In October 2024, Oxford Capital, and a number of other investors conducted a partial sale of their Moneybox holdings. For Oxford Capital this represented up to a 17x return on our investor’s original Moneybox shares. However, I want to focus on the wider picture. Rather than focusing on self-congratulation, I want to focus on the Enterprise Investment Scheme (EIS).
EIS was launched in 1994, by John Major’s government, as a way of encouraging founders to turn their business ideas into reality, and for investors to be incentivised to invest in those early-stage businesses, by way of offering some very attractive tax reliefs, such as income tax relief, CGT deferral relief, tax-free gains (if held for a minimum of three years), and IHT relief after two years, thanks to the shares qualifying for business relief. In addition, there’s also loss relief, which allows you to offset losses against future income or capital gains tax liabilities. EIS, along with SEIS is the only investment in the UK that affords investors this degree of downside protection, to the point where an additional rate taxpayer, once initial income tax relief and loss relief has been taken into account, stands to lose a maximum of 38.5% of their invested capital, per portfolio company.
Since 1994, EIS funding has raised over £32bn of investment, for more than 56,000 companies. Moneybox is one of them.
EIS isn’t for everyone – the companies you invest in to are high risk, they are more likely to fail than not, and if you need your investment capital back, you won’t be able to, as the shares aren’t traded like traditional stocks. In order to sell, you need to find a buyer, and this can be via IPO, trade sale, or via the secondary market, just as this exit has been facilitated.
Some investors shy away from Venture Capital deals for these reasons, preferring steadier returns from traditional stock market investments. However, here’s a task for you: go and research the FTSE100 total return (every dividend ever paid out, reinvested into more shares) index, from the date of inception (3rd January 1984), and see what the total percentage return has been over the past 40 years (spoiler alert – it’s not 17x).
Would Moneybox exist if EIS didn’t exist? Would Oxford Capital exist if EIS didn’t exist? No-one knows for sure. However, one thing is for sure – EIS incentivises investors to take risks, and back founders such as Ben and Charlie to follow their ideas, and turn those ideas into successful businesses, which not only benefit those lucky enough to own shares in the business, but also benefits the economy and jobs market too. EIS is a key incentive to drive growth in the UK, and it wouldn’t be possible without the Enterprise Investment Scheme Association, who continue to hold the government to account, and uphold the benefits of EIS, regardless of which side of the political spectrum the incumbent government sits on.
Going back to EIS and to the Moneybox exit, what benefit does EIS have to those investors who have recently benefitted from our 17x return? Well, for a start, someone who has just sold Moneybox shares that originally cost £10k via their EIS fund immediately benefitted from 30% income tax relief on those shares, meaning that their income tax bill was reduced by £3k. Where EIS really gets exciting though is the benefit of tax-free gains. These shares have been held for in excess of 3 years, so the gain is free from CGT. That means the £10k original investment, thanks to a 17x return (or 1629% to be exact) has now grown to £172,900, without any liability to CGT. If the same shares had been purchased outside of an EIS wrapper, the gross gain would be the same, but CGT payable would be £31,980, reducing the net gain down to £140,920. Still a nice gain, but not as nice as the full amount!
This is a good news story for Moneybox, for its investors, and for the wider VC and EIS community. I expect there to be more good news to come, both from Moneybox, and other founders out there who continue to make their dreams a reality, thanks to the incentives of EIS, and VCs who support them through the peaks and troughs of their journey.
If any of this has inspired you to take a look at EIS, please feel free to download the Oxford Capital Guide to EIS, here: Introduction to EIS – Oxford Capital
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment. Take 2 mins to learn more.