultimately achieve commercial success? In this new feature mini-series, we explore the risks and opportunities surrounding green innovation investment.

Whether it is researchers studying the potential of tomatoes as an energy source, or architects designing new smog-sucking towers, humans across the world are striving to steer us towards a sustainable future.

The COP21 talks may have opened the door for new green innovations, and the Breakthrough Energy Coalition – fronted by Bill Gates and Mark Zuckerberg – serves to highlight just how much room there is for the green technology market to grow. But ultimately, any idea or a concept will always remain as blueprints on a page unless money is available to be invested.

With Bloomberg New Energy Finance recently claiming that as much as $12trn will be need to be invested into renewable and low-carbon innovations, existing or otherwise, the problem of matching innovation to investor is huge. And, as cleantech consultancy Carbon Limiting Technologies (CLT) agrees, navigating this investment nexus can be a ‘minefield’.

CLT – a lead partner of the Innovation Zone at edie Live – is a 15-strong team of consultants who all have experience in communicating and working with both hungry start-ups and willing investors. The company aims to bridge the gap between idea and commercialisation and, with 250 projects and 120 companies already under its belt, CLT is creating quite the track-record.

Paper chasing

For CLT owners and Executive Directors Beverley Gower-Jones and Mark Bornhoft, investment into low-carbon innovations can lead start-ups down a rabbit hole of money-chasing that can often create an end product that is vastly different to the original concept.

“Gaining investment to get your idea off of the ground can be a bit of a minefield to navigate and you need to know your way around it,” Gower-Jones tells edie. “It’s not merely a linear process of upscaling funds and the management teams often spend too much of their lives chasing money instead of delivering on their business plans.”

Able to offer more than 90 years of cumulative experience in the clean tech innovation market, CLT has seen numerous competitions and companies launch innovation platforms designed to support start-ups – which are actively searching for funding – but sometimes applicants have to modify their objectives in order to fit the criteria of the programmes and those with the money, rather than focussing on the requirements of their target market.

While it is difficult enough to appeal to investors, Bornhoft also believes that current policy and regulatory incentives – although positive – still aren’t doing enough to encourage the early market adoption of innovative low-carbon solutions over more mature incumbent solutions.

“We need to change the way that funding is applied and it needs to address the need for more patient capital to develop clean technology engineering solutions, and then scale-up adoption to bring down capital costs” Bornhoft says. “The biggest challenge is creating a clear route to market for clean technologies that need new business models within mature sectors, and this won’t be achieved without knowing that what you’re creating is what those markets will be encouraged to adopt”.

“Companies need to allow enough time for first-time innovators to actually build the concept that they want to introduce. For the first-timers, it’s not just about the money, but also finding the right first market applications and the right partners to develop teams and ideas at the right pace.”

Guardian angels

CLT is currently in conversation with DECC to bring about some of these market changes. The company is hoping to introduce investment for cleantech ventures at the point where they are preparing first-of-a-kind operational demonstrations and prototypes.

Gower-Jones thinks the time has come to take a fresh look of how Government money and private sector investment can work together to make sure that today’s early stage clean-tech engineering technologies can fulfil their massive potential and become established solutions.

Bornhoft notes that in the very early stages, a start-up’s best bet is to gain funding through a ‘friends and family’ deal, angel investors, or an angel fund which invests raised money into seed stage companies to make a return for its investors over a number of years.

CLT notes that matching these types of funds with grants can provide an initial foundation, usually up to £250k, Public agencies like Innovate UK, DECC, and Climate KIC, – which recently launched the ‘Tinder’ of low-carbon innovation – are acting as valuable sources of grants for start-ups.

“Innovation, especially in areas like the engineering sector, can’t be reprogrammed like software,” Bornhoft says. “If you get it wrong it can take another three years to re-develop, so once you’ve got the money it needs to be spent efficiently.”

‘One shot’

CLT believes the Seed Enterprise Investment Scheme (SEIS) – which offers tax breaks to investment into small start-up businesses – has been ‘positive’ in lowering the pressure on start-ups and increasing willingness of investors to invest at an early stage, but Gower-Jones claims that due to State Aid restrictions these types of schemes aren’t delivering all the investment potential available.

Wider promotion of SEIS &EIS and relaxing some of the qualifying constraints for companies and investors would also help increase the amounts invested and available to UK start-ups.

“The current process puts real pressure on the innovators,” Gower-Jones says. “Design iteration in clean-tech development is to be expected but if you build something and don’t quite get it right, it will be necessary to go back round the loop again and it’s harder to get the necessary money. This essentially means you’ve got one shot to spend funds efficiently during development.”

Despite fund raising being a minefield, it can be navigated, and schemes such as SEIS and organisations such as CLT and Innovate UK can help provide direction and support to innovators. With the aid of those with specific expertise in helping start-ups, CLT is anticipating a boom in the upscale of clean tech and energy innovation to meet demand for an economic sustainable future.

“I believe people will be surprised once these innovations go past the tipping point and start to be adopted on a mass scale, after which uptake and cost reduction will be a lot more rapid than people expect or predict,” Bornhoft says.

“The growth of the internet and the use of mobile phones and even the introduction of modern engines in vehicles all far exceeded the original predictions. So we would anticipate that we will see a similar growth with smart energy and clean technology innovations once they hit the market place.

“But to get there, we need the investment.”

This article was published on Edie.net on 23rd April, 2016.

Technical update: EIS and SEIS funds

,

Dermot Campbell looks at the difference between alternative investment funds and discretionary portfolios in the context of EIS and SEIS funds and explains why advisers might consider recommending them

Enterprise investment scheme (EIS) and seed EIS (SEIS) funds are slightly unusual because, while they do not really exist, according to HMRC figures to the end of January, they have still accounted for more than £12bn worth of investment since their launch.

So why recommend EIS and SEIS funds? There are lots of reasons, including tax reliefs, which – when coupled with competitive fees and thorough due-diligence – can result in lower-risk returns.

In order to take advantage of EIS or SEIS reliefs, your client must invest in the underlying companies directly and there cannot be a legal entity surrounding the structure otherwise they will not qualify for the tax relief. What then are they actually investing in?

There are three possible structures they could invest in:
* A basket of EIS investments with no fund or portfolio structure and no FCA-authorised manager;
* A portfolio of investments run by a portfolio manager under the MIFID investment management regulations (MIFID portfolio)
* An alternative investment fund managed by an alternative investment fund manager (AIFM)

Advisers who do not specialise in corporate finance are probably better off limiting their investments to either a portfolio or an AIF. If advisers want to go further than that and choose a client’s investments directly, then they will need to be skilled in the art of valuing private companies – a specialist role and well beyond the scope of this article.

Alternative investment funds

Alternative investment funds are a relatively new creation and were brought into being by the Alternative Investment Fund Managers Directive in 2013. In an EIS or SEIS context, AIFs are the most simple of funds to manage.

The fund manager must be authorised as either a sub-threshold alternative investment fund or a full-scope alternative investment fund. The majority of EIS funds are sub-threshold funds although a few are full-scope. There are onerous requirements in terms of operations and capital adequacy for full-scope AIFMs, however, the sub threshold managers have a significantly easier time.

The capital adequacy requirements for sub-threshold AIFs are really quite light-touch, and the principle is that the manager sets out exactly what it is going to do in the information memorandum and then follows it – crucially without taking account of the individual circumstances of the investors in the fund.

Alternative investment funds cannot be marketed to the general public and authorised persons arranging investments must carry out an “appropriateness test”. The appropriateness test has a lower threshold than the suitability test, and will be covered by suitability advice.

Once the appropriateness test is compete, then the investment manager can simply get on with the business of investing the client’s money and does not have to concern themselves with the specific needs of individual investors.

MIFID portfolios

MIFID portfolios can either be for retail investors or elective professional investors. A financial adviser may find clients are generally best suited to retail-style funds because retail MIFID portfolios give clients the greatest protection and are the easiest type of fund to refer their clients to. The reason for this is that retail portfolio managers are obliged to carry out a suitability test on each investment they make.

MIFID portfolio managers can be identified because they have the FCA’s permission to “manage investments for retail clients”.

Professional funds are designed for experienced investment professionals who probably come from a background of private equity investing. These funds offer the least investor protection, with no right to complain to the financial ombudsman and no access to the financial services compensation scheme. As a consequence, they are only open to professional or elective professional clients.

In order to qualify as an elective professional, a client would need to meet two of the following three criteria:
* They have acted in a professional capacity in the field of private company investing
* They have in excess of £500,000 investible assets, excluding their principal residence
* They have carried out a large number of transactions over the preceding three years

The vast majority of clients will not meet this standard, which means advisers should generally concentrate on working with retail authorised funds rather than professional-only funds.

At the end of the day, as an adviser, it is important you understand the distinction between the MIFID portfolios and alternative investment funds as there are differences in the way in which the underlying funds are managed. A MIFID manager may take into account a client’s need to be invested before the end of the tax year whereas an AIFM should not.

This article was written by Dermot Campbell and published by ProfessionalAdviser.com on 4th April, 2016.

FTSE 100 DRYING UP? Barely 20% of funds have managed to turn a profit after the FTSE peak

,

It’s been a year since the FTSE 100 reached its historic peak of 7,122. As soon as the stock market broke the 7,000 marker, bullish experts started placing their bets for when it would make 7,500 or even 8,000.

Instead, what followed was an incredibly torrid 12 months for the index. A crash in China, a commodity rout and ongoing uncertainty around the EU referendum soon saw the market tumble from its heady highs.

By August it had plummeted more than 1,000 points to 5,898. If you had invested £10,000 in the FTSE 100 at its peak, you would have had just £8,281 left by August 24.

If you had hung on until February 11, you would have had just £7,774.

And if you had clung on until yesterday, you would have about £9,000. Of course, investing at the top of the market is, as everyone knows, a terrible idea. So what if you had put your faith in an expert fund manager instead?

The top-performing fund since the FTSE’s peak is MFM Techinvest Special Situations. It has returned 28.4 per cent since April 27 last year, turning £10,000 into £12,840.

If you had invested the same amount in Sarasin EquiSar UK Thematic Opportunities on the same day, you would have £8,350 left – a loss of 16.5 per cent.

According to data from investors Wealth Club, just 89 of 429 funds managed to provide a positive return since the top of the market. That means 340 lost savers’ cash.

So what has been the driving force behind the top performers? They are all focused on smaller companies.

Ben Yearsley, director at Wealth Club, says: ‘Banks and commodities firms aren’t as prevalent in this space. If you add to that some quality stock-picking from a good manager, you have a recipe for outperformance.’

Investing in smaller companies can be incredibly risky as their share prices tend to swing more wildly, making for a rocky ride. And when big companies are doing well, smaller ones tend to suffer. But when the conditions are right, they can deliver stellar performances.

Darren Freemantle, co-manager of the MFM Techinvest Special Situations fund, likes technology firms – around 25 per cent of the fund is in them. One of the strongest-performing companies in the portfolio has been Datalex, which provides online software for airlines.

Freemantle says: ‘Airlines don’t actually make much money on their ticket sales so this software helps them drive other revenue streams. For example, when you pay more to pick your seat, to get priority boarding or for additional baggage.’

The top-performing fund since the FTSE’s peak is MFM Techinvest Special Situations. It has returned 28.4 per cent since April 27 last year, turning £10,000 into £12,840.

If you had invested the same amount in Sarasin EquiSar UK Thematic Opportunities on the same day, you would have £8,350 left – a loss of 16.5 per cent.

According to data from investors Wealth Club, just 89 of 429 funds managed to provide a positive return since the top of the market. That means 340 lost savers’ cash.

So what has been the driving force behind the top performers? They are all focused on smaller companies.

Ben Yearsley, director at Wealth Club, says: ‘Banks and commodities firms aren’t as prevalent in this space. If you add to that some quality stock-picking from a good manager, you have a recipe for outperformance.’

Investing in smaller companies can be incredibly risky as their share prices tend to swing more wildly, making for a rocky ride. And when big companies are doing well, smaller ones tend to suffer. But when the conditions are right, they can deliver stellar performances.

Darren Freemantle, co-manager of the MFM Techinvest Special Situations fund, likes technology firms – around 25 per cent of the fund is in them. One of the strongest-performing companies in the portfolio has been Datalex, which provides online software for airlines.

Freemantle says: ‘Airlines don’t actually make much money on their ticket sales so this software helps them drive other revenue streams. For example, when you pay more to pick your seat, to get priority boarding or for additional baggage.’

SOURCE: Holly Black – ThisIsMoney.co.uk

Recession signals – Taking a more defensive position could be wise, Bill Jamieson

,

Here’s a headline few thought they would see this year: “Time to take profits after Brexit vote.”

But here we are, more than a month after voters opted for Leave in the European Union referendum and the FTSE 100 at 6,724.43 is sporting a 14 per cent or 824 point gain from its immediate “poll shock” low. It is now up 21 per cent from its 12-month low of 5,536. The FTSE 250 Index – more reflective of the fortunes of UK-focused medium-sized companies – is still 3 per cent below its 12-month high, but it has rallied 15 per cent from its initial Brexit vote low.

These are potent gains and ones which few predicted as markets struggled to come to terms with the verdict of voters. The gains are even more remarkable given the backdrop of a slowing economy and a raft of surveys showing a marked drop in business confidence.

But investors have taken heart from loud hints from Bank of England governor Mark Carney that interest rates would be cut in order to temper the hit to business investment. New Chancellor Philip Hammond has reaffirmed that the 2020 budget deficit reduction targets will be scrapped and has hinted at a “reset” of economic policy in the Autumn Statement – widely interpreted as meaning fiscal loosening.

Cheaper money and more government spending: the two stand-by policy responses to fears of an oncoming recession – we will have to await confirmation of these and wait even longer to see if they have really staved off the recession threat. But for now investors have enjoyed the fresh uplift to equity prices.

And that uplift now looks to have discounted all the good news and turned a blind eye to continuing signs of a global slowdown. Indeed, markets could now be set for a combination of profit-taking and a reappraisal of an altogether sanguine outlook. Without further “good news” to sustain this level of equity prices, the rally of the past five weeks could now have run its course.

The financial news website Citywire carried a warning last week from Adrian Lowcock, head of investing at AXA Wealth, that investors should pay attention to the VIX, a measure of volatility known as the “fear index”. After spiking following the shock result of the EU referendum, it has now fallen to a 12-month low.

Lowcock believes that this could be a sign that stock markets are heading for another shock. “When it’s low,” he said, “people are confident and not fearful. And when it ramps up people are running for the hills. But it’s a counterintuitive index – it was this low just before the China Black Monday [sell-off in 2015].”

SOURCE: Scotsman – Bill Jamieson

GOT ENOUGH? How much cash should your portfolio hold?

,

Understanding the multiple roles cash has to play in investment portfolios can help investors overcome the often-criticised downside of holding cash. For example, money currently earns very little yield and it remains subject to inflation risk.

For the purpose of this article, I am only referring to cash held within portfolios, and not to other and separate reserves that investors must retain to meet unexpected expenditure.

I’ll start by tackling the shortcomings of holding cash. Of course, in this financially repressive period of low interest rates and mildly positive inflation, cash is indeed costly. Still, we believe that asset allocation decisions should be made through a valuation-driven framework.

Cash provides stability

If valuations of risk assets appear extremely rich, we argue it is better to hold some cash and potentially accept temporary purchasing power erosion from inflation than to hold overvalued assets and risk substantial losses in an attempt to earn a higher portfolio yield.

Cash performs three main roles in portfolio construction. First, and most obvious, is that it provides stability and readily available funds to meet known liabilities, such as regular fixed drawdowns. It therefore avoids the need to sell investments at inopportune times.

Second, holding cash provides defensive diversification benefits. The principle of diversification remains a key building block of effective asset allocation.

graph 1

The idea that introducing imperfectly correlated assets to a portfolio can both decrease risk and enhance opportunities for return is well established in academic literature and among investment managers.

Serious warnings

Correlations between asset classes, however, change over time. A closer look at historical correlations shows an important trend has emerged and even strengthened: correlations of most risk assets to global equities have increased remarkably over time, as shown by the chart above.

From a portfolio perspective, we think some serious warnings are in order. The fact that these risky asset classes tend to move in tandem with each other, rather than being a counterweight, indicates that the potential for diversification is low.

Central banks can affect sentiment, risk-taking and flow of capital into (and out of) risk assetsDuring the 2008-2009 financial crisis, most asset classes moved in one direction (down) and most short-term correlations strengthened. Spikes in cross-correlations have certainly become more pronounced, exacerbated by risk-on, risk-off trading and high capital mobility.

It is also apparent that central banks have the ability to influence stocks in the short run, alter historical asset class correlations and fuel contagion within them.

By controlling liquidity injections and influencing the rate of return on “safe” government bonds, these monetary institutions can affect sentiment, risk-taking and the flow of capital in (and out) of risk assets.

As a result, asset class diversification, which aims to help mitigate portfolio losses, has tended to fail exactly when it’s needed the most.

‘Dry powder’

Amid this secular rise in correlations, cash and short-term bonds are the only asset classes that have reliably delivered low to negative correlations with risk assets, especially during times of market stress.

There are other defensive assets that can provide low correlation relative to stocks, such as gold. But while gold provides a similar level of diversification as cash, it comes with significantly higher volatility.

A third function for cash is to serve as “dry powder” for opportunistic investment. In order to be successful, we need to be prepared to navigate some pretty choppy waters without losing sight of our long-term objective, which is to protect and grow our clients’ capital.

During periods of market overvaluation, cash allows us to both avoid the negative impact of downturns and take advantage of future opportunities that offer better risk-adjusted returns.

What’s interesting about the three main roles cash has to play in portfolios is how closely they are interlinked. The need for liquidity is often highest when correlations among assets are spiking, diversification is failing and forced deleveraging is occurring.

In these situations, valuations become distorted due to forced selling and investor panic, which can be just the right time to put dry powder to work and acquire assets at discounted valuations.

So, how much cash should a portfolio hold? The answer will vary depending on the objective and risk profile of the portfolio, but consideration for absolute and relative value, expected returns on competing assets (bonds and equities) and market conditions will contribute to the decision-making process.

In the current climate we feel it’s prudent to hold sufficient cash to be able to commit to special situations which are deemed to have exceptional risk versus return profiles should they present themselves.

Ryan Paterson is research analyst at Thesis Asset Management.

 

SOURCE: Interactive Investor – iii.co.uk