A Guide to Raising Funds with EIS / SEIS

As a business owner at a startup firm, you cannot afford to waste one of your most valuable resources – time. When it comes to fundraising for your business, it pays to know which fundraising routes are worth your while.

This article is all about fundraising through EIS (the Enterprise Investment Scheme) and SEIS (the Seed Enterprise Investment Scheme), which is certainly worth your time and attention if you are looking to raise valuable capital and get your venture off the ground.

 

Why EIS & SEIS matter

Unless you are one of the few startups which is profitable virtually from the start, you are going to need to fundraise. There are many ways you might do this, but EIS and SEIS are certainly routes you will want to consider.

One crucial advantage of these UK government-backed schemes is that they offer valuable tax breaks and risk mitigation mechanisms for potential investors into your business. That’s obviously great for you, because if you qualify under these schemes it means that investors are going to have more confidence giving you the funding you need.

For instance, under SEIS an investor can claim back up to 50% of the investment amount against their income tax via HMRC. So, all other things being equal, if an investor had to choose between two firms – one of which is SEIS qualified and the other not – they are almost certainly going to pick the former.

 

Meeting the criteria

Unfortunately, gaining EIS or SEIS status for your business isn’t as simple as just applying via the HMRC website. There are certain conditions you need to meet before you can be eligible.

First of all, your business must be based in the UK. It must also be less than 24 months old, and your startup must do business in an EIS/SEIS eligible trade. Another important requirement is that under SEIS you must have no more than 25 employees and assets not exceeding £200,000. Under EIS, you cannot have more than 250 employees and no more than £15m in assets.

One unfortunate part of the application process is that HMRC requires applicants to provide evidence that investors are currently investing in your business. That obviously presents you with a bit of a conundrum. Investors might not be willing to invest in your business until you have EIS/SEIS status, but you cannot achieve this without some investors already on board!

There are some ways around this, however. One approach would be to meet the other EIS / SEIS eligibility criteria, and then present this to potential investors. Make sure you tell them that this is your assessment, not the government’s.

Despite not having the relevant assurances from HMRC yet, this should be enough to nudge some investors across the line. You can let investors know, for instance, that HMRC has a nearly 90% acceptance rate for EIS / SEIS applications.

It helps to know that you can apply for funding via EIS (which allows you to raise up to £5m within your first 6 years) even if you have availed yourself of SEIS (which lets you raise up to £150,000 within your first 2 years).

 

Communicate EIS / SEIS benefits to investors

It might sound shocking, but lots of investors do not know about the advantages offered to them by SEIS and EIS. If you merely mention that you are eligible for these schemes but do not elaborate, for instance, then this will likely only catch the attention of some investors with past experience of the schemes.

For instance, investors would likely be interested to know that under EIS and SEIS their investment gains are exempt from inheritance tax. They are also free from Income Tax and Capital Gains Tax.

 

Read up on the tax claiming process

If you are serious about having strong, long-term relationships with investors under EIS or SEIS, then it pays dividends to know how to help them with this aspect of their tax returns.

When investors hand their tax returns to HMRC, they will need to declare their EIS and SEIS investments. This requires cooperation from you, as you will need to issue them the relevant SEIS3 or EIS3 forms, for instance.

If you know how to navigate this process and demonstrate that you are prepared to help your investors quickly and wholeheartedly with this, then it will give them far more confidence to take advantage of the benefits of the scheme by investing in your eligible startup.

By working with a company like Bure Valley, you can make this whole process a lot easier for yourself as our experienced team helps guide you through it. Feel free to speak with one of our team if you are interested.

 

Concluding thoughts

If you are interested in seeking investment via EIS or SEIS, then we recommend speaking with a tax specialist to help you navigate the process. We can also assist here at Bure Valley Group, since we have a strong network of EIS and SEIS qualified businesses here who have successfully received investment via our investment members.

Since EIS first arrived on the stage, nearly 30,000 UK businesses have successfully qualified. Many have gone on to receive funding and seen great success and growth. Just remember, it is easy for startups to flounder in their early years and it pays to rub shoulders with people who can help you navigate the pitfalls. If you would like to benefit from that experience here at Bure Valley, then we would love to hear from you.

Leave a Reply