Why Startups in the UK Should Apply for SEIS
11/09/2020 by The Red Tree
The UK government introduced the Seed Enterprise Investment Scheme (SEIS) in 2011 to encourage entrepreneurship and promote new enterprise by helping very early stage start-ups access equity finance more easily.
Prior to the launch of this initiative, routes to investment for very early stage start-ups were extremely limited. Traditional investors were wary of backing high-risk new ventures given their high attrition rates. Alternative routes to funding, such as investment from friends and family, can only stretch so far whilst new business bank loans frequently came with crippling interest rates.
SEIS offers very early stage start-ups and entrepreneurs a route to vital funding by effectively minimising the risk to investors through significant tax efficient benefits. This makes a potential investment into a very early stage start-up more attractive, thereby encouraging investors to invest and introducing these companies to a much wider audience of willing and able financial backers. SEIS therefore helps entrepreneurs to raise seed funds to grow their company.
There are several criteria that determine which businesses are eligible for SEIS.
- To qualify for SEIS, the start-up must be established in the UK and must be fully independent – so not controlled by or a subsidiary of another company.
- The start-up must have assets of less than £200,000, have fewer than 25 employees and be under 2 years old. Qualifying businesses can receive a maximum of £150,000 through SEIS and, like with other sources of investment, an entrepreneur seeking investment through SEIS must be prepared to hand over equity in exchange for capital funding.
It is highly advisable to apply for Advanced Assurance from HMRC before seeking funding via SEIS. Advanced Assurance is operated by HMRC, is free of charge to obtain and certifies to investors that the criteria necessary to qualify for SEIS have been met by the company at the time of the application. If qualifying criteria are met, HMRC will issue a document stating that the investment is likely to qualify for SEIS which can then be shown to potential investors. The investor can then see that their investment in your company will benefit from SEIS therefore making your business significantly more investable.
Companies entering The Beauty Accelerator must be SEIS compliant. Regardless of whether your business enters The Beauty Accelerator, it is an extremely wise business move to apply for Advanced Assurance and therefore be SEIS compliant. It will make your business vastly more attractive to potential investors and put you in the best position to access equity funding to help accelerate your growth. Further information about SEIS, including qualifying requirements and how to apply for Advanced Assurance, can be found here https://www.seis.co.uk/about-seis/criteria and here https://www.gov.uk/guidance/venture-capital-schemes-apply-to-use-the-seed-enterprise-investment-scheme.
The Red Tree is the UK’s leading international beauty brand consultancy and a powerhouse of ideas, insight and inspiration. For an informal discussion on how we might help you, please contact us.
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