Seed Enterprise Investment Scheme investment limits are too low and may be holding back fresh start companies from getting off the ground.
Investors can put £100,000 in a tax year and a maximum of £150,000 over three tax years into a SEIS, but this is not enough in some cases, says SEIS expert Mark Payton, managing director of venture capitalists Mercia Fund Management.
Payton argues that with more than a thousand firms picking up SEIS investment since the scheme started in April 2012, the time has come to look at cash limits imposed on businesses.
He feels that although the cash helps start-ups, many reach a point when they need an extra round of investment and SEIS does not provide the financial answer.
“Early-stage businesses face fundamental problems due to the lack of follow-on capital,” he said.
Challenge to Chancellor
“While SEIS is a welcome tool for entrepreneurs that paves the way for business growth, more is needed if Chancellor George Osborne is serious about backing British businesses.”
As a result, Payton is throwing down a gauntlet to the Chancellor to raise the SEIS investment limit to £250,000 per business.
“This higher investment will give new businesses the capital required to speed up growth, increase export potential and to make more jobs,” he said.
Payton speaks from considerable experience as funds managed by Mercia are heavy SEIS investors.
He also explained money is not the only investment consideration for SEIS companies.
“Most need an investment partner who can offer strategic input as well as cash,” he said.
Scientists are not business people
“We work with a number of universities with spin-out projects that are some of the most innovative businesses in the country. However, the people behind these companies are scientists not business people and need seasoned business advisers to help them through the first stages of setting up a SEIS company.”
Payton fears that companies who cannot raise enough cash from SEIS will turn to crowdfunding but, he warns, this may deliver more cash but is unlikely to offer anywhere near the level of business support a new start company needs to thrive.
“Maybe a hybrid SEIS and Enterprise Investment Scheme (EIS) would be the halfway house that offers the right solutions for these new businesses,” said Payton.
“This way start-up funding and follow-up investment to consolidate and grow would be addressed.”