You are likely familiar with the more traditional ways to invest, like stocks and bonds. But there are different ways of investing nowadays and reaping the rewards from savvy investments is no longer the preserve of only high-net-worth individuals. Whether investment is coming from crowdfunding, angel investment or Enterprise Investment Schemes (EIS) there are more ways than ever to invest your money. However, it is worth bearing in mind that all investments carry a degree of risk. Keep reading to find out more about how EIS can be successful.
What Is An EIS Fund?
EIS is a government-backed initiative which aims to raise funds for early-stage and start-up companies from private investment. Investors are only able to invest during the initial round of fundraising and the funds are pooled together and invested in a range of different businesses. Investors are reliant on their fund manager to invest, monitor and deliver to get a return on their investment. Therefore it is important for investors to choose experienced EIS providers with a proven track record.
EIS Backed Successful Businesses
While there is always a risk with investments of any kind there are some notable household names that have been backed by EIS funds. Online flower delivery service Bloom & Wild is one example of an EIS success story. Similarly, Koru Kids and Gousto were both backed by EIS investments. Investing in start-up companies is considered high risk as they are in their infancy, but the potential rewards for backing the right business can be significant.
What Is The Impact On Your Portfolio
Because EIS funds are spread across different companies the result for the investor is a diverse portfolio. For every success story, there will also be a business that failed. By spreading your investment over different start-ups the overall impact of any market volatility on your investments will be reduced. It is worth taking independent financial advice before investing and conducting your own research.
Additional Benefits
Start-up businesses contribute to the wider economy, providing jobs and opportunities in communities up and down the country. Typically, start-up companies grow much faster than established businesses and contribute to the UK’s job market. New companies can be some of the most exciting to invest in too and you can have a front-row seat to watch the company on its journey.
In addition, there are tax benefits to investing in EIS. Investors can benefit from 30% income tax relief and capital gains tax relief. There are certain conditions that need to be met, however, such as holding the investment for three years.
Growth Potential
Investing in start-ups is considered higher risk than investing in established businesses in the FTSE 100 but the potential for substantial returns is higher. As we have seen earlier, some household names were backed by EIS in their early years and succeeded thanks to these investments. There are many other successful businesses that have been financially supported by EIS too.
In Summary
Although investment in start-up businesses is high risk there have been, and will continue to be, success stories from EIS. The next big growth Company is out there but you may have to experience some losses before you find it. EIS can offer investment in varied business sectors; from tech start-ups to renewable
energy to biotech and health and wellness. Do some background research in the sectors which interest you the most to get an idea of what you can expect. Then, you can look to find some promising small businesses to potentially invest in.
