Is the UK government killing VCs?
I wrote previously about how the UK government was helping to direct more seed funding to entrepreneurs and early stage businesses via its SEIS and EIS tax incentive schemes.
I believe this is good for UK venture, but does it also mean new competition for venture capital firms further up the funding food chain?
I ask this question because SEIS/EIS scheme allows up to funding of up to £5m in a 12 month period. If managed and self-directed money wanting access to larger EIS deals is able to be effectively aggregated or centralised this suddenly becomes another option for entrepreneurs previously limited to the larger VCs, and the odd, rare Super Angel .
A fragmented threat to VCs
In our own dealings, and hearing from other entrepreneurs, I see decent anecdotal evidence of a range of EIS wrapper providers now working with IFAs to collect large volumes of EIS money. It is true that much of this activity focuses on yield focused investments, but there is also much activity promoting real venture opportunities. The wrapper providers/advisers create their products with entrepreneurs and then market them to their IFA networks.
In the last months I’ve come across promotions from EIS wrapper providers covering a range of venture opportunities covering sectors such as:
- Gaming and entertainment
- Music and radio
- Technology and apps
- Media, film and TV
- Energy and renewables
- Big data
Centralising this growing threat to VCs
Obviously what this growing EIS market in the UK needs is some central points for capital and entrepreneurs to meet and go about their business. We are now seeing the emergence of platforms to facilitate this and collect liquidity of funds wanting in, and entrepreneurs seeking cash.
Two such platforms launched at the back end of 2012 with quite different business models.
The first is called SeedEISPlatform which seeks to act as a marketplace putting EIS eligible companies and investors in touch directly. This platform, whilst currently showing quite limited liquidity in its roll call of EIS companies for funding and funded, will appeal more to the self-directed money flowing towards EIS companies.
Investors with a preference for execution only, without managers and advisers, will be interested to see how SeedEIS goes from its current handful of companies.
At the other end of the investment philosophy spectrum is the Kuber Ventures which is a different sort of platform, seeking to centralise liquidity in EIS funds operated by a range of advisers. This platform, even more recently launched, also has a handful of product options so far.
There is a range of product types on the Kuber platform, some being more actively managed than others, but this is another form of liquidity point emerging in the UK’s maturing EIS market.
Right now as an entrepreneur you could easily create a target list of many dozen EIS wrapper providers to approach, helped by the names mentioned on Kuber, or you could advertise your business on SeedEIS.
And the big money ain’t even playing yet
Early though it is in the consolidation of this EIS industry these developments tell us quite a bit about the potential of serious money to be directed into EIS qualifying companies.
The two platforms mentioned above, and others out there or in emergence, are yet to fully legitimise themselves and then later enjoy exposure on other types of money management platforms. As products, if these EIS hubs can prove themselves as concepts there is no reason why they themselves could not be featured on other platforms used by wealth and pension managers and self-directed investors where much bigger pools of capital congregate.
Imagine the potential for an EIS hub of being featured on well-known IFA platforms such as Transact, Ascentric or Skandia, which support £12bn, £15bn and £40bn respectively.
Is the maturing EIS market a warning shot to VCs?