Allenbridge Group's Martin Churchill believes investors are unwilling to put money in products with such high risk levels
Enterprise Investment Scheme companies, which were to close for investment within the next month, have failed to attract enough funds, leading some companies to be withdrawn. Deadlines for most have been extended to give them more time to reach their fundraising targets.
The Childcare Corporation, which is to invest in building new children's nurseries, has a target of £10m but by 6 April this year it had only raised £4m, according to the Allenbridge Group, which compiles a list of available EIS investments.
The deadline for fundraising has now been extended from 25 May to the end of June.
The UK Film & TV Production Company EIS from Matrix Securities has a target of £4.5m but by the 23 March it had only raised £2.2m.
The Capital Pub Company is the most successful venture profiled by the Allenbridge Group, having raised £5.5m by 30 April.
Its target was £10m and will close on 29 June. HiLife Holdings had a target of £5m and it had raised £2.7m by 14 March, it has also extended its deadline into June.
The Active Construction Company was withdrawn after failing to meet its minimum as was the UK Films Group, according to the intermediary group.
Martin Churchill, at Allenbridge, said the poor takeup reflects the nature of the product as well as the general low confidence in the market. He said that EIS vehicles often have trouble in raising the full target due to the high risk nature of the investment.
Churchill questioned whether many EIS companies were a sound investment at all.
He said: 'I would say they are always a second class product.
'Investors are not represented as a shareholder group, which means they cannot ask questions if, for example, the directors give themselves a huge pay rise. They are putting in the least secure money and they are getting no control over how their money is being used.'
Churchill added that if the company invested in goes bust, investors lose all their money, not just a percentage as in most collective investment schemes.
Tracy Benjamin, director of Pinder, Fry & Benjamin, which is raising funds for HiLife Holdings, a company that is set to invest in health clubs, acknowledged there are drawbacks to EIS companies. But, he said, the tax breaks available meant they would always be attractive to investors who were after high returns and were prepared to take risks.
He added: 'Tax relief is generous. Investors save 60% on the first £150,000 but people have to be confident about the company they are putting money into.'
He put the low fundraising figures down to a slow economy. Others ascribed the low investment into EIS companies to a lack of information.
Martin Sherwood, director at Teather & Greenwood, which is raising funds for the Childcare Corporation, said: 'They are widely neglected and misunderstood. Our company offers a high level of tax relief and an asset that should appreciate rapidly in value. It is a fast track to capital accumulation.'
He said the relatively low amount of funding they had attracted was because of a downturn in capital gains from tech stock windfalls. He claimed those who had money to invest would have done so before the end of the tax year. Investment Week 28 May 2001
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