Make your startup investor friendly for free.
You will learn everything about searching for SEIS investors. And making your startup investor friendly by applying for Seed Enterprise Investment Scheme Advance Assurance.
When a founder thinks about raising funds from pre-seed investors their mind goes to:
I guess that’s fair. It’s the advice that you read on Techcrunch and it’s what startup podcasts tend to talk about. And you should absolutely do that…
…but what you’re not doing is thinking about what a pre-seed investor is looking for.
Here, when I say pre-seed investors, I’m talking about angel investors.
Angel investors are high net worth individuals. They have generally made their wealth by exiting their own business or getting a big payout from their corporate job.
A lot of these investors know the struggles of launching a business, and some may not want to go back there. But they clearly still have the entrepreneurial itch and they relate 100% to anybody wanting to launch a business.
Angel investors are obviously looking to make money with their investment, but they have so many opportunities to invest. What they are really looking for is:
Once they have all that, it’s about negotiating the term sheet and sending the funds. And that is where friction happens.
You need to make your business so easy for investors to invest in.
You need to create a structure that allows angel investors to easily make a tax efficient bets.
And that’s where SEIS comes in.
SEIS is a UK government scheme where investors get a 50% tax relief on investments up to £100K and full capital gains tax exemption for any profit on their SEIS shares.
So, when an investor puts money into your SEIS startup, they get an immediate 50% discount on their tax bill and if you do well and you sell the business (or they sell their shares on a secondary market), then they will pay no tax on any capital gains profits.
For an investor, this doesn’t mean that your business is a no-brainer, but it does mean that you have done everything you can to reduce any kind of investment friction.
And this type of investment friction happened to me…
I launched a business for the french market. And although the business was based in the UK, the legal entity had to be a French entity in order to legally launch in this particular market. The need for a French entity meant no SEIS deal available.
The business was doing really well and everything was pointing in the right direction. But this non SEIS structure became an immediate friction point with UK investors. It just put an extra “negative” in the cons column, and made me start the road show with a disadvantage.
We ended up having to find investors in Paris, so it's a good idea to check with a tax law firm to make sure you are doing everything in the right order.
The SEIS government scheme was already great for founders and investors but things are changing in April 2023. And changing for the good!
|SEIS requirements||Before April 2023||After April 2023|
|How much can angels invest each year (SEIS allowance)?||£100,000/year||£200,000/year|
|How much can startups raise? (SEIS funding)||£150,000||£250,000|
|Total assets held by the business at the time of the investment?||£200,000||£350,000|
|How many employees?||Less than 25||Less than 25|
|How long to use the investment?||3 years||3 years|
|Age limit of startup?||2 years old||3 years old|
|No capital gains tax on disposal of SEIS shares after||3 years||3 years|
You can apply directly for the Seed Enterprise Investment Scheme on Gov.uk websiteSEIS Gov.uk
Q - No capital gains tax for investors on disposal of SEIS shares after 3 years. Does that mean that you have to wait 3 years before you can sell?
A - Yes, if the investor wishes to sell CGT free under SEIS (answer from Finerva)
Q - A founder has already been running a limited company for more than 2 years. Can he/she just start a new limited company and make it SEIS compatible?
A - Not if the new company is conducting the old company’s trade. (answer from Finerva)
A - Yes, you are eligible to raise under S/EIS in the new company. In fact, as a director you can also invest under the scheme if you so wish (answer from Vestd).
Show that you business is SEIS investable in a directory:
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