hris Tosic writes in the Financial Times that the Enterprise Investment Scheme (EIS) offers high-risk investors generous tax breaks in return for investing in early-stage start-ups. Wealthier investors hit with cuts to pension tax relief have also embraced it as a way of cutting their tax bills. EIS investors receive income tax relief of 30 per cent on up to £1m per year (rising to £2m for so-called knowledge-intensive companies), tax-free growth, and the potential to offset certain losses against income tax — as well as the chance of stumbling upon the next big company of tomorrow.
As demand has grown, the type of investments that qualify for EIS status has been restricted. However, the spectrum is still broad enough to include everything from space technology to algae farms.
“EIS encourages investment into some of the most exciting and innovative companies, creating jobs and wealth for the economy whilst giving investors a real chance of backing the next big thing,” says Alex Davies, founder of broker Wealth Club.
L’Oréal is the number one patent holder of algae products in the world. Health supplements containing chlorella and spirulina are popular with consumers due to high concentrations of omega-3, and already line the shelves of health food shops. Mr. Adams says these are “enormously high margin,” attracting price tags of between £10 and £20. More than 70 companies already produce chlorella, and the market for omega-3 is said to be worth $1.3bn. But there are hundreds of thousands more strains of algae not yet commercially developed and the supplement market remains young and fast growing – hence the opportunity for EIS investors.
In Rotterdam, Netherlands, Swedish-born entrepreneur Fredrik Adams is overseeing his Firglas algae farm, destined for £20 jars of food supplements, high-protein fish feed and meat-free burgers.
The fish food market is by far the largest, due to huge consumer demand for commercially farmed fish, and this is where most of the algae grown in Firglas’s Rotterdam farm will end up. Firglas’s feed will be higher value than the cheapest on the market, containing more protein, but is higher cost and higher margin too, says Mr. Adams.
Firglas is currently raising £3m to expand its pilot, which consists of a large plastic tube of liquid green algae, winding intestine-like around the floor. Next year, a one hectare greenhouse next door — currently teeming with tomato plants — should be full of tubes of watery algae, producing up to 100 tons of dry algae a year.
The company claims it has created a way of producing algae in water which will enable it to produce greater volumes at a higher quality and lower cost than its competitors.
But, so far, Firglas has not proved its ability to produce algae at significant scale and does not yet have a commercial plant up and running. Once it does, it will have to secure contracts from major companies to turn its slime into algae burgers or vitamin pills, and will need to prove it can compete in the global fish food market.