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.




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