Would I still invest if there was no tax relief?

tom britton
Jul 24, 2017 · 2 min read

We early stage investors in the UK are fortunate to benefit from the very generous tax reliefs offered by the government. Through the Enterprise Investment Scheme, dubbed EIS, and it’s more recent sibling, the Seed Enterprise Investment Scheme, dubbed SEIS, qualifying (read this as “wealthy enough”) investors are able to receive a whole range of tax reliefs for investing in early stage businesses.

Sorry American’s, this rules most of you out. However, I suggest taking it up with Trump as he seems to be itching to find more ways to give back to the rich.

I’ve digressed. To the point. These generous reliefs have altered the way many investors, including fund managers (there are EIS / SEIS eligible funds), approach early stage investing here in the UK. You won’t believe how many times one of the first questions investors ask, if it’s not mentioned in the pitch, is “Are you EIS eligible?” as if that should be a factor in determining whether to invest or not. I fear that investors have begun to view riskiness of an investment from a reduction of capital exposed perspective i.e. that somehow the investment becomes less risky because in theory only part of your investment is at risk instead of all of it. And this, is not the way to view any form of investment.

*Note, you could argue that with the tax relief offered you can spread your investment further into a larger portfolio of companies and are therefore de-risking through diversification of investment. This is true from a portfolio perspective but the case I’m making is that you shouldn’t take this into consideration when you are deciding whether to invest in an individual company.

Worse, too many entrepreneurs are being trained to really focus on the tax relief and plaster it all over their pitch deck and include it heavily in their presentation. We need to change this. The second the opportunity shifts from the company to the tax relief the dynamics get skewed. And no matter how hard you try not to, you start to justify negatives; minor faults that may have stopped you from investing previously become workable / expected.

So, while it’s hard to do, avoid finding out tax relief status if you can, hopefully until after you’ve decided to invest but if not, ask yourself this: “Would I still invest if there were no tax relief?”

If the answer is “no”, or even the answer if the question makes you pause and really think about it, you may want to reconsider your investment.

*None of the above should be considered as advice. These are purely my opinions. I would welcome disagreement so long as you back it with experience and or data.

The Startup Investor

Insights into the world of angel investing and venture capital.

tom britton

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I like to build, real or virtual.

The Startup Investor

Insights into the world of angel investing and venture capital.

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