Small Talk: Equity crowdfunding has seen big success but it shouldn't be part of the Isa regime

Those involved in the deal aren’t saying exactly how much money has changed hands

An electric car recharging point: E-Car Club was funded by equity crowdsourcing (Getty)

It turns out that electric cars really can get you there faster. This month’s sale of E-Car Club, the pay-as-you-go electric car hire firm, to giant car rental business Europcar is a first: the 63 investors who put £100,000 into the company two years ago via the equity crowdfunding platform Crowdcube are the first people in Britain to make a profit on this type of investment.

Those involved in the deal aren’t saying exactly how much money has changed hands, but insist that investors have secured a “multiple return”. And that’s a watershed moment. Equity-based crowdfunding requires investors to stump up cash for shares in growth businesses, but with no certainty of when (or if) they’ll get their money back – dividends are unusual, and capital returns won’t be forthcoming until the company is bought, as in the case of E-Car Club, or is of sufficient scale and maturity to launch an IPO.

So can we expect the floodgates to open? Probably not just yet. The equity crowdfunding sector has been growing at a rate of more than 400 per cent a year since 2012, according to the innovation charity Nesta, but remains relatively small: last year, it raised £84m for businesses seeking finance, compared with £749m generated by lending-based crowdfunding platforms such as Funding Circle.

Moreover, investors such as private equity funds and business angels typically see five years as the minimum period for holding their stakes before an exit; five years ago, none of the 30 or so equity crowdfunding platforms in the UK existed.

Still, the profits earned at E-Car Club are likely to tempt other investors into this market. And so too might the inclusion of equity crowdfunding investments in the list of eligible holdings for investors’ tax-free individual savings accounts (Isas).

The Budget included confirmation that from next April investors will have the option of opening a new type of Isa, in which they will be allowed to hold loans made via crowdfunding platforms. But the Chancellor took some people by surprise with the announcement of a consultation on whether equity-based crowdfunding investments should also be allowed within the new “Innovation Isa”.

In truth, that might be a mistake. Isas are mass-market vehicles offering tax breaks designed to encourage as many people as possible to save for the future. But investment in tiny companies that can offer little guidance on future returns and where there is a very good chance of losing your money is not an activity for the mass market. Even less so since these are illiquid investments where it’s difficult to get your money out.

You can see the point from the profile of E-Car Club’s investors. Their average investment in the company was £1,500 and some put in as much as £15,000. Typically, they held at least 11 other investments on the Crowdcube platform, but many had considerably more than this. For the most part, these are sophisticated investors with wealth to deploy – that is not the primary audience at which Isas is aimed.

In any case, most equity-based crowdfunding investments already qualify for tax relief that is far more generous than what is on offer via Isas. The majority of fundraisings are eligible for the enterprise investment scheme (EIS) or its junior partner, the seed enterprise investment scheme (SEIS).

If equity crowdfunding is included in the Isa regime, you can bet that we’ll soon hear complaints from investors who lose sizeable sums and feel they were never properly warned about this danger.

The success of E-Car Club and the growth rates achieved by equity-based crowdfunding platforms suggest that this is a sector performing strongly without the need for additional support from the Treasury. Indeed, the last thing it needs is a row over mis-selling or unexpected losses.

Channel Islands exchange takes another step forward

GXG Markets, owner of what it describes as the “European growth market for small and medium-sized enterprises”, is selling up. The market, on which almost 70 businesses list their shares, has been offloaded to the Channel Islands Securities Exchange (CISE).

The deal underlines the difficulties being experienced by operators in the fragmented marketplace for European exchanges, but also marks another step forward in the restructuring of the CISE, which is now chaired by Jon Moulton.

The private equity veteran has spent much of the past two years nursing the business back to health following the collapse of the Arch Cru investment scheme in a scandal that saw the exchange fined a record sum and eventually led to the resignation of the chief minister of Guernsey.

Tax deadline looms – and HMRC is unforgiving

More than 1,000 small businesses had their assets seized last year after failing to pay their tax bills, a small business adviser is warning, with the deadline for many people to pay another chunk of tax now just a few days away.

Funding Options, which works with small businesses trying to raise finance, points out that 1,080 small businesses were subject to HM Revenue & Customs’ powers of “distraint” last year, which allow the authority to seize and auction off the assets of a business that has not settled its tax bill.

This Friday is the deadline for sole traders and unincorporated businesses to make their second payment on account for the 2014-15 financial year, with 50 per cent of the total annual bill now falling due.

Small Business Person of the Week: Christine Renier, Co-founder of Nuva

“We’re a very new company but we have huge dreams: we aspire to be a mass market business whose products are in everyone’s hands and we think we can do that – the soft drinks sector in which we operate is huge and dominated by big brands, but it’s never really been challenged.

“I spent many years working with Evian and Volvic, as well as a long period advising small and medium-sized enterprises. What I realised recently is that for all the health benefits of drinking mineral water, people have nothing to turn to when they get bored with it – except flavoured waters that are full of sugar. So with my co-founder Gemma Pond, we set out to create a water that would taste great, with natural extracts such as cucumber and mint, for example, but which would have no added sugar, sweeteners or preservatives.

“That took some doing – for example, it was very hard to find a supplier of natural extracts who would sell us the small quantities we need at this stage, but our work has paid off; we launched three different flavours three months ago and the reception has been enthusiastic.

“So far, we’re available in a number of independent retailers, including whole foods, but also in gyms and via certain corporate caterers. We already have a partnership with Boots, which we’re really pleased about, and we’re talking to some other really big-name retailers and hope to have deals in place with them by the autumn.”