Beyond the “High Risk” Label: How Advisers Should Think About EIS
March 23, 2026
Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. Take 2 mins to learn more.
Advisers who recommend EIS often ask us about risk.
The asset class is routinely labelled “high risk”, but that description is often too simple to be useful in real client conversations.
The more practical question advisers face is not whether venture capital carries risk, it clearly does, but how that risk is structured, managed and explained to clients.
Within venture investing, different managers take risks in very different ways. Understanding those differences helps advisers move beyond the regulatory label and have a more meaningful discussion about how venture capital fits within a client portfolio.
Why is EIS considered high risk?
EIS is high risk because early-stage businesses can fail. That is inherent to the asset class, and if that risk were not present, fund managers would not be taking the type of risks required to generate venture-style returns.
There is also a regulatory dimension. EIS legislation imposed by HMRC requires fund managers to take genuine investment risk. If investments are structured in a way that artificially removes that risk, the fund risks losing EIS qualification and the associated tax reliefs.
Understanding this helps set the right expectations with clients: risk cannot be eliminated in venture capital, but it can be approached with discipline.
How tax relief changes capital exposure
Another factor advisers often discuss with clients is how EIS tax reliefs affect the capital actually at risk.
EIS offers 30% Income Tax Relief, provided the shares are held for at least three years and the company maintains its qualifying status.
In simple terms, a £10,000 EIS investment reduces to £7,000 of net exposure once income tax relief is applied.
If the investment ultimately fails after the qualifying period, loss relief may further reduce the downside. For a higher-rate taxpayer, the effective loss could be closer to £4,000 rather than the full £10,000.
EIS can also allow investors to defer capital gains tax by reinvesting gains into a qualifying investment. For advisers, this can be a useful way to redeploy capital that would otherwise be lost to tax while aligning it with a longer-term venture allocation.
These reliefs are conditional. Shares must typically be held for three years and the company must remain EIS qualifying. If those conditions are not met, reliefs may need to be repaid.
For many advisers, mapping out a total loss scenario helps clients understand the difference between the headline investment and their true downside exposure, which we at Haatch can support with.
Diversification against the Wider Market
Venture risk also behaves differently from public markets. Returns are uneven, losses often occur before the strongest companies emerge, and outcomes are driven by a small number of standout successes.
If venture risk cannot be removed, the focus becomes how it is approached through manager selection, portfolio construction and investment discipline.
How Haatch approaches venture risk
1. Confidence in the manager
One risk advisers often highlight is confidence in the fund manager itself.
The EIS market is crowded, and it can be difficult to determine which managers genuinely have a repeatable investment approach.
It can be tempting to lean towards firms that have been established the longest, using longevity as a proxy for reliability. However, time in the market does not always correlate with current investment performance, particularly in venture capital where strategies and teams evolve over time.
Another way advisers often assess confidence is through independent institutional validation.
At Haatch, this comes through our partnership with the British Business Bank, a government-owned development bank that conducted extensive due diligence on our team, investment process and decision-making framework before committing capital.
The bank has committed £52 million to invest alongside our clients, meaning every investment made through the Haatch EIS is backed by institutional capital.
This alignment provides advisers with an additional layer of confidence that the investment process has been scrutinised beyond the typical fundraising narrative.
Alongside this institutional backing, we continue to focus on delivering outcomes across the portfolio, including five profitable exits in 2025.
2. Reducing avoidable risk through company selection
We also mitigate risk by selecting companies at the perfect point in their growth journey.
The Haatch EIS invests in businesses that are already trading with a minimum of £120,000 in Annual Recurring Revenue.
We are not backing concepts. We are backing companies that have already demonstrated customer traction and commercial validation.
3. Diversification across industries
We build diversified portfolios across more than 34 sub-sectors within the software ecosystem, including fintech, healthcare, cybersecurity and construction technology.
Events like Covid reinforced the importance of diversification. Funds concentrated in sectors such as media and entertainment experienced very different outcomes when those markets were disrupted.
Diversification across industries helps reduce that concentration risk.
4. The importance of Sector Specialism
Our focus on B2B software businesses is also the result of experience.
Earlier in our investing journey, we backed several B2C companies. While many of those businesses had compelling narratives, we found the underlying performance often proved harder to analyse and predict.
B2B software businesses provide clearer signals. They often operate with contracted recurring revenue, long-term customer relationships and visibility over expansion opportunities.
There is also a structural advantage. Once the software is built, these companies can scale globally without requiring large physical infrastructure or significant staffing increases. That creates the potential for rapid and capital-efficient growth.
Our focus on this area reflects an evolution in our investment approach, shaped by lessons learned from earlier investments.
5. Balancing conviction within the portfolio
Another way we manage risk is through the portfolio's construction.
Around 50% of the companies we invest in at EIS stage have previously been backed by Haatch through our Seed EIS, one of the largest schemes in the market and a top performer on independent review sites like MICAP (2025). By backing the best from this fund again through EIS, we already have direct visibility into founder execution, capital discipline, and resilience over time. Alongside this, we have a clear understanding of the route to exit, which is our primary motivation for investors.
The remaining investments are typically new opportunities where we invest alongside tier-one global venture investors. The ability of a company to attract that calibre of investor can be a strong signal of quality, as these firms conduct extensive due diligence before committing capital.
This creates a balance within the portfolio: companies where we have long-term insight into the founders, alongside new opportunities validated by leading global investors.
The more useful risk conversation
None of this removes uncertainty.
Venture capital will always be illiquid, long-term and higher risk, and it will not be suitable for every client.
But the most useful discussion for advisers is rarely about whether EIS is simply “high risk”.
Instead, it is about whether:
• the capital exposure is clearly understood
• the allocation is appropriately sized
• the portfolio is constructed through a disciplined framework
When those elements are in place, venture capital becomes a considered allocation decision, rather than simply a “high risk” label.
Risk warning: Investing in early-stage companies involves a high level of risk, including loss of capital, illiquidity, and dilution. Past performance is not a reliable indicator of future results. The tax benefits of SEIS & EIS depends on the individual circumstances of each client and may be subject to change in future. This communication is for informational purposes only and does not constitute investment advice. Before making any investment decisions seek appropriate independent investment and tax advice.
Advisers who recommend EIS often ask us about risk.
The asset class is routinely labelled “high risk”, but that description is often too simple to be useful in real client conversations.
The more practical question advisers face is not whether venture capital carries risk, it clearly does, but how that risk is structured, managed and explained to clients.
Within venture investing, different managers take risks in very different ways. Understanding those differences helps advisers move beyond the regulatory label and have a more meaningful discussion about how venture capital fits within a client portfolio.
Why is EIS considered high risk?
EIS is high risk because early-stage businesses can fail. That is inherent to the asset class, and if that risk were not present, fund managers would not be taking the type of risks required to generate venture-style returns.
There is also a regulatory dimension. EIS legislation imposed by HMRC requires fund managers to take genuine investment risk. If investments are structured in a way that artificially removes that risk, the fund risks losing EIS qualification and the associated tax reliefs.
Understanding this helps set the right expectations with clients: risk cannot be eliminated in venture capital, but it can be approached with discipline.
How tax relief changes capital exposure
Another factor advisers often discuss with clients is how EIS tax reliefs affect the capital actually at risk.
EIS offers 30% Income Tax Relief, provided the shares are held for at least three years and the company maintains its qualifying status.
In simple terms, a £10,000 EIS investment reduces to £7,000 of net exposure once income tax relief is applied.
If the investment ultimately fails after the qualifying period, loss relief may further reduce the downside. For a higher-rate taxpayer, the effective loss could be closer to £4,000 rather than the full £10,000.
EIS can also allow investors to defer capital gains tax by reinvesting gains into a qualifying investment. For advisers, this can be a useful way to redeploy capital that would otherwise be lost to tax while aligning it with a longer-term venture allocation.
These reliefs are conditional. Shares must typically be held for three years and the company must remain EIS qualifying. If those conditions are not met, reliefs may need to be repaid.
For many advisers, mapping out a total loss scenario helps clients understand the difference between the headline investment and their true downside exposure, which we at Haatch can support with.
Diversification against the Wider Market
Venture risk also behaves differently from public markets. Returns are uneven, losses often occur before the strongest companies emerge, and outcomes are driven by a small number of standout successes.
If venture risk cannot be removed, the focus becomes how it is approached through manager selection, portfolio construction and investment discipline.
How Haatch approaches venture risk
1. Confidence in the manager
One risk advisers often highlight is confidence in the fund manager itself.
The EIS market is crowded, and it can be difficult to determine which managers genuinely have a repeatable investment approach.
It can be tempting to lean towards firms that have been established the longest, using longevity as a proxy for reliability. However, time in the market does not always correlate with current investment performance, particularly in venture capital where strategies and teams evolve over time.
Another way advisers often assess confidence is through independent institutional validation.
At Haatch, this comes through our partnership with the British Business Bank, a government-owned development bank that conducted extensive due diligence on our team, investment process and decision-making framework before committing capital.
The bank has committed £52 million to invest alongside our clients, meaning every investment made through the Haatch EIS is backed by institutional capital.
This alignment provides advisers with an additional layer of confidence that the investment process has been scrutinised beyond the typical fundraising narrative.
Alongside this institutional backing, we continue to focus on delivering outcomes across the portfolio, including five profitable exits in 2025.
2. Reducing avoidable risk through company selection
We also mitigate risk by selecting companies at the perfect point in their growth journey.
The Haatch EIS invests in businesses that are already trading with a minimum of £120,000 in Annual Recurring Revenue.
We are not backing concepts. We are backing companies that have already demonstrated customer traction and commercial validation.
3. Diversification across industries
We build diversified portfolios across more than 34 sub-sectors within the software ecosystem, including fintech, healthcare, cybersecurity and construction technology.
Events like Covid reinforced the importance of diversification. Funds concentrated in sectors such as media and entertainment experienced very different outcomes when those markets were disrupted.
Diversification across industries helps reduce that concentration risk.
4. The importance of Sector Specialism
Our focus on B2B software businesses is also the result of experience.
Earlier in our investing journey, we backed several B2C companies. While many of those businesses had compelling narratives, we found the underlying performance often proved harder to analyse and predict.
B2B software businesses provide clearer signals. They often operate with contracted recurring revenue, long-term customer relationships and visibility over expansion opportunities.
There is also a structural advantage. Once the software is built, these companies can scale globally without requiring large physical infrastructure or significant staffing increases. That creates the potential for rapid and capital-efficient growth.
Our focus on this area reflects an evolution in our investment approach, shaped by lessons learned from earlier investments.
5. Balancing conviction within the portfolio
Another way we manage risk is through the portfolio's construction.
Around 50% of the companies we invest in at EIS stage have previously been backed by Haatch through our Seed EIS, one of the largest schemes in the market and a top performer on independent review sites like MICAP (2025). By backing the best from this fund again through EIS, we already have direct visibility into founder execution, capital discipline, and resilience over time. Alongside this, we have a clear understanding of the route to exit, which is our primary motivation for investors.
The remaining investments are typically new opportunities where we invest alongside tier-one global venture investors. The ability of a company to attract that calibre of investor can be a strong signal of quality, as these firms conduct extensive due diligence before committing capital.
This creates a balance within the portfolio: companies where we have long-term insight into the founders, alongside new opportunities validated by leading global investors.
The more useful risk conversation
None of this removes uncertainty.
Venture capital will always be illiquid, long-term and higher risk, and it will not be suitable for every client.
But the most useful discussion for advisers is rarely about whether EIS is simply “high risk”.
Instead, it is about whether:
• the capital exposure is clearly understood
• the allocation is appropriately sized
• the portfolio is constructed through a disciplined framework
When those elements are in place, venture capital becomes a considered allocation decision, rather than simply a “high risk” label.
Risk warning: Investing in early-stage companies involves a high level of risk, including loss of capital, illiquidity, and dilution. Past performance is not a reliable indicator of future results. The tax benefits of SEIS & EIS depends on the individual circumstances of each client and may be subject to change in future. This communication is for informational purposes only and does not constitute investment advice. Before making any investment decisions seek appropriate independent investment and tax advice.
By
Olivia Drinnan
Director, Advisor Fundraising
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