First SEIS Companies Ready To Mature

Investors are eagerly awaiting the maturity of the first Seed Enterprise Investment Scheme (SEIS) companies.

SEIS first hit the business investment scene on April 6, 2012 as the brainchild of Chancellor George Brown.

He saw SEIS as a stop-gap for start-up firms that could not raise finance for research and development projects from the banks.

Since then, more than 1,000 companies have raised around £100 million in equity stakes from investors and business angels.

The first SEIS companies come of age on April 5, 2015.

The next six months give investors, entrepreneurs and the government time to take stock on how the scheme is working and what, if any, tweaks are needed.

Venture capital consultation

The government has launched a venture capital consultation covering SEIS, Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT).

One possible result for SEIS could be raising the investment cash threshold from £150,000 over two tax years to £250,000 to attract more professional investors.

Industry experts are concerned the lower limit is deterring investors because the associated costs of entry into SEIS are too high, like due diligence, which adds around 10% to the investment tab.

If things have gone according to plan, some of those early investors are about to reap some significant tax-free profits.

SEIS allows early bird investors to get the growth-value of their original £100,000 investment without paying capital gains tax if the project is a success and 105% tax relief if the project fails.

Dressed for success

One success story is Scarlett & Mustard, an upmarket food specialist.

Before SEIS, the company was selling less than £100 of salad dressings a day.

After successfully winning SEIS funding, turnover is £400,000 a year fuelled by supplying Waitrose and Harvey Nichols. The firm was one of the pioneer companies to run with SEIS and is expected to be an early success for the venture.

SEIS is generally hailed as a success for matching investors and entrepreneurs needing their cash.

The incentive for investment is the generous tax breaks –

• An instant 50% reduction on income tax paid
• A 50% Capital gains tax (CGT) exemption on assets sold to raise SEIS investment cash
• Loss relief for failed projects
• Tax-free growth on an capital appreciation of the SEIS equity stake

The hope for SEIS companies is an offer from a bigger competitor or to move up to Enterprise Investment Scheme (EIS) for more funding to carry on the project.