Investor appetite for backing high-growth private companies through the UK’s flagship Enterprise Investment Scheme (EIS) has dropped significantly, with new HMRC figures showing a 20% fall in funds raised in the year to March 2024.
Companies secured just £1.6 billion through EIS last year, down from £2.0 billion the previous year and well below the post-pandemic peak of £2.3 billion in 2022. The number of companies benefiting also declined by 10% to 3,780.
Despite generous tax breaks, including income tax and capital gains tax relief for qualifying investors, the EIS appears to have been hit by caution among investors during a year characterised by economic headwinds and interest rate uncertainty.
In contrast, the sister Seed Enterprise Investment Scheme (SEIS) — designed for earlier-stage startups — saw a 25% surge in company participation, with 2,290 businesses raising a combined £242 million. The increase followed rule changes in April 2023 that raised maximum investment thresholds, offering greater flexibility and attracting more early-stage investors.
Across both schemes, the majority of investment continues to be concentrated in London and the South East, with around two-thirds of recipient companies headquartered in the region — prompting calls for greater regional diversification.
Christiana Stewart-Lockhart, director-general of the Enterprise Investment Scheme Association, acknowledged the dip in EIS activity but emphasised the scheme’s resilience:
“The EIS is an important success story and, despite the drop, it still drove more than £1.5 billion of private investment into nearly 4,000 growth businesses. Since their creation, the SEIS and EIS have channelled £34 billion into 59,000 businesses across the UK.”
She added that the association is beginning to see “green shoots” in the form of realised investments and follow-on rounds, suggesting a potential recovery in the coming year.
Mike Hodges, partner at accountancy firm Saffery, argued that now is the time for reform: “Perhaps it is time for an overhaul, especially at a time when government is keen to encourage growth. What’s more, with so much EIS/SEIS money focused on London and the southeast, this is especially pressing for the regions.”
While the government extended both the EIS and the Venture Capital Trust (VCT) scheme to 2035, providing a welcome sense of long-term continuity, some experts argue that simplification is now needed to make the schemes more accessible for both investors and companies.
Introduced in 1994, the EIS allows individuals to invest up to £1 million per tax year — or £2 million in knowledge-intensive companies — with upfront income tax relief and capital gains tax exemptions on qualifying gains. Loss relief is also available for shares held for at least three years.
As the UK looks to stimulate growth and innovation through private investment, attention may now turn to how the government can ensure these incentives reach beyond the capital and into the regional economies most in need of scale-up support.
