Patient Capital Review – The Deepbridge Perspective

The Patient Capital Review, announced by the Government in February 2017, closed to consultation on the 22nd September.  Since then we have heard rumour, gossip and ‘insight’ in to how Government thinking is leading.  The general consensus is that the Government is not happy with the status quo and there is a belief that too much private investment is currently going in to too many companies which are ‘too safe.’

The Conservative Party (our current Government) in their manifesto for this year’s General Election specifically mentioned the Enterprise Investment Scheme and talked about the ambition to strengthen the UK further as a place for growing innovative firms. 

Deepbridge has long held the belief that investors, and their financial advisers, should consider ‘the spirit of EIS’ when investing in such propositions.  The Patient Capital Review is merely Whitehall catching up with the evolution of EIS.  The EIS was not set up as a scheme to save tax; it was set up to support companies that would otherwise struggle to find funding. 

As Michael Portillo, Chief Secretary of the Treasury in 1993 commented;

“The purpose of the Enterprise Investment Schemes is to recognise that unquoted trading companies can often face considerable difficulties in realising relatively small amounts of share capital. The new scheme is intended to provide a well-targeted means for some of those problems to be overcome.”

With Over £1.6bn each year now being invested via EIS it is unsurprising that it has caught the eye of HMRC and Treasury who wish to ensure that this money is being used properly and those being rewarded for taking risk are taking an appropriate level of risk.

Our trade body The Enterprise Investment Scheme Association (EISA), has provided the Patient Capital Review with examples to highlight how ‘EIS and SEIS are vital to our nation’s start and scale-up companies and to the overall prosperity of our future economy.’

At Deepbridge, we regularly work with Government bodies to provide funding to young companies and understand that their direction of travel, and their money, is predominantly targeted at innovation. 

Over recent years we have seen tightening of qualification criteria for EIS with a growing focus on money going to companies that are innovative or ‘knowledge intensive.’ 

The Government has regularly spoken about the importance of funding for the digital and life sciences industries.  We believe that these sectors are where Government wants private investment to be going.  Developing innovation, generating exports and increasing employment are what the Government wants to happen. 

It is expected that in the budget on the 22 November 2017, the Chancellor will reference changes to EIS qualifying criteria with a focus towards the worlds of technology and life sciences.  

The Enterprise Investment Scheme and Seed Enterprise Investment Schemes are great vehicles which the Government should be harnessing.  We fully understand the concern that too much money has gone to ‘asset-backed’ or ‘capital preservation’ targeted EIS propositions and agree a new focus needs to be taken to ensure that this money goes to companies that need it and can make real returns to the UK economy.

We look forward to hearing how the UK Government will continue to encourage investment in to the sectors about which the Deepbridge team is so passionate, namely technology and life sciences.