The UK lags behind when it comes to investing. While 63% of Americans own stocks, less than 25% of UK citizens do (Financial Conduct Authority (FCA), 2023). Instead, an estimated £430bn sits in cash savings, often earning interest below inflation (Bank of England, 2024). Yet, 12% of UK adults own crypto (FCA, 2023) – showing a willingness to take risks, but often without the tax benefits, investor protections, or long-term strategies of more traditional investments.

For financial advisors, this presents a major opportunity. Clients are already engaging in high-risk investing – but without structured guidance. The Enterprise Investment Scheme (EIS) offers a solution to this.

The Shift from “Steady Investing”

The traditional approach to investing – steadily building wealth through balanced portfolios of bonds and equities – has become less effective in recent years. High inflation, volatile markets, and rising interest rates have disrupted conventional investment strategies (Financial Times, 2024). As a result, investors are increasingly seeking high-growth opportunities rather than relying on slow, incremental returns.

This shift aligns with the rise in alternative investments like cryptocurrency and early-stage venture capital. People are drawn to investments that feel exciting, have strong upside potential, and offer the chance to back innovative businesses at the ground level. The irony is clear: while stock market participation remains low, UK investors are embracing risk in other areas.

EIS: A High-Growth Alternative

This is reflected in the continued growth of EIS investing. HMRC data shows that EIS inflows have increased year on year, despite economic uncertainty, with over £1.7bn raised in 2022-23, up from £1.6bn the previous year (HMRC, 2024). This demonstrates investor appetite for high-growth, high-risk opportunities that offer potential outsized returns.

Why EIS Fits the New Investment Mindset

EIS sits at the intersection of these trends. Like crypto, it involves backing early-stage businesses with high potential for significant growth. However, unlike crypto, it provides significant tax advantages, government support, and structured investment strategies, making it a more robust option for wealth growth. Key benefits include:

• Capital Gains Tax (CGT) Deferral: EIS allows for unlimited CGT deferral, a crucial advantage in light of recent tax hikes.
• Inheritance Tax (IHT) Relief: Up to 100% IHT relief after two years, particularly important given upcoming changes that will limit tax efficiencies on AIM stocks and some pensions.
• 30% Income Tax Relief: A major incentive for high earners looking for tax-efficient wealth structuring.
• Loss Relief: The ability to offset company failures or losses against income tax or CGT, acting like a tax-efficient cushion for investors.

The Haatch Approach: Entrepreneurial Investing Done Right

This is where Haatch excels. Our investment approach is designed for those excited by high-growth potential but want a well-managed, tax-efficient structure. Early-stage investing is exciting, but let’s be honest – it involves risk. While the tax incentives of EIS and SEIS soften the blow, the reality is that many startups fail. That’s why a structured, disciplined approach is essential. At Haatch, we focus on Business-to-business software companies who solve a deep pain, and here’s why:

• Proven Market Demand – We invest in businesses already generating revenue, meaning they have paying customers, validated demand, and existing contracts, offering a stronger foundation for growth.
• Why B2B SaaS? These companies operate on long-term contracts and subscription models, creating predictable revenue and higher retention rates. Their software often becomes essential to customers, potentially reducing their exposure to market shifts.
• Backing Visionary Entrepreneurs. We invest in founders solving critical problems for businesses, ensuring their solutions are indispensable and encourage long-term commitments.
• Radical Transparency. Investors get direct access to quarterly video updates from founders via our investor portal, providing real-time insights into company performance and complete transparency around challenges.
• Market-Driven Valuations. Rather than relying on independent assessments, we value businesses based on actual funding rounds, ensuring valuations reflect genuine investor confidence.
• Backed by the British Business Bank. We are the only fund manager where the British Business Bank invests alongside every deal we make. This government-backed institutional investment provides additional validation of our approach and offers investors confidence that our portfolio companies have undergone rigorous due diligence.

A New Era of Investing

With tax changes limiting traditional tax-efficient routes like AIM stocks and pensions, investors and advisors need to embrace the shift toward alternative investments. The UK may not yet be a nation of investors in the traditional sense, but with the rise of EIS, that may be changing. The appetite for high-risk, high-reward investments is clear: It’s time for investors and advisors alike to harness it effectively.

Written by Olivia Drinnan, Advisor Fundraising

References:

Financial Conduct Authority (FCA), “Financial Lives 2023 Survey”

Bank of England, “Household Savings Data, 2024”

HMRC, “Enterprise Investment Scheme Statistics, 2024”

Financial Times, “Investment Trends in the UK, 2024”