The Three Main Exit Option For SEIS Investors

The first Seed Enterprise Investment Scheme (SEIS) companies are just drawing to a close – so what are the exit options for investors?

SEIS was introduced on April 6, 2012 – so the first qualifying companies are ready to emerge from their startup chrysalis.

Providing the companies have stayed within the SEIS rules for that time, the investors can now look to exit and cash in their shares.

However, one of the problems of buying shares in a startup is unless the company is listed, the shares are almost impossible to sell.

What are the options?

SEIS companies have three typical exit options –

• Someone swoops to buy the company
• The company lists on the London AIM market
• The company flops and goes bust

Each option offers an opportunity to investors.

A buy out is often the best exit for an early investor – a crowdfunded investment Mill Residential REIT was recently floated on AIM with the shares trading at 10.5% ahead of the crowdfunding price.

IPOs offer a different uplift – often ranging between 10 to 30 times the original investment.

If the company fails, loss relief comes into play which follows a formula that deducts the original tax relief received on entering the EIS or SEIS and leaves an amount that is deductible against other income.

Loss relief makes up for the capital gains tax free growth EIS and SEIS shares attract.

Trading SEIS and EIS shares

Another option for investors wanting to dispose of EIS or SEIS shares is the crowdfunding platform Fireflock, which is proposing to set up an online exchange for investors to trade unlisted shares.

Investing in SEIS, either directly, through a fund or crowdfunding is the riskiest proposition because the company is a startup about to tread an unknown path.

“That’s why EIS tends to attract more investors and more money,” said Stuart Smith of  SEIS.co.uk.

“At least an EIS has some form of track record for the most part, so investors can get a feel for the company, the culture and the how the managers operate. The directors can also offer figures to show how they are performing and whether targets are being met.

City regulator the Financial Conduct Authority and HM Revenue & Customs (HMRC) also supervise SEIS and EIS investments, which may not guarantee how the investment performs but does give some security that the project is supervised.