Investment into Venture Capital Trusts and Enterprise Investment Schemes dropped in 2024, the latest data shows.
Figures from HMRC show investments into EIS qualifying companies fell by £1.6bn in the 2023/24 tax year, a drop of 20 per cent year-on-year.
While investments into VCTs were down 17 per cent, falling to £873mn in the same period.
Nicholas Hyett, investment manager at Wealth Club said the figures cover a “tough period”, coming after market volatility and a higher interest rate environment.
He said: “Higher interest rates are bad news for younger businesses looking to raise capital and investors naturally take a dim view of higher risk asset classes like venture capital when the outlook is uncertain.
“However, the schemes continue to be a vital source of funding for UK start-ups. That’s especially true when other sources of funding dry up. Beauhurst research shows that total investment into UK private companies fell 42 per cent in 2023 – well ahead of the decline in tax advantaged venture investments.”
Hyett said there was some good news in the figures, pointing to a 51 per cent increase in investment into Seed Enterprise Investment Schemes, which hit £242mn.
He put this down changes in the amount companies can raise and investors can put in.
However, Mike Hodges, partner at Saffery LLP, said the fall in demand could be a sign changes are needed in the schemes.
He said: “These figures suggest the EIS doesn’t seem to be hitting the mark of encouraging business investment and perhaps it is time for an overhaul, especially at a time when government is keen to encourage growth.”
Hodges said much of the investment through the schemes does not benefit companies across the country.
The HMRC data shows 63 per cent of all EIS investment in the year went to companies registered in London and the South East.
“Having advised many investors and entrepreneurs on EIS/SEIS, my perspective would be that the reliefs are perhaps so complex that they don’t encourage people to use these schemes to invest,” added Hodges “The worry would be if they actually deter investment.”
The reliefs are perhaps so complex that they don’t encourage people to use these schemes to invest
Christiana Stewart-Lockhart, director general of the trade body, Enterprise Investment Scheme Association, said the data reflects a “pivotal year” for both schemes with a challenging economic environment contributing the fall in investment.
She said: “The drop in EIS is disappointing but not surprising. Significant economic headwinds and wider challenges in the global investment ecosystem are a key reason for this.
“A slowdown in exits over the 23/24 period has also limited investment from existing investors. However, we are starting to see some green shoots with a number of exits in the S/EIS space announced earlier this year.
“Despite the fall in investment through the EIS nationally, our focus on the regions has seen positive results with both Yorkshire and Wales bucking the trend with investment through the EIS increasing by 53 per cent and 18 per cent respectively compared to 2022/23.”
Stewart-Lockhart called the EIS an “important success story” which still drove considerable private investment into almost 4,000 growth businesses.
She added: “Since their creation, the SEIS and EIS have now resulted in a total of £34bn into 59,000 businesses across the UK.”
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