The recession wasn’t particularly forgiving to the small and startup businesses looking to sow their seeds, with lack of consumer spending and cautious lending meaning a large proportion of early stage companies were doomed from the outset. However, in recent years as the economy made some tentative steps towards recovery, more and more funding options have become available to those looking to ‘go it alone’ in their respective fields.
But for those looking to take advantage of the financial help currently on offer via Seed Enterprise Investment Schemes (SEIS), what do you need to know to get the funding your business deserves? We have compiled an essential guide exploring the 5 key points every business should be aware of…
What is SEIS?
Seed investment schemes are designed to satisfy both investor and investee with incentives to assist early stage and startup businesses in their quest for success and tax efficient benefits to inspire investors to part with their cash and back fledging enterprises across all industries. Seed investment tends to focus on revenue-driven businesses to reassure investors that they will receive attractive returns.
Whilst the concept of seed investment isn’t a new one, many venture capital firms are launching new and improved hybrid funds to encompass the tax advantages and capital growth potential that have made the schemes so popular in recent years. The main objective of SEIS and Enterprise Investment Schemes (EIS) is to kickstart the economy and get small companies back in business once again.
What benefits can I look forward to as a business?
As well as getting the financial backing your business needs to succeed in its early stages, the tax efficient benefits that seed investment schemes provide are also highly coveted. Generally, the scheme provides relief on income tax, inheritance tax and loss, plus capital gains tax exemption on exit and deferral or exemption of gains during the sale of other assets.
Is business support a part of the seed investment package?
Depending on your particular investor, there may also be a level of business support that comes with the financial benefits. A number of investors take a particularly active role with their investments and offer mentoring and specialised support to improve profitability and scalability. In some cases investors even provide the use of cost-effective services that you may not have access to in-house, meaning you can carry out your IT, SEO, web development, content, PR, accounting, HR and administrative strategies with expert help.
Investors are also on hand to support you with the appropriate facilities, with larger investors and venture capital firms providing workspaces, seminar rooms and meeting rooms for businesses to call their own.
Will my company qualify for seed investment?
All enterprises looking to take advantage of these tax efficient investment schemes must meet a strict criteria. Firstly you must be a ‘small’ business and employ 25 full-time employees or fewer. In addition to this, your company must be ‘unquoted’ and not have shares sold on any recognised stock exchange. Your business’ gross assets must also be less than £200,000.
Is my business revenue-driven enough?
As we’ve mentioned, seed investment schemes are primarily available to businesses that are revenue-driven but what annual growth are potential investors looking for to be considered a seed investment candidate?
In the latest hybrid funds, investors and venture capital firms are searching for companies with the potential to achieve between 10% and 50% growth per year to ensure that they are making the return they are looking for on investment.
How do I apply?
Whether you are looking for investment or looking to invest, it is advisable that you seek additional information regarding the conditions, benefits and risks of seed investment schemes before you apply. You can apply directly with a venture capital firm, but don’t delay, open funds close for investment in March 2014.