Risks to bear in mind
It’s important to understand that the value of an EIS or VCT investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
The shares of early-stage companies and VCT shares are by their nature high risk, their share price may be volatile and they may be hard to sell.
Tax treatment depends on individual circumstances and tax rules could change in the future. Tax relief depends on portfolio companies and VCTs maintaining their qualifying status.
Why make early-stage investments a priority?
It’s well-publicised that increasing numbers of investors are showing an inclination to invest in young, progressive businesses. In some cases, clients will seek these opportunities out with or without the support of their adviser.
This is certainly something Sunny has seen.
“My clients often ask, ‘What’s the next field? What should I be investing in?’”
So it’s important to Sunny to have this area of investing covered. EIS and VCT help him to do this.
“Advising on early-stage investments has improved my business and the profile of my business,” he says.
“First and foremost, it’s improved the knowledge base of my business. From there it’s led to talking to a lot of clients about these opportunities.”
“We’ve also gained many clients. Only recently, a new client approached me because they hadn’t been offered these opportunities in the past and felt they should have been.”
A thriving environment
Right now, the UK is a thriving environment for early-stage companies. It’s an area Octopus has significant expertise. Some recent examples of businesses Octopus has sold stakes in include Depop and WaveOptics – both delivering excellent outcomes for investors.
Depop, a second-hand fashion app, was bought by global e-commerce platform Etsy for $1.6 billion, while augmented reality innovator, Waveoptics, was snapped up by Snapchat for more than $500 million.
Another example many of your clients will have heard of is Cazoo. Octopus was an early backer of the online used car retailer, which floated on the New York Stock Exchange earlier this year.
Both Cazoo and Depop are examples of unicorns (private companies which reach billion-dollar valuations) and are best-case outcomes for investors.
Of course, not every company will achieve these kinds of returns or indeed succeed, and clients need to bear this in mind.
What is consistent though is that investments in early-stage companies provide capital to vibrant entrepreneurs looking to change industries, stimulate the economy and create jobs.
