Enterprise Investment Schemes (EIS) are designed to encourage investments in small, unquoted companies carrying on a qualifying trade in the UK.
Nicola Horlick, investment manager at private equity firm Rockpool Investments, is highly regarded in the finance industry - in the 1990s she balanced a high-flying finance career with bringing up a large family.
Today she manages investments for Rockpool Investments, produces films and sits on the board of an NHS trust.
Since the recession hit in 2008, small enterprises have found it difficult to raise capital. Horlick says it is very important to help these businesses and allow them access to capital. She explains that in the early days firms used to be able to raise capital on some of the smaller markets, such as AIM, but it has now become difficult, and the situatuion has been exacerbated by banks' unwillingness to lend.
EIS schemes are growing in popularity as the number of businesses seeking approval from HM Revenue and Customs increases. The number of EISs is expected to climb higher this year.
Why invest in an EIS?
Firstly, the EIS model offers attractive tax relief. An investor can claim relief at 30% on investments of up to £1,000,000 per tax year, as long as shares are held over three years. The scheme allows investors to become a 'business angel', investing in a variety of projects.
'We get huge numbers of people coming to us for investment especially in this environment where capital is difficult to raise - masses of people send in business plans and we look at them all until something will catch our eye,' Horlick reveals.
She says through EIS, Rockpool has raised capital for a wide range of businesses including a crematorium, a care home, the management buyout of a catering business, and the roll-out of Chicago Rib Shack, in the restaurant trade.
The investment manager says she is determined to tackle the 'north-south divide'.
'The next big thing to do is to make it [Rockpool] a northern national network. I come from the north-west of England and it annoys me that everything is so London-focused.'
So far, four out of the seven EIS opportunities in which Rockpool invests are based in the north.
Horlick adds: 'People in the north of England can feel a little isolated with the north-south divide. Therefore we don't want everything to be London-centric. For example, if you're talking about deals such as manufacturing deals, they are mainly in the north of England.'
The businesses Rockpool is raising investments for include Airedale, Sorogold Street, Basalt Global, Derby Street Films, Rivington and Kirkleatham. Rockpool has just signed its eighth deal, with data-centre group Egis. 'We are starting to raise money for a new EIS project called 'Egis' data centre - this is a new investment which we have just approved and sent out the blueprint earlier this week [26 September],' Horlick continues.
She stresses her passion for investing in the actual projects, however the tax relief is an extra benefit. 'In the past there were a lot of tax people setting up EISs who were very focused on the tax relief rather than the underlying investment. I am an investment manager, so the tax relief is incidental - it means the return is higher.
'As far as I'm concerned we are investing in the companies that make money not because there's tax relief, the tax relief is just an added bonus.'
Ways to access EIS
Horlick explains there are various ways to raise funding for EIS. One example is through Kuber Ventures, a platform she uses to list Rockpool Investments EISs. Kuber compares, reports and invests in EIS portfolios.
She says: 'Some IFAs, rather than come directly to us, may go to Kuber and want to invest £100,000 and all they care about is getting the tax relief. Going one step beyond - the individual may not know which provider to use and may go to Kuber - it is a fund-of-funds type approach. All it does is add to the fees, but from our point of view it is great and another way of getting business - it is another way of feeding business into Rockpool.'
The manager explains that using a platform is better for investors without the resources to do the due diligence on the individual providers and are prepared to pay that little extra for somebody else to carry out that due diligence for them.
The Seed Enterprise Investment Scheme (SEIS) is another way to raise capital for small businesses and also offers tax relief. SEIS complements the EIS model, but offers far higher tax relief.
Horlick adds: 'SEIS is even more attractive, but it is pretty small as a mechanism – in Rockpool Investments we are aiming at larger fundraisers.'
She broke the record for equity crowd funding through online platformSeedrs, offering a 10 per cent stake in film venture Glentham Capital, which Horlick chairs.
She says: 'We went on to the site, filled an online form - this was on a Wednesday. We had lunch and it took off, between 9-4pm we raised £150,000, which was the maximum, and then we got SEIS approval.'
The new fund will provide money to finance Hollywood movies. Horlick, who is passionate about cinema, is also invlolved in managing Derby Street Films.
For more information on Enterprise Investment Schemes you can read our beginner's guide here