Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
Take 2 mins to learn more
Risk Summary

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

Don't put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
  • These new shares could have additional rights that your shares don't have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

You are unlikely to be protected if something goes wrong

  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.
Insights
Admin
· 3 min read
· Updated on

How to start investing into the EIS

One of the most prominent benefits of becoming an investor into an Enterprise Investment Scheme (EIS)-eligible business is that it is highly tax-efficient, offering tax reliefs including the ability to claim back up to 30% of the value of your investment. 

But that is not the only tax efficient feature that EIS investment opportunities can offer investors, beyond this headline-grabbing tax break, the scheme allows investors to:

  • Dispose of shares without paying capital gains tax
  • Defer the payment of capital gains tax
  • Claim loss relief if the business fails
  • Pass on the investment free of inheritance tax

The ability to add start-ups to your investment portfolio through the EIS brings many advantages. These include diversification, balance, and potentially strong returns.

But now more than ever, investing into early-stage businesses can be considered philanthropic, as they’re crucial to the bounce-back of the UK economy post-COVID-19.

If the generous tax incentives and philanthropic benefits have you eager to become an EIS investor, here’s what you need to know to get started. 

How to find EIS investments

An obvious first step to getting started with EIS investments is knowing where to find them. 

With EIS, you can choose to invest directly into eligible companies, or you can invest into an EIS fund whereby a fund manager builds a portfolio for you. 

The method that you choose depends on a number of factors. Investing via a fund can make diversification easier, and if you’re not the most seasoned investor, having a fund manager make decisions on your behalf could be beneficial. 

However, for those looking for more choice, control and visibility over their investments – with the chance to choose businesses based on interests, and build a portfolio around personal investment goals – direct investment might be the way forward. 

It’s advised that before making investment decisions, you speak to an independent financial advisor. 

You can find individual EIS-eligible investments in places such as Growth Capital Ventures’ (GCV) co-investment platform, GCV Invest, which provides members with access to high quality, pre-vetted opportunities in early-stage and high-growth businesses.

Utilising tax-efficient structures such as the Enterprise Investment Scheme, Seed Enterprise Investment Scheme and SIPP/ SSAS pensions where appropriate, GCV focuses on originating impact-driven deals that have the potential to deliver superior investment returns as well as portfolio diversification.

 

 

Check that the business you’re looking to invest into is EIS-eligible

The business will – most likely – make it obvious that their company qualifies for the scheme, so you won’t have to do too much digging. 

But it’s important to know that to become EIS-eligible, businesses must:

  • be unquoted
  • have less than 250 full-time employees
  • have gross assets of less than £15 million
  • be within seven years of its first commercial sale

There are certain trades that are not eligible for investment via the scheme. These can be checked with HMRC here, but include financial services, exporting energy and leasing activities.

 

How to choose the right investment

There are a lot of EIS-eligible startups and scaleups out there, so choosing which one(s) to invest into can be a challenge. 

If the selection process is too overwhelming, investing via a managed fund could be the answer. Keep in mind that there will often be fees associated with investing into an EIS fund, such as an annual management charge, and performance fees.

If you’re keen to go it alone and reap the benefits of having choice and control over your investments, there are a few things to consider when exploring potential options. 

You might want to seek an an eligible investment into a sector you know well, or that you’re particularly interested in. 

Aside from the financial benefits, investing into a business can be a vehicle to pursue more interesting or meaningful work. Therefore, you may opt to support businesses involved in solving world problems through innovation.

It’s also important to assess the business model and team’s expertise, looking at their credentials and how realistic the plans are.

You can only exit from an EIS-eligible investment when the investee companies are sold, liquidated or listed. Therefore, consider the business’ exit strategy – does the time frame align with your goals as an investor?

 

What happens after the investment?

After investment into an EIS-eligible business, you will need to manage the tax implications and claim the tax reliefs available through the scheme.

Once the investee has been trading for four months and the investment has been processed, you will receive an EIS3 certificate to complete. You will need this to claim for tax relief through the self-assessment process. 

You can find a step-by-step guide outlining how to claim EIS tax reliefs, alongside an in-depth insight into the scheme itself, by downloading GCV's guide to the Enterprise Investment Scheme.

GCV guide to the EIS
Driving Growth.
Creating Value.
Delivering Impact.

Backed by

Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.