Providing income tax relief to investors for risk capital investments in qualifying SMEs, the Employment Investment Incentive Scheme (EIIS) remains as crucial as ever as it supports companies in accelerating their growth, breaking into new markets and driving innovation.
This has always been vital and despite the fallout from the pandemic and Brexit, Sinéad Heaney, partner at BDO, says there is a lot of funding available at present, and the EIIS is one crucial element.
“It is a buoyant time right now and we are seeing many businesses which have emerged from Covid with very ambitious plans for growth,” she said. “The EIIS has always played a very important role in this funding cycle, as it is available to businesses seeking to secure it as a stepping stone to facilitate growth at a particular stage of their journey.”
The financial expert says one of the reasons why EIIS is so important for less-established businesses is that, being at an earlier stage, they may be considered a higher risk so can find it a struggle to secure funding from traditional sources.
Established in 1995, BDO and Davy, operating as the longest-running EIIS fund manager in Ireland, has raised over €200 million in this time and invested in between and 80 and 90 companies. It currently has over €55 million under management and is very well placed to assist businesses which may want to go down the EIIS route but are unsure of how to do so.
“Unfortunately EIIS legislation is quite complicated, and this aspect is one of the things which has been lobbied quite heavily,” Heaney said. “But we are working on it on a daily basis, so we know it very well and are more than happy to assist companies – even those which may not meet the mandate of our own fund – as some struggle to figure out if they qualify for the scheme or not.
“From the outset, there are two things we will look at when we meet any business: first, does it qualify and secondly, does it meet the mandate of our fund. We target businesses with ambitious management teams and strong market opportunities. We will only invest in businesses with a track record, even just 18 to 24 months off the ground, as long as they have established a market.”
Once this has been ascertained, the team at BDO can assist by advising companies in relation to the scheme and by helping them to achieve success.
“Having invested over €200 million in SMEs over the last number of years, we have significant experience working with ambitious SMEs to assist them to achieve their growth plan,” Heaney said. “We have also supported businesses throughout the pandemic and helped them to right size their enterprises and realign their strategies, so we are very heavily involved throughout the investment period.
“In some cases, we may team up and co-invest with the likes of private, institutional funds, Enterprise Ireland or banks to unlock investment opportunities. In other cases, there may be a situation of using those funds to get businesses to a point where they can avail of more funding. It’s all about getting suitable funding for the type of opportunity they are pursuing.”
Along with highlighting the benefits of the EIIS, Heaney, who is partner in charge of the Corporate Investment & Business Advisory department in BDO with overall responsibility for the management and investment of Development Capital Fund and the Davy EIIS Funds, says the changes to the Finance Bill, which include plans to reform the EIIS with a view to boosting investment in innovative indigenous SMEs, have also been a positive development.
“This is really positive, as it expands the market. Also, follow-on investments are now facilitated by funds which were previously restricted. This is another hugely positive step, because we often invest in businesses which have significant growth plans and want to follow on, but that was previously restricted. So that has now been opened up.
“Another positive move is the amendment of the 30 per cent rule whereby businesses had to spend 30 per cent of the money in order to get the tax relief. We had been lobbying strongly that the bar to qualify was high: the rule was adding an unnecessary administration burden to both the investors and the companies, and delays to investors obtaining their tax relief. This new step will help to simplify the scheme and remove these delays. It does certainly make it more attractive from both a company and investor perspective, and it is very much welcomed by us.
“All in all, the EIIS is a very beneficial scheme. Of course, there are complications and frustrations in relation to it and we do see businesses that would experience those, but that is what we are here for. We are always trying to help businesses unlock the scheme and have seen so many going from strength to strength after availing of and benefiting from it.”
For more information, visit bdo.ie