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The latest set of EIS and SEIS statistics announce good news, but the devil is in the detail.

Headline numbers show that both EIS and SEIS investment is continuing to grow year on year with an additional £224m being invested in EIS in 2014/15 vs the year before so a new high of £1.8bn invested in 3,265 companies.  By comparison back in 2000/2001 the amount invested was £1.6bn in 3,315 companies.  Even allowing for inflation, this suggests that investors overall are putting more money where their mouths are to back our enterprise economy.  Anecdotally the evidence suggests that 2015/16 will be at least as strong, if not stronger given the activity levels in the Crowd and the early stage angel/VC worlds.  So overall there is little to worry about. 

But closer analysis of the detail reveals some interesting issues.  First and foremost we are increasingly a services economy.  £807m was invested in Business and other Services vs only £100m in manufacturing (where investment as flat year on year).  Hi Tech companies did raise £349m but this was an uplift of only £50m.  This does not look so good when you see that Business Services alone saw an uplift from £381m to £604m.  It would be very helpful if HMRC would provide a more detailed breakdown of what it includes in Business Services so better analysis can be done, but the inference of these statistics does suggest that we are a nation which now sits on its bottoms facing a computer screen and sending documents over the web, rather than "making things" to export to the world.  The Brexiteers should take note.  It's trade deals in services which matter most these days, perhaps sadly. And for those concerned about the nation's health there may be some irony in the fact that investment in Recreational Services shrank from £177m to £152m!

Is the Crowd having an impact on EIS investment?  The jury I think is out and it may be that nvestors are now looking to the Crowd to find deals that they would previously have found elsewhere (such as locally or through angel networks) as opposed to a new asset class emerging.  Analysis of the amounts raised by amount per company shows that year on year whilst there was an increase of £60m from £434m to £494m in companies raising upto £750,000, there was a £164m increase in amount raised by companies raising £1m or more from £1.2bn to £1.3bn.  I am not knocking this - its fantastic news that 615 businesses raised these sums vs 510 last year, but this 21% increase is far higher than the 14% increase in numbers of companies raising £750k or less.  The message from this year's statistics suggests I think that more "big boys" are playing in the EIS world than before and possibly because of the significant increase in CGT that fell due in 2014/15 when amounts owed rose from c£5bn to over £6bn.  

Time will tell whether the 2,600 companies (2013/14: 2,325) raising less than £750k will go onto raise larger sums in the future. The 2015/16 numbers will be very telling in this regard.

The geographic breakdown of investment tells a story of a nation of separate countries, with London being the most separate and dominant of them all.  With 47% of monies being raised for companies with a London registered office entrepreneurs outside London have a greater than 50% chance of raising money if they get on their bike (or a train) to the Capital. Activity in Scotland is pretty chipper - with 8% of national population its not bad that Scottish companies are receiving 4% of funds raised, but London only has 13% of the population and gets 47% of the money!  There is a sign that the Northern Powerhouse is beginning to have an impact (and a good thing too) - with 11% of the population this region at least managed to get 5% of the funds raised. And some praise and attention should be focused on the South West home of AngelNews.  Over the last three years annual investment in the region has risen from £48m to £88m and now £112m!  How about the government adopts policies to rev up the Western Engine alongside powering up the North?

And now to the reason why I gave this article the title I did.  I am concerned.  Overall we are getting a picture that in many categories less numbers of people are filing for EIS relief.  Last year on average 43% more people applied for EIS relief than the year before.  This year on average 3% less people filed their paperwork with HMRC.  Only 500 more people filed than last year.  Whilst there was an average 4% growth in people filing upto £25,000 (arguably the Crowd) this is a drop from 33% the year before.  Only those filing for between £300,000 and £350,000 saw an increase in number of 18% - overall over £25,000 there was an average drop of 7% compared with a rise of 49% the year before.  

The overall conclusion is that EIS investment is concentrating upon increasingly fewer investors.  At the upper end can we conclude that angels in fact leaving the market? In the Crowd (especially given the apparent number of crowd investors (over 50,000 on Crowdcube alone) should we conclude something more worrying - that whilst thousands are investing, they are not filing for Tax Relief and thus are sfundamentally increasing the risk and likely returns on their investments.  The HMRC stats show that £500m more was filed by EIS companies than investors claimed.  Ouch!  

The nature of the statistics make it exceptionally complicated to assess whether it is companies raising smaller amounts have less investors who claim their tax breaks than those which are raising larger sums, but I would hazard a guess a large proportion of the £100m+ the Crowd has raised in the period was not claimed, the problem is also alive amongst investors who invest larger amount.  There is a big marketing opportunity for the accountancy firm that steps forward to address this issue with a campaign to encourage people to make their claims!

And what about SEIS? The statistics paint a very different story from EIS, one that could be a concern. AFter a large increase in activity between years 1 and 2 of the scheme, year 3 revealed that activity was pretty static, virtually no increase in numbers of companies raising for the first time, less than 10% increase in companies using the scheme overall to raise funds, a small decrease in the number of subscriptions and pretty much statis in the amounts being raised.  Is this because the Scheme is proving not to be as attractive as first thought?  

Looking deeper into the numbers there are some clues, the hi tech and business services sectors are more popular as users of SEIS relative to other sectors than EIS.  That's good news.  And its perhaps not surprising that SEIS is hardly used in transport and communication. It is surprising though that agriculture and construction take a greater share of the SEIS pot than they do of the EIS pot.  Perhaps this bodes well for the future in those sectors?  It is interesting that almost 10% of the SEIS monies invested were in distribution, restaurants and catering - I suspect this is definitely the influence of the Crowd a large part of which is characterised by food & drink. 

There are some other oddities about SEIS.  Who are the 200 companies that raised £10k or less and the 310 that raised £25,000 or less?  These are not equity crowdfunding companies which usually seek to raise at least £50-75k.  Will they go on to raise more money under the scheme or is there something else going on?

Although it's great news that 1,285 companies raised between £50k and £150k we must not get complacent.  Around 500,000 new companies were registered in the period, so we are still looking at 0.3% of the cohort raising external equity finance within the first couple of years of life. 

Like EIS (and with the same caveats about location of registered office) London is the home of SEIS.  1,000 companies, £77m of the £175m raised. The numbers speak for themselves. Though it would be unfair to deny the South East a bit of credit, with 440 companies raising £35.6m under the scheme. 

And now back to that knotty issue of the number of investors using the scheme.  £136.6m claimed out of a pot of £175 - 22% of the investment that could have been claimed has not been. Better than the 28% under EIS but still not good given that the tax break is 50% income tax relief. 

Numbers of investors using the scheme is not growing as one might hope either, given the financial incentives.  Only 355 more people used it than the year before. In year 2, 275 more people used it! Some 4,700 used the scheme for investments of less than £10k - probably most of these were crowd investors, but almost 1,600 "angels" used it to invest between £25k and £100k raising almost £84m. TThe Crowd is way behind raising about £20m, so its probably fair to say that if you want a decent amount of SEIS money you should still head to the angel market or your wealthier friends. 

The 2015/16 statistics which will still be pre Brexit are going to make interesting reading the 2016/17 ones even more so, but applying the devil to the detail we do get a good picture of some big issues surrounding EIS and SEIS.

The most noticable is that not enough people are filing their forms to obtain their reliefs. Something must be done about this soon, especially in my view in the Crowd for moral reasons (these deals are sold cum tax break after all!) and for financial reasons in the EIS world.  

We need a great Western Engine to join the Northern Powerhouse to rebalance England and if we want to keep our kingdoms united post Brexit, much more focus must be placed on investment support in Scotland, Wales and Northern Ireland. 

And last, but not least, Maybe (haha - Ed!) our government should apply its industrial strategy by paying attention to the SME sector, rather than just sucking up to international business, just because its big and employs lots of people in big factories rather than £ms of people in thousands of small ones.