SEIS for StartUp
In this post you will find answers to 3 simple questions about SEIS for StartUp. After 2010 the post liquidity crisis highlighted two crucial assets for strengthening our fresh economy: entrepreneurship and capital. SEIS is precisely the connection in between entrepreneurship and investment. In 2011 the Chancellor George Osborne launched the SEIS and this is where the magic starts for Startups and their investors.
The SEIS (Seed Enterprise Investment Scheme) is a tax relief scheme dedicated to investment in small and early stage businesses in UK. The economic environment obliged larger enterprises to reduce their resource to cope with their fixed costs. The British government compiled the correct diagnostics and took a decision accordingly. The scheme has been created in order to transfer private capital and personal savings into small businesses. In the same time the British government reduced the corporation tax. These were the perfect conditions to create, hire and develop your business, which could be either a gastro pub or a renewable energy advisory company. That simply worked wherever in UK.
From the startup founder perspective the SEIS represents a fantastic opportunity to fund the first steps of the business: MVP, proof of concept, traction, increasing number of early adopters, converting first customers, reaching breakeven. The founders will have so many good reasons to raise funds and convince their right investors and business partners.
Since the company can raise a maximum of £150k via SEIS investment, it obviously requires an agile methodology: a limited budget to validate multiple business model hypothesis. Here is precisely the challenge we mostly advise to CEOs for managing this budget.
From the investor perspective it might represent an opportunity to combine high both tax relief and capital gain expectation. Investors can claim up to 50% tax relief on each taxable year. A £10k investment in SEIS shares will allow the owner to get a tax credit of £5k. The investment risk (so the return) only bears on the remaining £5k.
The first step remains to make your business SEIS eligible. HMRC requires to prepare and gather few information about the business activity (BP for instance) and administrative requirements. In the case of successful application you get a pre-assurance to be able to issue SEIS shares. That will allow you to contact investors and negotiate a deal for funding your company.
As CFO for StartUp we naturally deal with this matter for planning funding rounds.