Revelations from the latest EIS and SEIS statistics
Headline numbers are always interesting, but digging behind the EIS and SEIS statistics is revealing.
Before analysing the lastest EIS and SEIS statistics announcement I must praise the team at HMRC for being so responsive for requests for statistics. Not only have they started reporting more often on the volumes of investment activity and (joyously) giving us details of numbers of investors and amounts they invest, but they are also now giving us details of the Advanced Assurance applications and approvals too. This is highly valuable information as it gives us insight into the aspirations of companies seeking funding as well as those that have successfully funded. I am hoping that over time we can work with Neil Wilson and his team to use the statistics to give us great insight which will help investors, fund managers and entrepreneurs to use EIS and SEIS better.
It is great to see that the market for companies fundraising successfully through EIS has overcome the removal of renewable energy investments from the scheme. The graph below shows the uptick in activity in 2010-2012 has now been comfortably overtaken, though we are still not upto the 2001 peak.
Over half of fundraisings are still coming from companies raising for the first time, but of course it will be interesting to know how many of these are in fact follow on fundings from SEIS raises. Perhaps those numbers can start to be released at some point.
The SEIS market may be beginning to show signs of maturing. A greater proportion of SEIS monies are going into follow on fundings – can we expect that over time we will see a similar situation where around half of SEIS funding goes into further funding rounds. Does this mean investors are being more cautious about handing over largish sums of money to start ups in one go? As the amount for 2014-15 is provisional and almost the same as 2013-14 (c£169m), it is probable that the final numbers for 2015 will show that this is the case. Most interesting is the number of SEIS subscriptions – 71,000+ since the scheme was launched. The impact of the crowd will no doubt be revealed later in the year when more comprehensive statistics are released.
The advance assurance figures are fascinating – not least because c85-90% seems to be the magic range. By that I mean that there has been long term consistency in the approvals rates for both EIS and more recently. The message is loud and clear – you have a more than 8 in 10 chance of getting approval, so do it! The devil of course is in the fine detail and HMRC has not yet released detailed information on EIS companies that do not seek advanced assurance but fundraise and then apply and equally of the 15% or so that do not get Advanced Assurance in any one year may go on to get the approval in the following year. So it is possible that the success rate is more like 9 in 10.
It is interesting that since 2006/7 almost 20,000 EIS applications have been made (we assume that each application is for a single company) but in the first three years of SEIS over 10,000 applications have been made. Currently the team are processing something like 24 applications a day every day between the two schemes.
It is to the credit of HMRC that it has absorbed this massive increase in workload and probably explains why they are taking longer to process applications. Maybe we should lobby Mr Osborne to recruit more staff into the team!
It is worth noting that of the applications whcih HMRC challenges an increasing, albeit tiny, number are electing not to puruse the application further. If this trend continues it may be worth a researcher doing some more analysis into why this is the case.
We now await the next release of statistics to do some more analysis. In particular I cannot wait to see what the numbers of investors per investment amount look like – as this will be the firmest evidence we can obtain on the impact of equity crowdfunding on the early stage investment market.