Trade group BioIndustry Association (BIA) has detailed its vision for unlocking capital to support the growth of British startups. The BIA wants the government to “democratize” biotech investing by eliminating perceived barriers to more widespread participation in the sector.
Government officials sketched out (PDF) some ideas for how to help biotechs and other capital-intensive companies access cash in a consultation document published earlier this year. The proposals center on tweaks to the existing Enterprise Investment Scheme (EIS) tax reliefs to make investing in biotechs more attractive.
In responding to the government consultation, the BIA picked out (PDF) upfront tax relief as the most important of the proposals. Investors in EIS funds receive income tax relief of 30% but there can be a delay in receiving this benefit. The BIA thinks immediate relief with minimal bureaucracy would be a “significant benefit” to investors. However, the BIA disagreed with other aspects of the proposal.
“A restriction on the time the funds must be invested into a company, as proposed, would be a disadvantage on the administration of the fund and result in poor asset allocation,” the BIA wrote. “It takes time to identify high-quality companies and conduct due-diligence. Current time-limits are already too restrictive.”
The BIA also raised some of its own proposals. The trade group thinks the government should consider giving tax relief for as long as a person holds their original investment in full. This could deter people from reducing their holdings, but as the BIA noted, “would be highly generous and potentially costly.”
Whether even the more extreme proposals would democratize biotech investment is debatable. EIS funds are already used by wealthy individuals to gain tax relief through investments. The BIA’s changes would make it easier for individuals who invest in EIS funds that hold knowledge-intensive companies to access these reliefs, potentially encouraging more people to add them to their portfolios.
However, EIS is, and will likely remain, most appealing to people whose £150,000 ($200,000)-a-year incomes limit the amount they can put into pensions. For most people, other investment wrappers may be more appealing and accessible. Existing life science EIS funds require minimum investments of £5,000 to £10,000. Neither the government, nor the BIA is proposing to make funds lower their minimums.