For Angel Investors

Are Tech Companies Better Investments Than Non-Tech?

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Some of the most dynamic, exciting startups in the UK over the past few years have been tech firms. Think TransferWise, for instance, which increased in value by over £640m in the space of just 5 years since its inception.

It is therefore little surprise that many investors are asking whether the tech industry is the superior choice when it comes to investing in startups.

It’s difficult to say either way with any certainty. Of course, investing in any type of startup inherently carries more risk than investing in bonds. Yet there are particular advantages to tech startups which make investing in them an attractive option.

Here are some of the benefits to consider when looking at investing in UK tech startups:

#1 Scale

Very few companies have the potential to scale up as quickly as tech startups. This, of course, presents a great opportunity for you to generate a higher investment profit.

Think of large tech brands like Skype, Google and Facebook. The latter, for instance, started out in 2004 as a project by Mark Zuckerberg in his Harvard dorm room. In February 2002, it made its public offering with the company value standing at $104b. That’s a huge change in just 8 years!

Tech companies are uniquely positioned in that they do not usually incur increasing, incremental costs for producing their product as distribution grows. An initial investment may well be required to first create the software, but from there it can be produced on a wide scale without needing to significantly change the source code.

#2 Margins

Certain industries are notorious for having low-profit margins, with the aviation industry arguably the worst performer. The tech industry, however, stands at the other end of the spectrum.

Companies in an industry can justifiably assert that the industry is high margin if average profit margins exceed 10%. Financial services businesses, for instance, typically have low running and production costs, so profit margins between 15-20% are fairly common.

The tech industry can easily boast of profit margins up to and exceeding 20%. Indeed, it is not unheard of for tech companies to boast a 60-90% margin on their sold services.

#3 Investment size

Tech companies, quite often, do not need high levels of funding to get off the ground. They do not need to purchase a large inventory at the outset, for instance.

This also means that lots of UK tech startups are eligible for SEIS status, which requires the business’s assets to be valued under £200,000.

SEIS is a little-known, powerful investment scheme which offers investors significant tax relief and reduced investment risk. For instance, you could invest up to £100,000 in companies like these per tax year, and receive up to 50% relief on your income tax.

#4 Portfolio diversification

Experienced, sophisticated investors appreciate how important it is to diversify your investments. Across industries, across different size companies, across companies in different stages of the business lifecycle, and so on.

If you are not already investing much in the tech industry, why not add another string to your bow – especially given the high margin potential?

#5 ROI

Tech startups that succeed have the potential to literally turn even small investors into millionaires. Take Airbnb as an example. If in 2009 you invested $1000 into the new company, then that would have grown to a $2m return just 8 years later.

The challenge, of course, is determining which tech startups will fail and which will become the next big players, such as Uber and Airbnb.

Part of the solution is to work with an experienced investment company like ourselves. This allows you to better “stress test” different tech startup investment opportunities, therefore increasing your likelihood of getting a high return.

Another important strategy is to spread out your investments. Nobody here said that you need to look at all of the UK’s newest tech companies, and only pick one!

#6 Fulfilment

Investing in the stocks of large, existing tech companies can be interesting. However, investing in tech startups presents an exciting opportunity to be a part of something that could actually change the world for the better.

This route offers the chance to not only make a high return. It also gives you the chance to help drive innovation, create new jobs and even improve living conditions for people across the world. For instance, social media undoubtedly has its downsides, but think of how much many of these companies have also empowered many people living under oppressive regimes.

Overview: Investing in Tech

Tech startups encompass a wide range of interesting companies including security, automation, AI, cloud computing, Big Data and more. Indeed, new players within this industry are creating new industries all of the time, such as virtual reality.

There are many advantages to investing in tech, but you should always understand the risks of doing so. Never invest more than you can afford to lose, and think carefully about your risk tolerance. Diversify your investments.

Take your time and survey different investment opportunities in partnership with other investors, such as those within our network here at Bure Valley Group. If you are new to this sphere, it especially helps to rub shoulders with those who have a good grasp of the ins and outs.

Pay careful attention to the idea of the tech startup in question. Review their strategy, and pay careful attention to their team. Investing in any kind of startup is more than just investing in a product or service. It involves investing in those who will develop and deliver it.

Are you an EIS-Eligible Investor?

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The EIS (Enterprise Investment Scheme) was set up by the UK government in 1993 to assist small businesses in raising finance. It’s a great funding option for startups, as well as an attractive investment option for those looking to make more tax-efficient investments.

Here are some of the main benefits and tax reliefs available to investors under EIS:

Income Tax

Up to a cap of £1m per year, you can claim 30% income tax relief – meaning you could potentially save £300,000. The EIS allowance is allocated on an individual basis. This means that a married couple or two civil partners could invest up to £2m per year, and gain tax relief worth up to £600,000.

Capital Gains Tax (CGT)

If you hold the shares for three years or more and claim the income tax relief, then you can receive an exemption on the profits you earn from the shares.

Inheritance Tax

If you hold the shares for a minimum of two years, then under the EIS these shares receive an exemption from inheritance tax (IHT).

CGT tax deferral relief

You can defer your payment of CGT by investing the capital gain in an EIS-qualifying company.

Loss Relief

If you invest in an EIS company which then fails, and shares are disposed of at a loss, then you can set the loss amount against your income tax bill or capital gains tax bill.

To qualify for loss relief, the value of your investment must have fallen below “effective cost”. This refers to the amount you invested in the EIS company after you have subtracted any previously claimed income tax relief.

For example, if you invested £10,000 in an EIS company and claimed income tax relief of £3,000, then the effective cost in this instance would be £7,000.

Loss relief for EIS investments can be claimed either against your income tax bill or capital gains tax bill. It’s worth noting that in most cases, it is best to offset against your income tax bill since income tax rates are higher than CGT rates.

Who can invest in EIS investments

Broadly speaking, any British citizen can invest in EIS-qualified companies. However, it is important to be aware of certain restrictions that may affect your ability to invest:

#1 Connections

You cannot receive income tax relief under EIS if you are connected to the company you want to invest in, either via employment or through “financial interest”.

Employment “connections” therefore exclude employees, directors and partners from investing in their own EIS company. “Financial interest” excludes those who own more than 30% of the EIS company shares or voting rights, and applies to your relatives as well (except siblings).

#2 Tax relief claims

The EIS company must send an EIS3 form prior to an investor being able to claim income tax / CGT relief. Once this has been done, you can claim through your tax return via Self-Assessment.

#3 Reductions & withdrawals

It is important to bear in mind that your EIS tax relief can be taken away or reduced if the company loses its EIS status, or if you become connected to the company.

#4 EIS Investing via Bure Valley Group

There are many great reasons to invest in EIS companies via Bure Valley Group:

  • Joining our investment network is completely free.
  • All of the EIS benefits and tax reliefs are kept by you.
  • We provide a wide range of investment opportunities from many industries and sectors, allowing you to spread your investment risk by diversifying your portfolio.

Which Companies can qualify for EIS?

For a company to qualify for EIS status, it must at least meet the following criteria:

  • The business must be unquoted on any recognised stock exchange.
  • It must have a fixed place of business inside the UK.
  • Gross assets must be valued at under £15m, prior to the EIS issue.
  • There must be no more than 250 full-time employees.
  • The company cannot be controlled by another one.
  • The money raised through EIS must be used within 2 years
  • Companies can only raise £5m in total from EIS within a 12 month period.
  • It must engage in a “qualifying trade”, such as forestry or property development.
  • Share must be issued within seven years of the company’s first commercial sale. In certain situations, this time limit can be extended.

What EIS Companies can use the Money for

Suppose your investment is accepted into an EIS company, what are they allowed to spend that money on? Broadly speaking, they must use in on a business activity under a qualifying trade, or to prepare carrying out such a trade. It can also be used on research and development.

However, there are important restrictions on EIS companies in their use of the funds. For instance, they must use the money to grow or develop the company. They cannot use it to buy parts of another business or a whole other company.

Is Your Company Vulnerable to DNS Attack?

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Here at Bure Valley Group, we are working more and more with exciting new tech startups including cybersecurity firms. It has brought an important subject to our attention: DNS attacks.

In this article, we’re going to briefly explain what DNS is, and how holes in your DNS security can leave your business and other web assets vulnerable to malicious online threats.

What is DNS?

DNS is one of the foundational architectural pieces of the internet. It is like a phonebook, which your smartphone or desktop computer uses to find websites you search for.

The name of this phonebook is called “DNS”, or domain name system. You use DNS to search for websites using their names, such as Your web browser, however, will find the website by looking past this website name and finding its internet protocol (IP) address.

How hackers attack the DNS architecture

Clearly, DNS is one of the most important pillars of the internet. It is therefore quite alarming that lots of businesses – small and large, old and new – neglect to solidify their defences against DDoS attacks.

DDoS stands for “distributed denial of service”, and it’s a type of attack used by hackers to shut down your website. They do this by overloading your systems, pinging your IP address continuously in order to overwhelm it and shut it down.

Signs of DDoS on your website

Of course, if your website suddenly shuts down it could be due to any number of reasons. Perhaps someone has inadvertently turned something off in your hosting settings, for instance. However, if your company website is down and you are receiving “denial of service” messages, then that could be a sign of a DDoS attack.

To be more certain that you have been attacked, watch your network and website traffic. If you see your website go from a steady stream of traffic and completely functional, to a sudden spike in traffic and shut down, then that’s almost certainly a sign of DDoS.

DDoS Tactics

Although DNS attacks all essentially use the same objective – overloading your company website to make it crash – there are a number of strategies they use to achieve this.

One way they do this is to compromise your DNS servers, by changing the information in your nameservers. This happens when someone manages to break into your hosting provider account, perhaps by exploiting a weakness in the system.

Another approach used by hackers is use of a botnet, which they rent by the hour to launch an overload attack. Finally, cache poisoning is another common approach. Here, the hacker puts incorrect information into your server’s cache. This means that information requests from your server (i.e. people using a browser to access your company website) will receive the false information instead of the correct data you want to deliver to them.

How to prevent DDoS attacks

Obviously, a DNS attack is not something you want to happen to your company website. So what are some of the preemptive steps to can take to reduce the threat?

#1 Focus on your resolver

You should consider restricting access to your resolver only to specific people within the organisation. This helps prevent the cache from being accessed and poisoned by malicious users outside of your company. Make sure your resolver is both protected and private.

#2 Configuration

If you configure your DNS software to make your outgoing requests variable, then it makes it much hard for hackers to penetrate your systems with a false response. Speak to your IT provider about whether/how to do this.

#3 Watch Your Nameservers

Your nameservers are vitally important, as they point your domain name towards your hosting space. Any unhelpful or malicious tinkering here can easily pull the rug out from underneath the feet of your website. So, make it a habit to set up notifications concerning any changes to them.

#4 Clear the Cache

Every now and then, it is a good idea to clear the cache on both local and wide area networks. Think of it like defragging your hard drive on your personal desktop computer. It benefits your systems to do it periodically.

#5 Different Servers

Beyond using an up-to-date firewall, another good idea is to consider hosting your web assets on different servers. In the event that you experience a DDoS attack, the other server(s) can take over whilst the attack is warded off.

What to do in the event of DDoS

If you believe your website experiencing a DDoS attack, then you need to call your IT security team immediately. Speaking with your internet service provider (ISP) can help you identify any potential attacks, and implement an appropriate defensive strategy to fight off the DDoS attack.

Do not try and resolve the problem yourself. It is always a good idea to work alongside an experienced, qualified IT professional to identify the issue quickly and act fast in response.

Waste To Energy – A booming Industry of Technologies!

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Waste to energy is the process of producing thermal energy from the rubbish we throw out. Most wastes to energy processes produce electricity or heat energy directly through combustion.

Ever since the industrial revolution, waste has been a huge environmental issue worldwide. It includes any materials that we decide we no longer need and throw out in the trash.  Electrical waste alone, consisting of old computer equipment, TV’s, stereos and kitchen appliances equates to almost 50 million tonnes a year. It doesn’t end there, in the UK alone, according to recent statistics we throw out 7.2 million tonnes of food, almost 500 million plastic bags, 83 square kilometers of wrapping paper and each baby gets through enough disposable nappies to weigh the same as a family car – to name just a few.

We generated 202.8 million tonnes of waste in the United Kingdom in 2017, but we can turn that trash into treasure by transforming it into energy.

So, what types of waste can be transformed into energy? Obviously both liquid and solid materials can be used, but some can be hazardous. Water used to clean industries as well as wash water, grease trap cleaning, sewage, triple interceptor (at a service or gas station) and many more are some examples of liquid waste. On the other hand, solid waste is any rubbish we make at our homes, offices or anyplace where we throw away into ´the bin. Examples of this can be cardboard and packaging, used tyres, general garbage, scrap metal, food and plastics.

Hazardous wastes are discarded materials with properties that make them potentially harmful to human health or the environment. Hazardous wastes can include things such as chemicals, heavy metals, or substances generated as by-products during commercial manufacturing processes, as well as discarded household products like paint thinners, cleaning fluids, and old batteries.

Turning Waste into Energy – Methods!

The rubbish we are producing every day can be turned into something good. Such as electricity, heat or fuel. The solids can be converted into gas to produce energy.

Incineration is the most common technology for WTE. After collection the waste is blasted in the incinerator at a high temperature, this is called thermal treatment. The heat generated will then be used to create energy.


Depolymerization also a common process but a little more technical – the human body uses depolymerization when digesting food. For example, processing protein. However, in this case it is referred to as TDP (Thermal Depolymerization) which uses super-heated water to produce fuels. The process of thermal decomposition is also called Hydrous Pyrolysis, using high heat and pressure on waste products such as biomass and plastic, to create light crude oil, which is then used to create energy.


This process is widely used in the industrial process to create energy from waste. This is like Hydrous Pyrolysis. Unlike Hydrous Pyrolysis, Pyrolysis process uses organic or agricultural waste from industries.


This a developing process to create energy from waste. In this process, carbonaceous substances are converted into carbon dioxide, carbon monoxide and a small amount of hydrogen at a high temperature in the presence of oxygen. In this process, Synthesis gas is generated which is a good means of alternate energy. Synthesis gas is then used to produce electricity and heat.

Plasma arc gasification

In this process, a plasma torch is used to ionize gas which is generated from compressing the waste. Syn-gas  or Synthesis gas then used to produce electricity.


The methods of turning waste into energy is an emerging and innovative development of technologies aimed to create a better and sustainable environment. Waste to energy technology is developing day by day and we can save our ecosystem by adopting this technology. It can also solve the energy problem of the world.

Though the scale of energy generation using waste to energy method is still small right now, it can be a great energy solution in the near future.


Lowering Emissions in the UK! Fact or Fiction?

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As of this morning, the MP´s in the United Kingdom are moving towards a ban on Diesel and Petrol cars by 2032. “Phasing-out diesel and petrol cars will benefit the climate, help solve the air pollution crisis and improve quality of life for everyone” Read more about that here.

In order to effectively address global warming, we must significantly reduce the amount of emissions we are putting into the atmosphere.

The good news is that we have the technology and practical solutions at hand to accomplish it.

As individuals, we can help by taking action to reduce our personal carbon emissions. But to fully address the threat of global warming, we must demand action from our elected leaders to support and implement a comprehensive set of climate solutions:


So what are our leaders and leaders globally doing about this, and what Solutions out there are “actually working”? below we take a closer look at ways to reduce emissions.

#Electric Vehicles

We keep hearing lots of renewed chatter about how electric cars are about to take off in popularity. But for us, the fundamental question remains unanswered: do they really produce fewer emissions when you take into account that they run on electricity produced, in large part, through the burning of fossil fuels?

There is certainly a general assumption that electric cars are “cleaner” than petrol/diesel/hybrid cars, but is this assumption correct? And how is it that electric cars cannot claim to be “emissions free” if they are powered from an energy grid supplied by nuclear power stations burning coal or gas?

Tailpipe emissions for electric cars can be classified legitimately as zero – which is certainly beneficial for an urban environment where local air pollution is a huge problem – but is this pollution simply being displaced meaning that it still ends up in the atmosphere but via the route of a power station’s stack as opposed to the exhaust?

How green are electric cars?

Imagine if we could find a solution to lower emissions on diesel engines without having to go electric??

#Renewable Energy

The renewable power sector is dynamic and always changing rapidly – with falling costs, installations, increasing investment, and several new, innovative business models. But these positive developments tell only part of the story. The global energy transition is only fully underway for the power sector; for other sectors it has barely begun.

Here are 5 interesting facts about renewable energy that will get you thinking.


  • Just 1 wind turbine can generate enough electricity to power 1,400 homes.


  • Incredibly, as of 2017, China builds 2 wind turbines every hour!


  • Renewable energy sources, like wind and solar power, now generate almost a third of the UK’s electricity.


  • Fossil fuels still get 4 times the subsidy of renewables from G20 nations.


  • Renewable Energy creates 5 times more jobs than fossil fuels.


The power sector on its own will not deliver the emissions reductions demanded by the Paris climate agreement or the aspirations of Sustainable Development Goal 7 (SDG 7). The heating and cooling and transport sectors, which together account for about 80% of global total final energy demand, are lagging behind.

#Advances in Diesel Technology

Ocean Shipping

The global shipping industry is bracing for a key regulatory decision that could mark a milestone in reducing maritime pollution but could nearly double fuel costs in a sector already reeling from its worst downturn in decades.

Did you know? Just one of the world’s largest container ships can emit about as much pollution as 50 million cars. Further, the 15 largest ships in the world emit as much nitrogen oxide and sulphur oxide as the world’s 760 million cars.

To combat such pollution, the International Maritime Organization’s (IMO) Marine Environment Protection Committee will meet in London from Oct. 24th to 28th to decide whether to impose a global cap on SOx emissions from 2020 or 2025 onward, which would see sulphur emissions fall from the current maximum of 3.5% of fuel content to just 0.5%.


Transport, Energy and Climate policies can play a very significant role in strengthening Europe´s economic security, its competitiveness and its ability to pursue a robust external policy.

We need to move away from imported Fossil Fuels and towards a low-carbon economy whilst also reducing high efficiency standards.

A resilient transport/energy system is crucial to achieving this goal.

Rail, as a low-oil and low-carbon transport mode, can make a vital contribution as the backbone of a sustainable transport system for Europe.

For more information about technologies that are disrupting this sector, please contact us at [email protected]

What is being done to fix the huge problem with global Cyber-crime??

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Given the threat from cyber-crime is increasing, businesses can’t afford to be reactive anymore. To succeed in security, they must look towards improving their cyber security systems, as there is too much at stake. It is not enough to just fork out millions on insurance and security, we need to find a way to prevent an attack from happening in the first place.

Bure Valley Group have been working with several exciting possibilities and ONE is really starting to stand out! More to come on this in due course…

Potential threats are no longer a concern for the IT department alone. “Cyber-crime is now more profitable than the drug trade”

Here are a few interesting statistics,

  • An eye-watering 3.5 million new, cyber security jobs are being created by cyber-criminals worldwide, by 2021. Compare that with one million openings in 2016. That’s an increase of 350 percent in just five years.
  • Just looking at 2017, business have forked out a staggering $86.4 billion in protection efforts alone.
  • Cybercrime will create over $1.5 trillion in profits in 2018
  • Global cybercrime damages predicted to cost $6 trillion annually by 2021
  • The average business increased its spend on IT security this year by 14%

Read More

How to do Due Diligence when Investing in Startups

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Past performance is no guarantee of future results. Any historical returns or unrealized returns may not reflect actual returns or future performance. All securities involve risk and may result in loss, and startup investing is particularly risky and may result in total loss.

Due diligence in the world of investing is really another way of saying: “take reasonable care before committing your money”.

Given how often startups fail, it’s obviously crucially important that you do your due diligence prior to investing in them. After all, if you invest in a startup that emerges as a winner – then significant profits lie down the line.

At Bure Valley Group, we connect exciting, high-potential startups looking for funding with our exclusive network of investors – who are looking for the next big thing. These businesses must pass through a stringent set of criteria, tests and vetting before we present their proposal to our network. So it’s fair to say, we know a good thing or two about startup due diligence!

So in this guide, we’ll be sharing some tips with you from our experience, about how to do some of your own due diligence when looking to invest in startups:


#1 Check the Overall Presented Facts

When you speak with a startup seeking funding from you as an investor, it’s imperative that you never take anything at face value. Always check the claims and facts presented to you:

  • Size of team / number of employees
  • Background, skills and experience of the team members
  • Stories about the startup and employees in the news / social media
  • Trading record
  • Credibility of the sector

And more. These are just a handful of the claims and facts you must check by yourself. It’s in your interests to do so. After all, nobody wants to commit money based on inflated or inaccurate facts about an investment. Few things sting as much as losing money in this situation.

Doing due diligence actually helps the startup in question, as well. After all, this process might actually reveal something to the business that they’d not seen or thought about, which they can then correct in order to strengthen their position.


#2 Use Companies House, but Know its Limits

Most people know that if you want to access the accounts of a UK company, you do so through Companies House. The Beta gives you instant access, but there are some problems.

First, there’s the time lag. On Companies House, accounts for a 12-month trading period do not need to be filed until 9 months after this period. So, if a startup began trading in January 2018, then their accounts up to December 2018 do not need to be filed until September 2019. This obviously creates a problem for investors looking to do their account due diligence.

Second, businesses are able to shift their filing date – something you can trace through Companies House. If a startup’s director(s) do this, then you need to ask them what the reason is for changing the filing date. Are they hiding something, or is there a credible reason?

Third, many startups are not actually required to file accounts on Companies House. They can choose to do so, but alternatively they can submit an unaudited balance sheet  (provided the business meets certain qualifying criteria).

In short, you cannot rely on a balance sheet to determine a startup’s financial health. Make sure you get hold of the business’s full accounts, and be certain to check these against any accounts filed online. If you find any inaccuracies or inconsistencies, then you’d be wise to not invest.


#3 Check the Company Directors

If there’s one strong determinant of a startup’s prospects of success or failure, it would be its director(s). Yet it isn’t always straightforward doing due diligence on them.

For example, suppose you are interested in investing in a startup and the company director’s name is “John Philip Patrick Greene.” Checking the Company Register, you could use any combination of these names and initials, and it would throw the full name up.

What does this mean? It means that it is possible for one person to have multiple entries on the Company Register. They would just need to use different ways of writing their forenames or initials. It isn’t illegal, but it does leave the door open for people to use it illegally.

There are all sorts of horror stories out there. Startup company directors who have listed multiple versions of their name on the Company Register, some of which list liquidated companies. Yet the version of the name given in the funding pitch was different.

To ensure you do not miss this, make sure you do not just search the Company Register by name. Also use the person’s date of birth. This is much more likely to be entered correctly, as providing incorrect information here would be against the law.

LinkedIn is also a very useful source to check company directors, as is Google Search and Google News. Make sure you cross-check the person using multiple sources, and ask them directly about any inconsistencies you find.


#4 Check the Market

Startups occupy a distinct landscape within the market. Or at least, they are supposed to.

Make sure you do your own market analysis. Really drill down on the market segment, as looking too broadly will not give you enough information.

A good example is the car market. There are numerous segments involved here. It is largely irrelevant, for instance, to look at UK-wide car sales when the product you’re looking at is an electric car aimed at city-dwellers.

Ensure you also do your own research on the company’s competition. It’s completely conceivable that the startup might have missed some in their pitch.

Check the company’s scalability. They might well have had a first-year turnover of £100,000, and claim that there is enough of a market for that to become £1.5m in the next 12 months. Assuming that occurs, do they have the processes in place to handle that turnover?

Another area to consider is the M&A levels and behaviour in the startup’s sector. This can have a big impact on your profitability prospects as an investor. Check Google for a M&A report in the sector you’re looking at. In all likelihood, there will be a recent one out there. Just make sure you are certain of the figures and sources used before relying on it.



There is much more to startup due diligence than what we’ve outlined above, but hopefully this gives you some food for thought.

If you are an investor interested in accessing our latest, qualified funding proposals, or a business looking for funding, please get in touch.


An Easy Guide to SEIS Investing

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Past performance is no guarantee of future results. Any historical returns or unrealized returns may not reflect actual returns or future performance. All securities involve risk and may result in loss, and startup investing is particularly risky and may result in total loss.


At the time of writing, over 50,000 new businesses are started in the UK each month. The vast majority of these will be a failure. Yet some of them could be the next WhatsApp or Amazon.

If you are an investor, you therefore want to ask: “How can you tell which ones will be the next big thing? How do I get a piece of the action?”

The fact is, it isn’t always easy to tell which startups will become a huge success and earn you lots of profit. Inevitably, there will always be a high degree of risk involved with this kind of investment compared with other asset classes.

Yet in the same breath, with higher risk comes to possibility of higher return. Moreover, with government schemes such as SEIS, you can mitigate these risks by offsetting some of your losses against your Income Tax. (More on this below).

In light of the above, here are some principles you can use to make wiser investment choices when it comes to startup funding.


#1 Understand why Startups Fail

There have been many studies detailing the obituaries of different startups across the UK. Some details hundreds of reasons for startup failure, yet there are some very common ones.

Many prominent investors observe that startups with a single founder are very likely to fail. Steve Hogan of Tech-Rx, for instance, argues that having a co-founder can help startups address many of the causes of early failure, such as poor recruitment and marketing choices.

After that, some other important reasons startups flounder include the absence of market need. If no-one needs the product or service they’re offering, then the company will not sell.

Other causes of startup failure include running out of money, having the wrong team, conflict between this team and the investors, and being outperformed by a competitor.

At Bure Valley Group, we “stress test” all of the startups who want to approach our investor network for funding. We comb over each of the above – and more – to ensure the proposal is as robust as possible prior to presenting their proposal to our Angels and Consortiums.

Although this does not eliminate the risk of investing in startups, it does increase the chances of you getting a return on your investment.

By focusing on SEIS-eligible UK startups as well, this adds an additional layer of protection for your investment, since you can offset some of your losses against your Income Tax. Yet we’re jumping ahead slightly – we’ll cover that in a bit more depth shortly!


#2 Only Invest What You Can Tolerate to Lose

Since investing in startups is inherently risky, you should never commit more money than you can afford to lose.

Yes, you could win big if the company you invest in becomes huge. Yet you could also lose most or all of it. For ordinary folk in the UK, therefore, you should only ever invest a small amount of your investment funds into startup funding.

For Sophisticated Investors, the situation is slightly different. These are people with significant sums to invest, who can afford to take more risks with their money, and who can demonstrate they are aware of the risks in startup investing.


#3 Diversify Your Investments

Advice you almost certainly will have hear before as an investor, but it always holds true.

Try and spread your money out wisely amongst a range of “stress tested” startups, rather than putting all of your eggs in one basket.

It helps mitigate your risks. If one of your investments fail, and one or more of the others succeed, then the former will sting a lot less.


#4 Take Advantage of Tax Reliefs

One of the little-known tax reliefs offered by the UK government is SEIS – the Seed Enterprise Investment Scheme. This offers a great way for people to invest in startups, reducing your losses when you lose and improving your winnings when you succeed.

Essentially, SEIS allows you to invest up to £100,000 in SEIS-eligible UK startups per financial year. You can then offset 50% of your investment against your income tax.

So, suppose you invest £1,000 in a SEIS-eligible startup. You’d actually be investing £500, because you will effectively be taxed £500 less.

You have to hold your shares in the company for at least 3 years. If at that time the company fails, then £500 is at risk. This is where your Income Tax bracket comes into play.

If your tax band is 45%, then you could get back 45% of that £500 (£225). So, even though you invested £1000 you do not lose it all if the company fails. You lose about a quarter of it.

Yet this is the worst-case scenario. Suppose the company doubles in value after 3 years. What happens then?

Well, invested £1000 so you get £2000 back. Under SEIS this is not subject to Income Tax, and neither is it subject to Capital Gains Tax. So this is £1000 of pure profit.

Yet remember, the initial £1000 you invested was offset against your Income Tax by 50% – that is, £500. So actually, you’ve made £1500; a 150% return on your investment!


How SEIS plays out as an Investment: 3 Examples

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Past performance is no guarantee of future results. Any historical returns or unrealized returns may not reflect actual returns or future performance. All securities involve risk and may result in loss, and startup investing is particularly risky and may result in total loss.

Introduced in 2012 by the UK government, SEIS (the Small Enterprise Investment Scheme) was intended to incentivise individuals to invest in startups, by offering tax relief.

In short, provided a company meets certain qualifying criteria for SEIS, then you can invest up to £100,000 per financial year into these companies and be entitled to 50% Income Tax relief.

In addition to the Income Tax relief, you also receive exemption from Capital Gains Tax on shares you earn from the SEIS you invest in. This exemption applies even if you reinvest the profits from your shares back into the SEIS company.

Company directors can even invest into their own company through under SEIS, provided their company is SEIS-approved. However, you only hold up to 30% of the company shares.

To take advantage of the above tax reliefs, you must hold your shares in the SEIS company for a minimum of 3 years.

However, if you are worried that would potentially expose you to large investment losses, then HMRC offers a nice cushion under the scheme. If the company you invested in fails, then you can offset the loss amount against your Income Tax.

You have a few options when it comes to how you invest. For instance, you can invest directly into a SEIS company, or you might choose to invest in several through a SEIS fund.

So how does this all work in practice? Let’s imagine three scenarios, where an investor puts their money into a company via SEIS:


Scenario 1: Company Failure

Suppose you approach Bure Valley Group and you invest £10,000 into a company in our network, which is SEIS-qualified. Imagine that shortly down the line, this company collapses and you receive nothing in the liquidation.

Let’s also suppose that your UK Income Tax bracket is 45%, and your Capital Gains tax is 28%. What happens to your money?

Well, you initially invested £10,000 and are entitled to 50% Income Tax relief. So you get £5,000 back straight away.

So you really have £5,000 exposed to the loss, not £10,000. In this case, because your Income Tax is 45%, this is the level of tax relief you get on the £5,000. That amounts to £2,250.

So your actual loss is £2,750.


Scenario 2: Company Breaks Even

Again, let’s assume you fit the same tax situation described in the first scenario. You invest £10,000 in a SEIS company, and this time the company has the same value after 3 years.

In this situation, what happens? If the company exists, you have £5000 profit and you will also receive a 50% tax reduction (£5000). So effectively, you get your money back (minus inflation).


Scenario 3: Company Value Doubles

We’re coming at this scenario with you in the same tax situation as above. This time, you invest £10,000 into a SEIS business which goes on to double in value after 3 years.

Again, the initial investment gets 50% Income Tax relief – so you really have invested £5,000. If you sold your shares at this point, you’d have a £10,000 profit which is not subject to tax.

This sum is also not subject to Capital Gains Tax either, because you held your shares for 3 years. So, the total tax-free amount you get back is £15,000.


Which Companies Qualify for SEIS?

A business can apply for SEIS status if they have under £200,000 worth of assets, and have been trading for less than 24 months. The total amount of SEIS investment they can receive under these circumstances is £150,000.

There are some other criteria which must be met by the business as well, to qualify for SEIS. First of all, it must be UK-based and not trading on a stock exchange recognised by HMRC, such as the London Stock Exchange, Boston Stock Exchange or Toronto Stock Exchange.

The company in question also cannot control any other company, unless it meets “qualifying subsidiary” status. In addition, the company cannot be controlled by another one, and it must not be a partnership (the same applied for any qualifying subsidiaries).

The total number of employees in the company also cannot exceed 25 – including any employees in any qualifying subsidiaries.

Finally, the company applying for SEIS also cannot be from a venture capital trust (VCT), and it will be prohibited from SEIS status if the company has received any funds through the Enterprise Investment Scheme (EIS).


Which SEIS Companies Should I Invest in?

Of course, SEIS is ultimately about investing in startups – something that’s generally seen as quite risky. So even if a company qualifies for SEIS status, that doesn’t mean you should necessarily invest in it.

At Bure Valley Group, a huge part of what we do is “stress testing” SEIS companies, prior to presenting them as investment opportunities to our network of investors and consortiums.

In other words, we ensure that SEIS companies have the highest possible chance of success prior to recommending them to our investor network. This significantly increases the chances that you will get a high return on your investment.

We also advise investors on how to diversify their investments in the companies we present. That way, if one company you invest in fails and others succeed, you further minimise your exposure to losses and increase your chances of a solid profit.

Interested in becoming a part of our investor network, and gaining access to our exclusive list of SEIS opportunities? Get in touch today using the contact form on our website!