Seeing the Value in SEIS: How to Leverage the Scheme as a Start-Up

When it comes to financing new product development and growing a start-up business, it’s often reported that the funding support just isn’t there. While it can be harder to finance a new venture, there are certain avenues designed specifically for this purpose. One of these financial support resources that exists solely for new businesses is the invaluable Seed Enterprise Investment Scheme (SEIS). Now, the term SEIS is mentioned often in discussions around pursuing new product development, but rarely does it get the full acknowledgement or deep dive it deserves. So here it is, a reappraisal of SEIS from the start-up point of view.

What is the Seed Enterprise Investment Scheme?

SEIS is one of 4 Government tax incentive schemes that was introduced – due to the success of the similar, EIS scheme – with the chief purpose of encouraging investors to support early-stage, young businesses. Given that for many new businesses, their youth can be a barrier, this focus of SEIS on young businesses and the opportunity it presents to seriously engage investors is not one that should be quickly dismissed. SEIS exists to make the investment of wealth into research and development a more attractive proposition for high-net-worth individuals (such as angel investors).

The incentivisation of investment into R&D is vital given that such ventures are by nature riskier. Countering the fear of the higher risk level involved, as SEIS does, is essential because what’s often elided from narratives surrounding early-stage investments is that while these businesses may be riskier, they often have the potential to be more impactful (socially, environmentally, and financially). Many R&D projects have the ambition of realising an advance or positive innovation of some kind, solving a pressing problem, or contributing to global wellbeing. Thus, by helping to somewhat de-risk investment into early-stage businesses, SEIS plays a larger role in this picture.

How Does SEIS Encourage Investment?

How SEIS actually works is by providing a range of tax reliefs and financial incentives to individual investors who take shares in a new (and qualifying) company. One example of this is that investors can benefit from income tax relief to the value of 50% of their SEIS investment (which can be up to £100,000 annually). To successfully claim this, shares must be held by the investor for at least 3 years. Additionally, accounting for the higher risk level, the scheme also provides generous relief on losses too.

Why Understanding SEIS Matters for Your Business

As one of the relatively few financial resources designed specifically with early-stage start-ups in mind, SEIS is an incredibly valuable scheme that can be leveraged by new businesses in numerous ways. Design, development, and manufacturing costs can be significant, especially when sophisticated or complex technological requirements are involved. Even so, the scale of investment that is typically required by early-stage start-ups is often not large enough to interest some investors or VCs. By distinction, SEIS allows businesses to raise up to £150,000 (which must be used within a 3-year period); this figure is a relevant and accurate figure for many start-ups who are in the early stages of new product development.

Another factor to note is that not all businesses are SEIS eligible. Therefore, if yours is, it’s something you can share and use to your advantage. As a new business looking to gain credibility, SEIS eligibility – and your awareness of it – can be capitalised upon as an asset, a conversation-provoker, a door opener. Understanding your SEIS eligibility as a start-up business can help to provide an element of validation to investors, something which is critical when you are breaking new ground without a track record to fall back on. You can also apply for advanced assurance on a potential SEIS investment.

Exploring the Criteria for SEIS Eligible Businesses

  • The business must carry out a new and qualifying trade.
  • The business must be established within the UK and cannot be trading on a recognised stock exchange when the shares are issued.
  • The business must not have gross assets in excess of £200,000.
  • The business must not control another company or be controlled by another company; nor can they be in partnership with another company.
  • The business must have fewer than 25 full-time employees.
  • The business must have been trading for less than 2 years.

For more information, see the GOV.UK page.

Beyond Financial Investment: The Impact of SEIS 

SEIS is attractive to private or angel investors; in fact, it’s estimated that around 80% of all UK angel investments utilise the SEIS and EIS schemes. This offers remarkable potential for start-up businesses as many angel investors can and will provide business support beyond just the agreed investment. SEIS is a tool and resource that can help to connect early-stage businesses with investors. This in turn, can bring access to a host of growth opportunities, including new networks, mentorship and a perspective that could lead you to explore new avenues and expand your business. Recognising the value of SEIS in this wider picture, is something all start-ups can consider and act upon.

 

Email: gethin@iterate-uk.com

Email: holly@iterate-uk.com

Contact: 01291 408283

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Securing Investment as a Start-Up: Interview with Christian Kumar, Part Two

Here, we continue our interview with Venture Capitalist Christian Kumar. Read part one here if you haven’t already. In the second half of our interview with Christian Kumar we delved deeper into the Board, the connections and the people needed to demonstrate to an investor that a start-up has the ability and the drive to scale and succeed.

 

We know that all of this cutting edge research is happening in Universities and research facilities across the globe, but like you say, if you don’t have the device to get that research and that technology into someone’s hands or into someone’s house, then they’re not going to feel that effect. That’s the part of the picture that doesn’t get the same publicity. We hear all the headlines about breakthroughs in research and new technologies that have massive potential, but there isn’t then that conduit to get it into people’s hands and houses. And that’s something that we’re really excited to work on, and I’m sure that’s similar for you as an investor?

Absolutely, and for us, it’s also not just about making the investment, it’s then about mentoring that Client, growing them through the different iterations of a business lifecycle. Because the founder of today is not the CEO of tomorrow – everyone has to play at their strengths. This is the hardest part, when you we’ve got a great talented founder, to break the news to him that unfortunately, you’re not the CEO, we have to bring someone in from outside to drive the long-term vision of the business. Read more

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Securing Investment as a Start-Up: Interview with Christian Kumar, Part One

Through our work with numerous entrepreneurs and start-ups seeking to breathe life into new ideas and deliver disruptive products to market, at ITERATE Design + Innovation we’ve seen our fair share of intelligent concepts. We’ve also seen too many ideas left unrealised due to the challenge of securing financial investment and we’re on a mission to change this.

Funding for new product development is undoubtedly the biggest barrier encountered by Clients, which is why Gethin Roberts and Holly McSweeney from the ITERATE team recently set out to unmuddy the pathway to securing venture finance as a start-up. We interviewed investor, Christian Kumar who offered fresh insights and welcome optimism on the subject of successfully attracting investment. Our interview unveiled exciting synergies between the considerations that underpin new product development and the priorities of investors. It also resoundingly confirmed that the appetite to invest in new product development is certainly there. Christian’s core hope is that with more connection and communication, entrepreneurs can “embrace the fear and deal with the challenges” to secure investment.

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Finding the Right Funding Route for Your Product

Start-ups, new business owners and creators often approach a product design consultancy inspired and optimistic about realising their idea but restricted in their freedom by funding limitations.

Nonetheless, new product development covers an unimaginably broad array of sectors and with the constant growth of the field of new product development, the funding landscape continues to evolve and expand. Securing funding for design and development is the single biggest challenge faced by many innovators and given the range of funding sources now available, knowing where to focus your search can feel daunting. When different funding avenues all state their criteria is for “innovative ideas”, what does this really mean?

Understanding your funding options is made simpler by the fact that certain funding avenues are better suited to certain types of businesses and products. This means that understanding where exactly your idea falls can help you channel your funding pursuits in the best directions.

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Funding for Early-Stage Design

Design Foundations is a new £3m grant funding programme from Innovate UK to help businesses identify innovation opportunities and generate better propositions for desirable, useful and feasible products, services and business models.

The aim is to build collaborations between businesses looking for new ways to innovate, and designers with the creative tools to provide this insight. It means using design interventions to address critical business challenges such as:

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