The impact of the Seed Enterprise Investment Scheme (SEIS) funding for start-ups is starting to show as businesses plug in to the new source of alternative funding.
More than 2,000 companies have raised around £2 billion in equity cash from investors, according to HM Revenue & Customs (HMRC), which monitors SEIS.
The cash is boosting entrepreneurs who would otherwise have failed in raising funding for their businesses as traditional finance sources, such as banks, have slammed the door shut on risky start-up loans in recent years.
Cambridge University has demonstrated how seed investment can make a difference to businesses.
For the second year in a row, the university has broken investment records for spin-out companies.
University cashes in on SEIS
The university has launched a third enterprise fund after already financing nine seed investments to the tune of £2.7 million.
In 2013, the university ploughed £2.3 million into start-up businesses.
This year’s funds are aiding hi-tech and pharmaceutical companies break new ground and find new markets.
- VocalIQ is moving the frontier forward for software that process spoken dialogue
- Fluidic Analytics has developed new processes in protein analytics technology
- Jukedeck, a music software start-up has picked up funding
- Definigen is exploring stem cell techniques for modelling diseases and sourcing new drugs
- Epigenetrix has produced tools that have advanced the science of DNA modification analysis
The university’s second enterprise fund has invested £1.7 million in eight companies over the past 18 months – all supported by SEIS. Another SEIS fund is on the drawing board to make cash available for even more start-ups.
“One of the keys to our start-up funding is SEIS,” said a university spokesman.
“SEIS allows former students and friends of the university to target their investments within our spin-out program while benefitting from the tax breaks offered under the scheme.”
SEIS tax breaks for investors
For investors, SEIS offers an unrivalled mix of income and capital gains tax breaks.
In a tax year, investors in SEIS can expect:
A 50% reduction on income tax paid; regardless of the rate they pay tax, on investments of up to £100,000
If they dispose of other assets to raise their SEIS stake, investors also win a 50% capital gains tax exemption
On top of that, investors do not pay capital gains tax when they dispose of their SEIS shares at the end of the three-year investment term.
Should the investment fail, taxpayers can offset their loss against tax paid on other income.
