Glossary

General terminology

Enterprise Investment Scheme
A government supported scheme, established in 1994 providing a range of tax benefits to investors who purchase shares in early stage UK companies. Learn more
Seed Enterprise Investment Scheme
Similar to EIS but focused on earlier stage businesses - generally start ups. SEIS complements EIS but is intended to recognise the particular difficulties which very early stage (seed phase) companies face in attracting investment, by offering tax relief at a higher rate. Learn more
Social Investment Tax Relief
SITR provides a range of income and capital gains tax reliefs for individuals investing in ‘social enterprises’ - commercial business that help people or communities. The range of tax reliefs are similar to those obtainable under EIS but SITR investment may also include debt structures in addition to equity investments Learn more
Venture Capital Trust
A VCT is a company, broadly similar to an investment trust, which has been approved by HMRC and which subscribes for shares in, or lends money to, small unquoted companies. VCTs and their investors enjoy certain tax reliefs similar to EIS and individual’s participate by buying shares in a VCT.
Venture Capital
Venture capital is financing that investors provide to early stage companies that are believed to have high growth potential. Providing venture capital can be risky for the investors who put up the funds but this is compensated by the potential for above average returns. Investors accessing VC deals are always strongly advised to do so on a portfolio basis so that the high multiple returns from the one or two ‘winners’ covers the low returns or losses made elsewhere.
Private Equity
Private Equity consists of equity and debt investments into companies not listed on a public stock exchange. Very similar to Venture Capital but generally into later stage or more mature companies. Private equity firms typically look to invest larger stakes in underperforming companies that have the potential for high growth. Growth in the businesses is delivered by working with the company’s management team to improve performance and strategic direction, making complimentary investments and driving operational improvements.
Merchant Bank
A merchant bank is a regulated financial institution which provides support to its client companies in the form of direct investment and strategic advice. By making an investment into the client company the merchant bank aligns itself closely with the client company and this alliance is designed to assist the business in the successful development of its activities.
Sponsor
Sponsors are regulated advisory firms who work closely with their client companies to prepare them for a fund raising but who do not themselves participate in the investment. Typically a Sponsor will be a nominated adviser acting for a client who is listed on a public stock exchange or is preparing to list.
Syndicate
A Syndicate is a group of experienced private investors who act in concert and follow a defined investment strategy. Most Syndicates will have one, or a few, members who manage the investment process on behalf of all Syndicate members. Not all members of a Syndicate will invest in every deal presented to them,but the majority will make regular investments into most deals originated by the Syndicate.

Deal Attributes.

Enterprise Investment Scheme qualifying
Investments made will allow the investor to claim EIS benefits (subject to personal circumstances and tax advice).
Enterprise Investment Scheme qualifying
Investments made will allow the investor to claim SEIS benefits (subject to personal circumstances and tax advice).
Inheritance Tax Benefits
The investment is structured to support Inheritance Tax planning and designed to enable to the investment fall outside the investors personal tax estate over time (subject to personal circumstances and tax advice). SEIS, EIS, BPR and AiM investments all carry IHT benefits.
Business Property Relief
The investment is structured to support Inheritance Tax planning and designed to enable to the investment fall outside the investors personal tax estate over time (subject to personal circumstances and tax advice). SEIS, EIS and AiM investments all carry IHT benefits.
Alternative Investment Market
The investment is into a company listed on the Alternative Investment Market.
Social Investment Tax Relief qualifying
Investments made will allow the investor to claim SITR benefits (subject to personal circumstances and tax advice).
Equity
The investment structure is in the form of a share purchase into the investee company. Shareholders will benefit from any growth in the value of the company but holdings can also be diluted by future equity fund raisings. Shares should be considered as long term holdings and may not be easy to sell.
Debt
The investment structure is in the form of a loan to the investee company. Loans may or may not be secured but should have the benefit of a fixed term, an agreed rate of interest return and a priority return of capital.
Yield
The investment is structured to provide some form of interest or defined dividend return on a regular basis.

Investment Phases

Seed
The earliest stage of a new business is often described as the ‘seed’ phase. Seed phase businesses are generally not yet profitable and frequently have not even started generating revenues. Thus they are very high risk investments with a strong potential for investors to lose all capital invested. Whilst very high risk successful seed stage investments can produce very high returns.
Venture
Venture stage businesses have generally started trading and earning revenues but may not yet be profitable. These are early stage companies with existing customers but are generally still in the process of fully defining their product offering and competitive position. When fund managers invest into venture phase businesses they generally reserve further capital for follow on investments as the company grows.
Growth
Once a company has established its product offering and routes to market, and is trading steadily with a number of customers, then it moves into the growth phase. Growth phase investment will be designed to help the business accelerate current performance and achieve specific growth targets. Growth funding is often used for expanding the team, increasing marketing activity, launching new products or entering new markets.
MBO/MBI
A more mature company with a single, or very few, majority shareholders can frequently become ‘sleepy’ and underperform against its market potential as these shareholders become satisfied with their returns or run out of ideas about how to grow the business further. A change of management and ownership through the existing management team buying out the owner (“MBO”) or an external management team buying the company (‘MBI”) is often the catalyst required for the business to grow to the next stage. Fund Managers support these management team through the provision of funding to support the MBO/MBI.
Property
An investment based on the acquisition and/or development of a specific identified property or properties.
Infrastructure
Infrastructure describes an investment into physical assets which have a defined commercial purpose, for example; solar farms, combined heat and power units or standby electric grid suppliers. Infrastructure investments tend to be long term but generally have the benefit of a predictable investment return profile.
Debt
A debt investment will be in the form a loan to a company. The profile of the debt will vary and may include specific identified asset security, a preferred return position and paid or accrued interest. The interest yield offered on the loan should reflect the perceived level for risk of return of capital.