“Carry back – use it or lose it!” says EIS fund MD
An urgent reminder was issued this week about the value of taking advantage of the carry back tax incentive offered through EIS and SEIS funds by Rajeev Saxena, Managing Director of Velocity Capital Advisors.
“The Velocity EIS Fund, which provides investment opportunities in high-growth tech startups, is one of the select few funds that offers carry back, and with the financial year-end approaching, Saxena is keen to point out the benefits.
“If you’re self-employed or a company director looking to invest in Britain’s brilliant young technology businesses, those that will spread innovation and drive the country forward, carry back is a great way to maximise your available tax relief,” he said.
“We recognise that it can be tough to quantify your income until the end of the tax year or even until the next tax year, so through EIS we’re offering these type of investors the ability to ‘carry back’ all or part of their EIS investments to the preceding tax year, as long as their limit for relief is not exceeded for that year.”
This means self-employed or company director investors can make a subscription of £2m EIS shares in 2017/18 with a carry back of £1m to 2016/17 so long as their EIS cap for 2016/17 is not exceeded and they have the necessary tax liability. Another benefit of carry back is that investors will receive their EIS 3 certificate by June 2019, therefore being able to claim their tax relief quickly.
“Such flexibility can be vital and allows for greater investment with more certainty over timing,” said Saxena.
He added that high-growth technology businesses, like those in Velocity’s portfolio, offer the potential of an excellent return, while the traditional risk that comes with these type of investments can be reduced by investing in funds that freely provide details of their portfolio companies.
“There’s a growing trend among funds like Velocity’s to take a more transparent approach that enables investors to carry out proper due diligence and make better-informed investment decisions,” explained Saxena. “For example, we’re happy to share information on the 13 brilliant business across our portfolio, from comedy video on demand service NextUp and AI-driven behavioural analysis pioneers WeSee to Asian grocery and food box business Red Rickshaw and gender neutral fashion retailer Zilver.
“Combined with the carry back tax break, this intelligence can open the doors to investments that can deliver great returns. But the April 4 deadline is rapidly approaching and to be able to claim carry back, you’ve got to be in it to win it!”
How to dodge Double Down March
There have never been more benefits of avoiding the gale force investment winds blowing at this time of year, says Rajeev Saxena, Managing Director of Velocity Capital Advisors.
OK, hang onto your hats! We’re approaching that time of year that not only accountants dread, but also investment funds. The end of the financial year isn’t just a wake up call to get your tax returns in, it’s also a reminder to invest any remaining funds and benefit from any tax breaks, such as with the Enterprise Investment Scheme (EIS) – where investors benefit from 30% tax relief on investments up to £2 million.
The phenomenon is known as Double Down March. Twice as much money will be invested in the last two weeks of the month than in the rest of the year. Now this isn’t an ideal situation, because each fund has its funding limit, meaning that many investors will miss out. Meanwhile, others might not be able to carry out the due diligence they would have hoped to. Although, to be honest, fund managers have historically been pretty guarded about the companies in their portfolio.
However, the times they are a changing, and an increasing number of funds are becoming more transparent and quite-rightly willing to furnish investors with the in-depth details about their portfolio members. What’s more, a select few are also offering carry back opportunities. This is particularly attractive to the self-employed and company director investors who can control how their remuneration is paid. Often these groups can’t quantify their income until the end of the tax year or even until the next one. This means the ability to be able to ‘carry back’ all or part of your investment to the preceding tax year, as long as the limit for relief is not exceeded for that year, is invaluable – EIS again being a case in point.
This means they can make a subscription of £2m EIS shares in 2018/19 with a carry back of £1m to 2017/18 so long as their EIS cap for 2017/18 is not exceeded and they have the necessary tax liability. Another benefit of carry back is that investors will receive their EIS 3 certificate by June 2019, therefore being able to claim their tax relief quickly.
Both these factors mean planning ahead has never been more important. And we’re not talking months here, simply beating the Double Down fortnight – or at least getting in at the start of it. Thinking that little bit smarter and planning your investments earlier means that, first, you’ll be able to carry out more research into the companies you’re investing in – and take advantage of those funds being more transparent with their portfolios to make a more informed choice. Second, you’ll give yourself a greater chance of investing in those few funds that offer carry back, as you’ll beat the rush.
There’s also another important benefit of being ahead of the game. The more due diligence you carry out and the bigger the tax breaks, the more you’re reducing the risks. This means you can invest in companies like high growth tech startups that are likely to deliver a higher return with more confidence.
So don’t follow the investment crowd and be a Double Downer. Instead, invest smarter and be a higher earner!
Reasons to be cheerful by numbers… despite boring old Brexit
Mark Brownridge, Non-Executive Director of Velocity Capital Advisors and Director General of the EIS Association, flashes the figures to prove that, deal or no deal, now’s the time to invest in hugely exciting high-growth UK tech startups.
After two years of negotiations, we don’t seem any closer to a Brexit deal and although it’s the eleventh hour, uncertainty still reigns. Will there be a deal, no deal, a referendum, a general election…? Who knows?
All this uncertainty is pretty much the worse thing for investors. The markets don’t like it either, whether currency or equity.
So can any positivity at all be gleaned from this Brexit black hole? Or is it all simply doom and gloom?
To find out, let’s look at some figures… no, really, come back!
We currently have 5.7 million SMEs in the UK, which makes the country a hot spot for start-ups, with or without Brexit.
The Centre of Entrepreneurs announced recently that last year was the biggest ever for start-ups with over 600,000 launching. Now that’s got to be a positive – and I’m sure it surprises a lot of people considering the climate. This is particularly good news on the employment and revenue front as the UK’s SMEs employ 99% of the population, and produce 61% of turnover – that’s more than the FTSE 100. That’s a major contribution to the UK economy and one that appears to be growing, even in the shadow of Brexit.
Investors must surely be getting cold feet, though not according to the stats. Some £8.7 billion was invested in SMEs in the UK in 2017. The figure for 2018 is likely to be slightly lower, but we’re still at a high watermark, showing Brexit is not stopping these deals coming through. And what’s really interesting is that the year before, when we proclaimed we’d be leaving the EU, the figure was half this, which clearly did not dent investor confidence. Meanwhile, foreign investment totalled over £5 billion, which is pretty bullish.
In 2017, there was a 79% increase in private equity taken on by SMEs, according to the British Business Bank. This shows that more and more companies are looking for private equity funding. This is a sign that the UK remains ‘very’ open for business and SMEs are raising more money than they ever have done – and it doesn’t look like this is going to stop any time soon.
On the startup front, £175 million was raised in the Government’s SEIS initiative last year, while a whopping £1.8 billion was raised through EIS, the second highest fundraising year ever – so this initiative that aims to drive investment in high-growth tech startups continues to garner support and remains very important.
These schemes offset the potential risk of investing in high-growth startups by offering higher rate tax payers 50% tax relief on investments up to £100,000 (SEIS) and 30% tax relief on investments up to £2 million (EIS). What’s more, investors can gain even more by choosing portfolios offering tax carry back for those that invest before 5 April, which is particularly important for investors who are self-employed.
Those investors who don’t think they’re getting a good deal through SEIS and EIS should consider that the two schemes where recently benchmarked as the best two tax incentive investment initiatives in the EU. In fact, the Government is getting lots of enquiries from countries across Europe and beyond looking to replicate them.
The UK’s not only a hot bed of great high-growth tech startups with unrivalled tax incentives to invest in them, but also the companies themselves are very optimistic. Some 74% of all SMEs expect revenue to grow more than 20% over the next year, which is reassuringly bullish. Meanwhile, 24% expect increased productivity, even in the face of Brexit.
Feeling more optimistic?
Put simply, there has never been a better time to invest in exciting high-growth tech startups in terms of choice, confidence, growth potential and risk.
Forget Brexit! Startup Britain is very much open for business.
About the author
Mark Brownridge is Non-Executive Director at Velocity Capital Advisors, which has a portfolio of EIS-ready high-growth, tech-enabled businesses, and Director General of the EIS Association.
Velocity EIS fund gains MJ Hudson Cornerstone Trustmark
Fifth iteration of the Enterprise Investment Scheme fund achieves prestigious industry standard and is singled out for excellence in governance, process and portfolio.
London, UK – February 12, 2019 – The Velocity EIS Technology Fund 5 has successfully completed MJ Hudson Allenbridge’s independent investment evaluation process and has been awarded the MJ Hudson Trustmark.
To qualify for the Trustmark, the fund went through a rigorous process of qualitative and quantitative data analysis and was benchmarked against other products in its peer group. It also underwent a full investment committee process where scores for each factor rating were awarded.
Three factors were identified as the fund’s strongest characteristics. These included its quality governance and management team, investment process, and pipeline and portfolio. The fund was also praised highly for its data integrity and transparency.
To date the Velocity Funds have raised approximately £5 million for their portfolio of high-growth innovative tech-enabled businesses. This latest fifth iteration of the fund launched in November 2018 and has Enterprise Investment Scheme allocations of up to £10 million available, which offers 30% tax relief on investments of up to £2 million. Velocity is also one of the few fund managers that offers investors carryback tax benefits for investments made before 5 April.
“We are delighted to have achieved this prestigious investment standard, which is testament to our team’s expertise and commitment to nurturing brilliant, innovative and exciting high-growth tech startups to help drive the UK economy forward and generate jobs,” said Velocity Managing Director Rajeev Saxena.
“To date, the Velocity portfolio has created over 100 jobs. In terms of performance, our first fund is cash positive, and the overall current performance of the first four funds is estimated to be 2.3x, 1.5x, 1.4x and par respectively.”
Emphasising its focus on transparency and its innovative nature, Velocity has also recently launched an online portal, which enables investors to monitor the progress of their investments quickly and easily.
Established in 2015, Velocity Capital Advisors Limited facilitates participation in exciting, young companies with technology at the core of their offering, via the Velocity EIS Technology Fund.
Velocity works with businesses that are innovative, can scale quickly and provide a product or service that is genuinely useful to their customers, whether B2C or B2B It aims for a minimum 2.5 times return from its investee companies.
Velocity is built on solid business experience with each of its founders having successfully built, grown and exited multiple companies. It takes an active role in its fund investee businesses, adopting a marketing focus to make sure that their product or service will truly resonate with their target audience.
Each Velocity investment goes through a rigorous six-stage approval process over a timeframe from three months to a year. To date, Velocity’s founders have personally invested over £1.5 million across the underlying portfolio companies, which currently consists of 16 companies, including Auris Tech Limited, Football Survivor, Qiktionary, iTar, WeSee, Sound Circles, Sonicjobs, NextUp, ZILVER, iynk, Red Rickshaw and My Mini Factory.
The Velocity leadership team has a wealth of entrepreneurial, finance, investment and marketing experience, and includes:
- Managing Director Rajeev Saxena, formerly Marketing Director at Red Bull
- Founder Director Bil Bungay, co-founder of renowned advertising agency BMB
- Founder Director Alex Johnston, an independent app developer and investor who sits on the Pitch@Palace board
- COO Tom Lindup, who qualified as a corporate finance lawyer, is the former MD of Van Elle, which he took public in 2016
- Chairman Michael Whitfield, a highly successful technology entrepreneur and investor
- Non-executive Director Mark Brownridge, who has over 20 years’ experience in financial services and is Director General of the EIS Association.