TALKING POINTS

It is hard to know where to start Talking Points this month as there is so much going on in the equity funding space at the moment.

As mentioned in my recent emails, there are a number of working groups and bodies that have been set up by EU, Government and think tanks to review post Covid funding for small businesses so I thought it would be worth spending some time in this article looking at each, what their aims and objectives are and how EISA are involved.

The Recapitalisation Group has been set up by TheCityUK which is the industry-led body representing UK-based financial and related professional services. The group is chaired by TheCityUK Leadership Council Chairman Sir Adrian Montague and supported by EY. Its stated aim is to understand and identify mechanisms to support the recapitalisation of UK businesses which have needed to take on additional debt in response to Covid-19. In early June, the group launched an interim report on how the private sector can support UK SMEs to manage unsustainable debt built up during the Covid-19 pandemic. It sets out the scope of the challenge, considers the sectors most likely to need support, explores how private sector capital could be mobilised and what gaps could remain for the public sector. Essentially the report looks at two key areas. Firstly, restructuring debt and secondly, growth capital. The report is a 56 page document and one of its stated aims is to consider “potential private sector or hybrid private/public sector solutions to address the recapitalisation challenge and support UK businesses”. It makes numerous references throughout the document to “growth capital”, “equity investment”, “venture capital”, “utilising the tax system”, “capitalising SMEs” and “early stage investing”. All words that epitomise VCT, EIS and SEIS funding and yet there is not one mention of any of the schemes in the document.

Last time I checked the schemes have very successfully funded (or using the language of the document, capitalised) SMEs for 25 years and have therefore built up an infrastructure specifically designed to raise private investment and deploy into early stage businesses. It seems like what is being proposed in the document for Growth capital largely already exists albeit with some amendments to the schemes.

Responses to the Recapitalisation Group are being collated by the BVCA and we have fed back our thoughts and will continue to engage.

This group has been formed by entrepreneurship organisations as subset of the Business Action Council (BAC). The BAC’s primary mission is to act as an instrument that provides Government with a more coherent perspective from business. The primary focus of the group is to provide assessment of the immediate impact on entrepreneurial businesses of COVID-19, and available remedies; assessment of the role finance will play in a post-COVID-19 ecosystem for such businesses; and strategic solutions in support of our entrepreneurs and their businesses in the medium to longer term.

This group is being led by Irene Graham from the ScaleUp Institute and Charlotte Crosswell from Innovate Finance and has identified 3 strategic areas that it will consider; Building upon Pillars that Already Exist, Finance and Regional Diversity : levelling up - inclusive sustainable growth and Evolving long term infrastructure - Development Bank / Investment Bank / Sovereign Wealth Fund.

We have been involved in a number of conversations with the group and its leaders and EIS, SEIS and VCT feature prominently in their plans for closing the funding gap.

The Business Secretary Alok Sharma chaired a series of economic recovery round tables over the week (10-13 June), bringing together businesses, business representative organisations, regulators and leading academics. Discussions focused on the measures necessary to support economic recovery and ensure we have the right opportunities in place for growth across the country over the next 18 months and beyond. The outputs from these roundtables will feed directly into the government’s work on economic recovery.

EISA were not invited on to the roundtables directly (I understand the preference was for businesses to be represented rather than trade bodies) but we were asked to feed in to theStartup and Growth roundtable with a written submission and we await to hear the outcome of these discussions.

There are also reviews being undertaken by BEIS and the Bank of England looking at reigniting economic growth and resetting the economy post Covid.

So, there is no shortage of work being done to explore what issues SMEs face and to try and identify what the solutions might be. With so many solutions being put forward by a number of different groups and vested interests, it does also raise the possibility that a long standing, “old” albeit successful scheme like EIS and SEIS could be marginalised by new schemes and ideas. After all, every Government likes to be able to announce new thinking and programmes as they tend to generate far greater headlines than expanding existing schemes.

However, from the conversations I am having, I’m confident EIS and SEIS has been earmarked to play a part in the next round of growth funding and it was heartening to hear the Economic Secretary, John Glen MP, say on a webinar recently that he was aware EIS had not been able to be included as part of the Future Fund and this was “a gap he hoped to fill”. I have also been told the Chancellor has seen EISA’s representations and is said to be sympathetic of expanding the schemes. If this is true, changes could be as soon as the next few weeks, but my feeling is, given any such changes need both UK legislation change and EU State Aid approval, this is more likely to be towards the end of the year.

One thing the coronavirus epidemic has taught us though is to fail to prepare is preparing to fail so we will keep making noise for our cause and very much part of this is our proposed research study that we intend to undertake to evidence the funding gaps and market failure and make recommendations accordingly. This will help us build a robust and irrefutable case for change and expansion. To do this, we need your support so please do use the link to the EIS Research Study in the Member Events and News section of the ZeitgEISt email to find out more.