When searching for funding for your startup or early-stage business, you may have come across the venture capital schemes - Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS). They are marketed as win-win situations for both startup founders and funding investors when making investment decisions.
SEIS and EIS are government initiatives that offer a range of tax reliefs to potential investors. In exchange, these venture capital schemes help startup founders in their fundraising efforts by investing capital, which in turn helps decrease financial barriers for SMEs (small and medium sized enterprises) in their early and mid-years.
SEIS and EIS funds may be recommended to you by your startup advisor or startup fundraising consultant. This is because fundraising is a key problem when developing and growing startup companies. In fact, financial problems account for 16% of all startup failures (via www.failory.com). This means that taking advantage of the SEIS and EIS funds could help prevent the financial downfall of your startup. Here's a breakdown of how they work:
As a result, by incentivising investment opportunities with tax breaks to investors, the UK startup industry is kept healthy and thriving. This also makes UK businesses more attractive to potential investors.
And the schemes have clearly worked, too. As of 2021, the UK is home to 5,377 startups, making it the third country in the world with the highest startup efforts (via www.firstsiteguide.com)!
Interested in finding out if you're eligible for SEIS or EIS funding? Read our guide below for more information.
First implemented in the UK in 2012, SEIS is relatively new in the investment world. This seed investment scheme focuses on earlier stage companies by investing money for growth and expansion.
The funding limit for SEIS is £150,000, and companies must follow the 4 month/70% rule attached to it. This means that before companies can apply for full SEIS, they must have traded for a minimum of 4 months or have spent 70% of the SEIS investment.
As with all schemes, there are certain stipulations regarding which startups are eligible for SEIS funding. For example:
To sweeten the deal, seed investors are offered an array of benefits to attract investment. These include:
The Enterprise Investment Scheme, or the EIS Investment Scheme as it is sometimes called, is designed for small and medium-sized businesses. It is better suited to more mature companies or a larger business. The scheme was created in 1994 and is therefore much more established and well-known in the UK than SEIS.
An eligible investor can invest up to £1mil per tax year under the EIS. The return on this has the potential to be much higher than those made under SEIS.
If you're a startup founder, your company must meet the following criteria in order to qualify for EIS funding:
As with the SEIS, there are perks and incentives involved in taking advantage of the EIS. For example:
There are also some points to consider before applying for SEIS and EIS funding, such as:
SEIS and EIS are part of a UK strategy to encourage direct investments in SMEs by offering tax breaks, such as income tax relief, to individual investors. The core differences between SEIS and EIS are that they are suitable for different types of startups and that they offer varying tax benefits to investors. SEIS funds are better suited to early-stage companies, whereas EIS are aimed at more mature companies.
If you’d like personal advice on fundraising for your startup, contact 7startup today.
Amit has 18 years of experience in the industry and an MBA. He supports entrepreneurs with every aspect of their business including concept and product development, investor presentations, and fundraising.
Tags: Startup funding, venture capital, scaleups, fundraising, why do startups fail, equity research, SEIS, EIS, government funding
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