The EIS is great for ambitious tech businesses… here’s why
Attracting top business talent when you are a small and unknown business is not easy. So, ensuring your business is in the best possible position to scale and grow quickly is essential in this crucial war for talent facing London’s numerous tech businesses. For instance, your business plan needs to be believable and have strong supporting research and analysis, and it must prove scalability for top level talent to be interested.
At our central London accountancy practice, Wilson Wright works with numerous tech businesses to help them develop robust business plans that will help them successfully achieve rapid growth, and consequently be attractive to the talent they need.
Typically, one of the most frequent problems we come across is businesses having too little capital when they start looking for senior hires.
Too little capital = too much risk
The problem with being under-capitalised is twin-fold. Firstly, it creates the impression that your business is not serious and will quickly become resource-constrained… joining such a business is hardly an attractive proposition for someone with a secure and highly paid job who is also being courted by several ambitious tech businesses.
Putting aside the business risk, it also means the financial package your firm offers will involve too much financial risk for them… few are going to want to join a firm when their share options and other parts of the financial package could be diluted by the need for future investment.
So how should an ambitious early-stage tech business go about ensuring it is well capitalised ahead of recruiting the talent needed to scale up?
Using the Enterprise Investment Scheme (EIS) to capitalise your business
Ensuring the business is adequately capitalised is essential for being attractive to top talent. While there are numerous options, our experience of working with dozens of such tech businesses is that usually the best approach in the early rounds is to utilise the UK government’s Enterprise Investment Scheme.
The EIS is a scheme created specifically for smaller, higher-risk companies to help them quickly and efficiently raise finance by offering a range of tax reliefs to investors who purchase new shares.
We work with tech businesses to help them successfully use the EIS to raise money from private investors and HNW individuals.
By way of example, we recently helped a London fintech business with innovative technology in just such a predicament. There was a significant market opportunity but funding and recruiting key executives were crucial to it being exploited.
The company had previously been denied EIS clearance by HMRC. Upon being engaged we re-wrote and re-submitted the application, and within 6 weeks clearance had been granted.
The company was quickly able to raise the first-round finance and attract the key people it needed, in this case a CEO and Chairman with experience in running similar companies.
Our client has since launched and closed a crowdfunding round and was oversubscribed within two weeks. It has reached break-even and is now growing its revenue at a rapid rate.
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In future blogs I’ll be looking at the other building blocks for attracting the sort of top talent that will really help you successful scale up your fintech business, including ensuring the right package for your top talent (and why we endorse the EMI share options scheme), the key role of the chairman in attracting top people and, really importantly, what top recruits are looking for when they analyse your business case.
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