The UK’s venture capital sector has propelled our economy forward in key sectors of the future, cementing the UK’s status as the global tech hub. Over the past decade, the UK’s ecosystem has grown larger than the rest of Europe combined, sitting behind only the US and China as the third global superpower of venture capital. However, for years, the secondary market—the space where investors can buy and sell existing stakes in private companies—has lagged behind. It’s been sluggish, creating extended cycles for returns, leaving early-stage investors waiting up to 10 years to see their gains. But that’s no longer the case. The secondary market is waking up, and it’s happening fast.
In the last two years, the secondary market has come alive. Investec reports that secondaries fundraising nearly doubled in 2023, with an extraordinary 91% year-on-year growth. This surge offers earlier liquidity and more opportunities for positive returns, making it a game-changer for investors.
Why this matters for SEIS and EIS investors
For SEIS and EIS investors—those supporting businesses at their earliest stages—this shift changes the game. Waiting a decade for returns had been a key challenge. Now, there is appetite to allow SEIS and EIS investors to exit earlier, often at Series A or Series B rounds, and still achieve significant returns. With pre-seed valuations typically around £2–£3 million, these early exits can offer impressive profits without waiting for full maturity. This shift de-risks portfolios and builds confidence among investors, whether seasoned veterans or newcomers to tax-efficient investing. At SFC Capital, we recently completed a partial exit from one of our portfolio companies, Cognism, which perfectly demonstrates this. We achieved a sixfold (6x) return on the entire portfolio’s value while still retaining the majority of shares. Cognism, now valued at over $600 million, is on track to join the exclusive club of British unicorn companies, with SFC’s investors still shareholders in its exponential rise. These outcomes demonstrate the tangible potential of a thriving secondary market for SEIS and EIS investors.
Dent financial advisors (IFAS)
For IFAs, the ripple effect of this transformation is equally significant. Historically, the long cycles of SEIS and EIS investments made it difficult to show quick results to clients, with benefits largely limited to tax relief in the early years of an investment. Now, faster liquidity options mean tangible returns can be showcased earlier, upturning the old adage that SEIS and EIS take a long time to make advisors look good. Our own track record at SFC Capital shows that we start delivering cash back to investors from year 4 onwards. Furthermore, the secondary market offers advisors a new level of flexibility in managing their clients’ portfolios. By facilitating partial exits, IFAs can help clients reinvest proceeds into new opportunities, aligning with their financial goals while maintaining exposure to the high-growth potential of their remaining investments. At SFC, we have now delivered five partial secondary exits at an average 9x return to investors before tax relief, which rises to 18x once 50% income and capital gains tax relief is accounted for.
Why secondaries matter for the UK economy
The implications of a robust secondary market go far beyond individual investors and advisors. Liquidity is the lifeblood of any investment ecosystem. When investors realise gains, they reinvest, creating a virtuous cycle of capital recycling. This process drives innovation, entrepreneurship, and economic growth. The SEIS and EIS schemes amplify this effect with their uniquely generous tax relief benefits. The 100% Capital Gains Deferral under EIS and the 50% reinvestment relief under SEIS make reinvesting proceeds even more attractive, ensuring that realised gains flow back into the next generation of startups without being taxed along the way.
A call to action for IFAs
For savvy IFAs, the time has come to look seriously at SEIS and EIS, not just for their unparalleled tax reliefs but also for the accelerated returns and robust portfolio diversification they now offer. The rise of the secondary market is just one of several indicators that SEIS and EIS are increasingly attractive investment choices for your clients. Overall M&A activity is also climbing: in the first half of 2024, PWC reported that UK M&A values rose by two-thirds compared to the same period in 2023. At SFC, we have now delivered a market-leading 23 exits to investors, with the pace accelerating significantly in recent years.
About SFC Capital
SFC is proud to be the market-leading SEIS Fund Manager, with an award-winning follow-on EIS Fund complementing our offering and creating a seamless pathway that enables advisors to manage all their clients’ tax-efficient investing through one trusted platform. What sets us apart isn’t just our track record—it’s our commitment to transparency and convenience. Our proprietary investor portal offers real-time insights into portfolios, ensuring that both investors and advisors have everything they need at their fingertips. We’re already working with a growing number of IFAs and are equipped to scale for many more. Whether you’re an experienced advisor or new to SEIS and EIS, we’re here to help you unlock their full potential for your clients. Let’s shape the future of investing together – email invest@sfccapital.com.
Capital at risk. For professional investors only.
Ed Prior, Head of Investor Services
Ed joined SFC from the political world where he worked as an election strategist, speechwriter, and in policy development focused on venture capital and innovation. In business, Ed has advised founders and companies at different lifecycle stages on growth strategy, organisational development and equity-based crowdfunding campaigns. Ed is Head of Investor Services at SFC, responsible for Investor Relations, Fundraising and the Angel House.
