Using SEIS to Raise Seed Finance for Your Startup
The Seed Enterprise Investment Scheme (SEIS) is one of the most attractive ways for startups to raise early-stage finance. Designed to support small businesses in the UK, SEIS offers significant tax incentives to investors, encouraging them to support new ventures with high growth potential. In this article, we’ll explore how your startup can use SEIS to secure funding, the eligibility criteria, and why this scheme can be a game changer for early-stage businesses.
What is SEIS?
Introduced by the UK government in 2012, SEIS provides tax relief to individuals who invest in small, high-risk companies. Through SEIS, startups can raise up to £150,000 in equity financing. The scheme offers significant tax relief, which can be a major selling point when approaching potential investors.
Key tax benefits for investors include:
- Income tax relief of 50% on the amount invested.
- Capital Gains Tax (CGT) exemption on any profits made after selling shares.
- Loss relief, allowing investors to offset losses against their income tax.
These tax incentives make SEIS a compelling option for both startups looking for seed finance and for investors seeking high-growth opportunities.
Benefits of Using SEIS for Seed Finance
Attracting Investors with Tax Relief
SEIS allows startups to approach potential investors with a very attractive proposition. Offering a 50% income tax relief on investments, this scheme can reduce the financial risk for investors, making it easier to secure seed finance.
Raising Up to £150,000
Startups can raise up to £150,000 through SEIS, which is a significant amount of funding at the early stages of business development. This can be used for various activities such as research, development, marketing, or operational expansion.
Capital Gains Exemption
One of the strongest advantages of SEIS is the Capital Gains Tax exemption, which allows investors to benefit from tax-free returns on their investments after selling shares. This can further incentivise potential investors to get involved in your startup, especially if they believe in its growth potential.
Encouraging Long-term Investment
SEIS requires investors to hold shares for a minimum of three years to qualify for tax relief. This condition encourages investors to take a long-term view of your company, allowing you time to build and grow without immediate pressure from shareholders to deliver returns.
How to Qualify for SEIS
To raise funds through SEIS, your startup must meet certain eligibility criteria set by HMRC. Here are the key conditions:
- The company must be based in the UK and conduct a qualifying trade.
- Less than 25 employees and fewer than £200,000 in gross assets at the time of the investment.
- Less than two years old at the time of application.
- The funds raised through SEIS must be used for business activities such as research and development or marketing, not for settling existing debts or purchasing assets to be resold.
Eligible trades exclude certain industries such as banking, property development, and legal or financial services. It’s essential to ensure your company’s activities fall within the qualifying sectors.
Preparing for SEIS Investment
Before applying for SEIS funding, it is advisable to seek Advance Assurance from HMRC. Advance Assurance is a formal confirmation that your company is eligible for SEIS and that your shares qualify for the tax reliefs associated with the scheme. This can reassure potential investors and help you secure funding more quickly.
Steps to apply for Advance Assurance:
- Submit details about your company’s structure, financial projections, and business model.
- Provide information on how the SEIS funds will be used.
- HMRC will review your application and provide a decision, typically within 4-6 weeks.
Advance Assurance is not legally binding, but it gives you and your investors confidence that your application is likely to be approved.
Finding SEIS Investors
Once you have Advance Assurance, the next step is to find investors. SEIS is a well-known scheme within the UK investment community, and many angel investors actively seek out SEIS-qualified businesses due to the tax relief on offer. Here are a few ways to connect with SEIS investors:
Crowdfunding Platforms
Platforms like Crowdcube and Seedrs are popular for raising funds under SEIS. These platforms have large communities of investors, and your SEIS status can be a strong selling point.
Angel Investor Networks
There are several angel investor networks in the UK where SEIS is actively promoted. These networks can connect you with investors who specialise in early-stage, high-risk ventures.
Venture Capital Firms
While VCs typically focus on larger rounds of funding, some early-stage firms may consider SEIS investments as a way to support emerging startups with high growth potential.
Professional Introductions
Networking events, incubators, and accelerators can also provide opportunities to meet SEIS investors. These relationships can be invaluable as you build your funding network.
How SEIS Complements EIS
For startups seeking larger rounds of funding in the future, SEIS can be a stepping stone to accessing the Enterprise Investment Scheme (EIS). EIS is another venture capital scheme that allows companies to raise up to £12 million, offering further tax incentives to investors. Many startups begin with SEIS to raise their first round of seed capital and then progress to EIS for subsequent fundraising.
This progression is particularly beneficial for startups with high growth ambitions, as it enables them to continue accessing equity finance without losing out on the tax incentives that attract investors.
How Ecaveo Can Help You Secure SEIS Funding
At Ecaveo Capital Partners, we specialise in helping early-stage businesses navigate the complexities of SEIS and EIS fundraising. From ensuring your startup meets the eligibility criteria to preparing your Advance Assurance application, we provide hands-on support throughout the process.
Our services include:
- SEIS/EIS eligibility assessments.
- Guidance on structuring your investment round.
- Support with preparing and submitting your Advance Assurance application to HMRC.
- Ongoing advisory support as you grow your business and seek additional rounds of financing.
With years of experience helping businesses raise capital through SEIS and EIS, we understand what it takes to make your investment round a success. Whether you’re a tech startup, a green energy company, or an innovative service provider, Ecaveo can help you secure the funding you need to scale.
What next?
Ready to unlock the power of SEIS and raise the seed finance your startup needs? Contact Ecaveo Capital Partners today to learn how we can support your fundraising journey. From structuring your SEIS application to helping to connect you with investors, we’re here to help you grow and succeed. Get in touch to arrange a consultation and take the first step towards securing your future.
Note – all information correct at the time of writing!