Oxford capital eis fund
    • About Us

      Learn more about us


      See our current oppurtunities


      Meet our team

      EIS investment faqs


      See our frequently asked questions


      See our latest news articles

      Contact Us

      Get in touch with us

EIS: Deployment and Deal Flow – It’s all in the Timing

shutterstock 766847608

When it comes to EIS investing, traditionally there has been a rush to invest as the end of the tax year approaches. Investors are rightly keen to maximise the tax reliefs by making use of them in targeted tax years. But the reality is that the timelines involved with EIS investing, mean that, if you’re looking for income tax relief against the full investment amount in the current year, you need to be investing as soon as possible.

It’s common for full deployment to take between 12 to 18 months and the EIS reliefs, not to mention the EIS qualification clock, aren’t triggered until the funds are used to acquire shares in each investee company. So, to be clear, the transfer of the investment amount to the EIS fund manager is not the important date. It’s the date of share purchase that is.

The timeframes don’t reflect a lack of compelling deals to be done – not for Oxford Capital, although that may not be the case for EIS managers who have had to pivot from capital preservation strategies. Our mantra is that quality follows quantity and the more deals we see, the better our chances of seeing those with most potential. As a result, Oxford Capital’s ventures team reviews over 2000 potential investment deals per year (over 70% of industry deals in our sector (Crunchbase)). The team meets with around 600 -700 companies before carrying out detailed due diligence on the most promising candidates – perhaps 100 – 150 businesses each year. In all, successful companies are filtered through nine separate due diligence stages.

The typical timeframe from introduction of the opportunity to completing the deal is three to six months because protecting a client’s interests does take time. Both legal work and advance assurance – HMRC’s stamp of approval that the company meets the criteria to qualify for EIS at the outset, can substantially extend the time taken to finalise a deal but both are essential elements of the due diligence process.

HMRC now targets a 15-day turnaround to provide a yes or no to an advance assurance application and earlier this year we did indeed have an advance assurance application approved in 15 days. However, where there are complicated or unusual features within a company structure (generally not close to the boundaries of EIS qualification in terms of the growth and risk factors), our experience is that it can still take two months or more.

So, there is a balance to be struck. On one side, it’s important to deploy investors funds as quickly as possible to start the EIS clock, make the reliefs available and to offset cash drag. On the other, proper research to uncover the companies with the best potential for rapid growth is crucial, as is diversification so that great successes can compensate for expected failures.

This balance is affected by the amount of funds available to invest and, at Oxford Capital, by the risk profile of the deal. To ensure effective diversification, our policy is to invest each subscription into 12 – 15 companies. Where the deal is early stage, we may decide to allocate just 5% of an investor’s subscription into the company, with the maximum generally at around 10% – 15%.

Hence, full deployment is not an immediate or entirely predictable science. And after deployment, the process for applying for and receiving EIS certificates from HMRC takes time. This can account for about two months on average. Since it is the EIS3 certificate that allows an investor to actually claim the EIS tax reliefs, this should also be taken into account.

The opportunities in EIS are potentially hugely rewarding. The tax reliefs remain generous too, but understanding the deal-flow and deployment timelines is key to making the best use of them.
For more information about the exciting opportunities available through the Oxford Capital Growth EIS, click here.

Share Post: