The amount of money raised by businesses through the Enterprise Investment Scheme (EIS) almost doubled last year, suggesting that recent extensions to the funding tax relief have buoyed interest.
EIS-backed funding rounds raised £1.02bn in the year to the end of March 2012, up from £545m in the previous 12 months, according to figures published this month by HM Revenue & Customs.
Almost 1,500 businesses used EIS for their funding rounds for the first time during this period, 41 per cent more than did so in the year to the end of March 2011.
In total, more than 20,000 businesses have raised more than £9.5bn using EIS since it was introduced in 1993 to help smaller higher-risk companies raise finance by offering a range of tax reliefs to investors who purchased new shares in those companies.
The scheme took a while to gain the attention of investors, but has become more important as successive governments extended EIS to cover a larger number of companies.
Gary Robins, a partner at Chancery Investment Partners, a provider of tax-efficient investments, said: “With bank lending to SMEs continuing to decline, small businesses have been forced to turn to alternatives such as equity investment through EIS.
“Strong, viable enterprises are thirsty for funding so they can grow their business as the economy continues to strengthen and EIS is increasingly becoming a mainstream option for them.”
One of the most recent and fastest beneficiaries of EIS support has been City Pub Company, which has grown to a chain of 13 premises since it was founded at the end of 2011.
It set about raising £10m through its operating companies City Pub Company (East) and City Pub Company (West) and hits its target in less than two weeks.
Lenny Norstrand, founder of Ram Capital, said: “In all my time as an EIS fundraiser I have never seen a company close so quickly after launching their prospectus as City Pub Company has recently done.”
Demand for EIS-backed schemes has been particularly high since the tax relief was expanded in April 2012 to enable larger businesses with more employees to access the scheme and the annual fundraising limit for businesses was raised to £5m.
“Since the scheme’s overhaul in April 2012 we have seen unprecedented levels of demand for EIS from businesses and investors alike,” Mr Robins added.
“Investors from high net worths to the moderately wealthy have been attracted to the new breed of more mature companies that are now eligible for EIS relief.”