EIS invests in early-stage businesses are more liable to fail. EIS investments need to be held for a long period and investors can potentially lose all of their investment.
Investors must be comfortable with the inherent risk to capital that comes from supporting
these early-stage companies with high-growth potential.
Investor capital at risk
Early-stage businesses are more liable to fail than established enterprises. Although these
businesses have high-growth potential, there is also a substantial risk of failure and investors
can potentially lose all of their investment.
Volatility
Shares in smaller businesses are more vulnerable to value depreciation and, conversely,
value ascendance. These shares are inherently more volatile than those of listed businesses.
Liquidity
EIS investments are held for a long period and provide growth rather than income or
opportunity to sell for liquidity, which can be a disadvantage for many investors and are
entirely inappropriate for those who cannot withstand total capital loss.
Tax reliefs are not guaranteed
The tax reliefs associated with the EIS scheme are based on current legislation and, as a
result, are subject to change in the future. Furthermore, the specific tax reliefs that investors
benefit from vary depending on their current circumstances and tax status.
Companies who qualify for the EIS scheme can lose their qualification and, if they do,
investors may be asked to return their tax relief to HMRC.