2 min read

How to avoid EIS fund fees

The government’s EIS scheme has proved a hit with wealthy investors who are interested in backing early-stage ventures, but who without the scheme would probably be scared off by the risk. With nearly 60% of an investor’s protection covered by tax liability reductions, capital gains tax relief, and a loss relief (for when things go wrong), it’s easy to see why the amounts invested through EIS continue to grow.

Enter the EIS fund, which has gained popularity by spreading capital into a portfolio of these high-risk, high-reward ventures. As great and diverse as these seem from the outside, the one thing all EIS funds have in common is that they all charge costly fees.

Having conducted our own research into EIS funds and the associated fees, we’ve put together a table displaying the range of fees deemed normal’:  

 

Initial fee range

1–2.5%

Management fee range

1.5–2.5%

Cut of carry

15–25% of profits above initial investment

 

Imagine I put £20,000 into a fund, where the initial fee is 2% and the management fee is also 2%. The minimum level of investment into the fund is £20,000. The initial fee may be a meagre £500, but over a five-year period the management fees can amount to 10%, or £2,000. Add these up and out of the £20,000 I’ve invested, only £17,500 is being used to invest. 

That may not seem like a lot as it is true that someone is ‘managing’ the fund, but when you consider that this fund is likely to invest in between five and ten companies, my share of each investment will be between £2,000 and £4,000. So actually, that £2,500 I’ve lost in fees could be another investment altogether. As I’m sure you’ll agree, 11 investments instead of ten (given they are roughly of the same quality) is better. So why then pay these fees, when there is a simple alternative that allows you to avoid them?

This alternative is, of course, to build your own portfolio on SyndicateRoom. Don’t let the historically lengthy process and high-entry investment levels put you off: on SyndicateRoom the process is simple and allows you to invest anything from £500 into any company you select for your portfolio. The further benefits of building your portfolio with us are as follows:

  • All investments have already attracted an experienced lead investor, so you invest knowing that someone, unlike at a VC, has put a significant amount of their own money into the deal
  • Building your own portfolio ensures that you know exactly what is going into it
  • You receive the same EIS and SEIS benefits that you’d expect from a fund

So next time you consider investing into an EIS or SEIS fund why not considering building your own portfolio. To start building your portfolio sign up for a SyndicateRoom account today.

Tom Britton – CTO & Co-founder, SyndicateRoom

Risk warning: tax relief depends on an individual’s circumstances and may change in the future. In addition, the availability of tax relief depends on the company invested in maintaining its qualifying status.


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