Today the BIA responded to the government’s consultation on including shares traded on small and medium-sized enterprise equity markets as Individual Savings Account (ISAs) qualifying investments. This was first announced by the Chancellor during the Autumn Statement in December 2012.

This is good news for high growth bioscience companies listed on AIM. The changes open the possibility of further funding being provided through such markets and will hopefully improve the viability of the public markets as a source of funding for capital intensive businesses. It also ultimately corrects an anomaly whereby an ISA investor could, for example, put cash into the Kuala Lumpur Stock Exchange or the Fish Pool Derivatives market under the existing rules but not invest in household names like Asos or YouGov.

Certainly small and mid cap companies would benefit from a wider investor base and greater liquidity in the secondary market would provide investors with an enhanced ability to be able to buy and sell shares more efficiently. With £190 billion currently held in stocks and shares ISAs there is potential to improve the funding source for innovative companies and, taken together with the recent announcement of the removal of Stamp Duty on shares traded in AIM, can serve to improve this part of the funding ecosystem.

This policy move is the result of a number of years of advocacy to persuade government that small and mid cap quoted companies are not uniquely high risk (with failure rates for AIM companies actually broadly comparable to Main Market companies). This campaign took a long time but now that it has succeeded it demonstrates a potential shifting of opinion within HM Treasury as to what an acceptable level of ‘risk’ is for retail investors.

This is partly why the BIA believes this provides a good opportunity for government to be bolder and introduce Citizens’ Innovation Funds (CIFs). This would further broaden the choice for retail investors unlocking the ‘patriotic potential’ of the public to specifically support UK innovation. CIFs would be able to support private as well as public companies providing a cost-effective policy tackling another key part of the funding ecosystem, the so-called ‘valley of death’, between early stage Angel investment and later larger scale capital opportunities from markets, collaborations or traditional Venture Capital for example.

CIFs are based on the highly successful French FCPI model and the BIA’s detailed report outlines the success of this scheme and where it would fit within the current UK funding landscape. For every euro spent by the French Exchequer in foregone income tax through the scheme five times as much private capital has been leveraged. FCPI-backed companies are likely to grow revenues faster, employ more people and export more also.

The BIA will continue to advocate for the introduction of CIFs and the recent change of mood around qualifying ISA investments shows that solid and innovative policy ideas that are cost-effective and seek to support key sectors of the UK economy can win out in the end.