Raising Finance

Interest in SEIS spikes as record number of startups apply for investment scheme

4 min read

28 September 2015

Former deputy editor

The Seed Enterprise Investment Scheme (SEIS) has attracted a record number of applications from startups, as almost 3,000 young businesses embraced SEIS in 2014/15.

Not to be confused with the 1994-launched Enterprise Investment Scheme, the SEIS was designed further down the line and launched in 2012 to support early stage companies. It encourages investors to back startups in exchange for tax reliefs, with the breaks more generous than those offered by EIS.

Companies applying for SEIS must be under two years old to apply while they must also fewer than 25 employees and assets under £200,000, which will allow up to £150,000 of investment. Investors, meanwhile, can part with up to £100,000 annually in exchange for up to 50 per cent tax relief.

According to findings from EIS and SEIS investor Radius Equity, 2,905 startups, which marked a new record, applied to raise funding via the SEIS for the year ended 31 March 2015. The number is up marginally from 2,845 for 2013/14, but a significant increase from just 1,729 the year before that.

This is a result of entrepreneurs choosing SEIS as an alternative option to aid launch and expansion as banks still struggle to lend to SMEs, according to Radius.

An eBay study found that two-thirds of businesses believe banks aren’t lending as much as they should, while leaders also made remarks regarding a lack of trust for the traditional providers of finance.

“Small businesses are increasingly confident about their prospects, with two thirds of those that we’ve spoken to predicting an increase in sales over the next 12 months,” said Tanya Lawler, VP of eBay UK.

“However, this confidence in the economy is not translating into confidence in the banks, as reflected by the high proportion of SMEs no longer reliant on banks for funding.”

Read more on the Seed Enterprise Investment Scheme:

Radius referred to the “flat white economy” and highlighted that the SEIS is a standout method of finance for the tech, business services and restaurant industries as respective fundraising portions were at 31.5 per cent, 22.1 per cent and 14.6 per cent.

At 94 per cent, a huge majority of applications were approved over the year – a slight growth from 93 per cent the previous year. This is due to more entrepreneurs adding SEIS to business plans ahead of trading, according to Radius.

“SEIS has been one of the most important innovations in business finance since the financial crisis – as shown by its continuing popularity,” said Gary Robins, director at Radius Equity.

“Funding is vital to early stage businesses – SME owners need to focus on their operations rather than worrying about securing an initial investment and sufficient working capital to grow.

“That hi-tech startups in particular are benefitting from SEIS shows how new businesses are a key contributor to the dynamism of the UK economy. For the UK to continue to lead the world sectors such as FinTech there needs to be the right financial and tax environment for them to get off the ground.”