Flows of new money into the Seed Enterprise Investment Scheme (SEIS) have surged since the General Election on 4th July. Between then and the end of August, the amount invested in SEIS funds through Wealth Club was 2.9x higher than in the same period last year – at the same time, the number of investors trebled.
The SEIS is a government-backed scheme that grants more experienced investors very generous tax reliefs when they invest in early-stage UK companies. An example of a successful SEIS-backed company is Cognism, a machine-learning driven marketing platform, which generated a 35.5x return for some of its early investors.
With rumours of CGT and other tax rises, SEIS is probably the most tax efficient vehicle available. When you invest you get up to 50% income tax relief and 50% capital gains tax relief which could mean a £100,000 investment could cost you as little as £48,000. Any gains are also tax free. The CGT tax relief in particular could be hugely attractive at the moment as many are reportedly rushing to liquidate assets ahead of the Budget.
The last couple of years have been torrid for venture investors with both valuations and fundraising heading down. Improving economic sentiment and lower valuations mean there could be rich pickings for braver investors. The extension of the EIS/VCT scheme to 2035 has finally been confirmed, ending the uncertainty of the last couple of years.
Alex Davies, founder of Wealth Club said:
“This is great news for UK startups – and the economy as a whole. It’s a sign appetite to invest in very early-stage businesses might be finally picking up again. I suspect there are number of reasons for this. Since the election everyone has been expecting tax rises, with wealthier investors likely to bear the brunt. Many are feeling twitchy, and SEIS is a hugely tax efficient way to invest for those prepared to take the extra risk. At the same time, we’ve been in the doldrums for a couple of years, but one good thing to come out of it is vastly improved valuations.
“If this trend continues, it may be the start of a virtuous cycle: better sentiment leads to more investment in young companies, which create a disproportionate number of jobs and economic growth, which in turn improves investor sentiment, leading to more investment. It’s what the country needs.”
Alex Davies recommends two SEIS funds for investors to consider: one is run by Europe’s most active seed investors, SFC Capital, whilst the other by a successful entrepreneur-turned investors.
SFC Capital runs the Startup Funding Club SEIS Fund, one of the earliest SEIS to launch soon after the SEIS was introduced. It invests across sectors, with a bias towards technology companies. Some of the earlier investments have started to pay off and consequently the fund has started to return capital to investors. Overall, it has achieved 15 full or partial exits to date. Cognism, a machine-learning driven marketing platform, is a particularly notable success. The SEIS fund has sold approximately three quarters of its stake at an average 35.5x cost.
Fuel Ventures, which runs the Fuel Ventures SEIS Fund, was set up by successful entrepreneur Mark Pearson after successfully selling MyVoucherCodes for reportedly £55m. Fuel Ventures started with two popular EIS funds and launched its SEIS fund in January 2021. The fund focuses on Fuel’s area of expertise: fast-growing Software as a Service (SaaS) businesses, online platforms, and marketplaces. It’s still too early days to see any exit, but the first signs are encouraging. Since 2021, Fuel has made £16.9 million of SEIS investments, and they are currently valued at £18.7 million (August 2024).
