How SFC structures its SEIS funds through the tax year

One of the great advantages of investing through an SEIS fund is the ability to build a genuinely broad portfolio of early-stage companies without needing to invest a huge amount into each one individually.

At SFC, investors can access a fund from £10,000, with each fund typically investing across approximately 15–20 companies.

To recreate that portfolio directly, an investor would need to find and assess each business, negotiate and complete every investment separately, and meet the minimum investment amount required by each company. In practice, building a similarly broad direct portfolio could require considerably more capital - not to mention a great deal more time.

That diversification is important because early-stage investing is unpredictable.

However experienced an investment team may be, nobody can know with certainty which young company will ultimately become the standout success. We can identify brilliant founders, exciting technologies and enormous markets. We can conduct extensive due diligence and invest on sensible terms. But we cannot see ten years into the future.

That is why we build portfolios.

And it is also why, for investors making substantial SEIS allocations during the year, there can be a compelling case for investing across more than one fund.

Six funds, six different groups of companies

During this tax year, SFC plans to raise and deploy six separate SEIS funds - having already raised our first two, we have just opened our third to investors this week.

Each will contain its own unique portfolio of approximately 15–20 companies, selected from the best investment opportunities available.

We raise one fund and then begin deploying it while simultaneously raising the next. This allows our investment activity to continue throughout the year, rather than trying to squeeze all our investing into one short window.

That matters because great companies do not all decide to raise money at the same time.

A university spinout developing a potentially transformative medical technology might come to us in May. An experienced software founder might launch a new business in September. A climate technology company could reach an important commercial milestone and begin raising in January.

The strongest opportunity we see at the beginning of the tax year may look very different from the strongest opportunity we see towards the end of it.

Investing across multiple SFC funds therefore gives investors exposure not simply to more companies, but to more of the opportunities that emerge throughout the year.

Why more companies can mean more opportunities for exceptional returns

Venture capital follows what is known as a power-law distribution.

In simple terms, returns are not spread evenly across every company in a portfolio. A relatively small number of exceptional businesses will often create a disproportionately large share of the overall value.

Some companies will fail. Others may survive but produce little or no return. Some will perform well.

And, occasionally, one company can become extraordinarily valuable.

We have found that the top-performing companies account for the overwhelming majority of value creation across our portfolios. Major studies of early-stage investment have reached similar conclusions: a small number of outliers can drive a very large proportion of total returns.

This is why diversification in early-stage investing is not only about reducing risk.

It is also about increasing opportunity.

Every high-quality company added to a portfolio creates another potential route to an exceptional outcome. To use the slightly inelegant but useful phrase, it provides another shot on goal.

That does not mean investing indiscriminately in every startup available. A large portfolio of poor companies is still a poor portfolio.

It means combining rigorous selection with enough breadth to recognise an unavoidable truth: the company that ultimately becomes the superstar may not be the most obvious one when the initial investment is made.

When we first backed them, were we certain that Onfido would become one of the largest tech exits ever achieved by a UK startup and deliver over 100x returns to our investors? Or that Cognism would deliver 49x returns? The reality is that while we believed in the team and innovation, we could never have been certain of their success.

How many early-stage companies should an investor own?

There is no universally perfect portfolio size.

The right answer depends on the quality of the companies, the amount invested in each one, the investor’s wider portfolio and their appetite for risk.

Nevertheless, experienced venture and angel-investment professionals regularly make the case for holding a meaningful number of companies.

Research and commentary from organisations including the Angel Capital Association and AngelList have pointed towards portfolios of around 15–25 early-stage companies as an important level of diversification. AngelList has also found that funds making at least 20 investments have historically been more likely to achieve positive portfolio-level outcomes than more concentrated portfolios.

These figures are not guarantees, and 20 is not a magical number.

The broader principle is what matters.

An investor holding two or three startups is extremely dependent on the success or failure of each individual company. A portfolio of 15, 20 or more carefully selected businesses has many more possible ways to succeed.

That is why each SFC fund is designed to contain approximately 15–20 companies.

It gives investors meaningful breadth within a single fund, while still allowing us to be highly selective about every business we back.

The particular opportunity for investors allocating £100,000 or more

An investment in one SFC fund already gives an investor exposure to a diversified group of early-stage companies.

For someone investing £10,000, £20,000, £30,000, this can be a highly efficient way to build a portfolio that would be difficult to recreate through direct investment.

The opportunity to invest across multiple funds becomes particularly interesting for investors planning to allocate a more substantial amount to SEIS during the tax year - perhaps £100,000 or more.

For example, an investor could place £100,000 into one fund and receive a larger economic interest in its portfolio of approximately 15–20 companies.

Alternatively, they could divide that £100,000 between several SFC funds as they open during the year.

An investor allocating £20,000 to five funds could potentially gain exposure to around 75–100 company investments, depending on the final construction of each portfolio.

That creates diversification across:

• more founders and management teams;

• more technologies and business models;
• more sectors and end markets;

• more individual companies;

• and more investment opportunities arising at different points in the year.

The investor is effectively applying the same portfolio principle twice.

The first layer of diversification comes from each SFC fund investing across approximately 15–20 companies.

The second comes from spreading their wider SEIS allocation across several separate SFC funds and, therefore, several different portfolios.

For investors making larger allocations, I think that is an important option to consider.

Diversifying across time

There is another benefit to investing across several funds that is sometimes overlooked: diversification across deployment periods.

Nobody knows in advance whether the strongest companies will arrive early or late in the tax year.

Nor can we know which sectors, technologies or market opportunities will produce the most exciting investments at a particular moment.

AI may create a completely new commercial opportunity. A regulatory change may open a previously inaccessible market. A scientific breakthrough may turn years of research into a viable business. A highly experienced founder may suddenly leave an established company to pursue a new idea.

By investing across several funds, investors can gain exposure to companies selected at different points in this constantly evolving environment.

It is not about trying to time the market perfectly.

It is about avoiding the need to do so.

More opportunities - but the same investment discipline

There is an important distinction between building a broad portfolio and simply trying to invest in as many companies as possible.

The power law does not mean that quality stops mattering. Quite the opposite.

Diversification works best when it is built from investments that have each passed a rigorous selection process.

At SFC, we review a very large number of companies from across the UK startup ecosystem. Our investment team assesses the founders, market opportunity, technology, business model, competitive position, valuation and investment terms before deciding whether a company should enter one of our portfolios.

We reject vastly more opportunities than we ultimately back.

Running six funds does not change those standards. It allows us to organise our continuous investment activity into several distinct portfolios and gives investors more opportunities to participate throughout the year.

The objective is not to fill six funds at any cost.

It is to use the strength and breadth of our investment pipeline to build six high-quality portfolios. If investor demand or the quality of investment opportunities does not support six funds, we will deploy five instead.

Increasing the chances of finding the superstars

I think the most exciting part of early-stage investing is that the eventual winners can exceed almost everyone’s original expectations.

A small company with an ambitious founder, a strong idea and a huge market can grow into something enormously valuable.

But those companies are rare - and they can be extremely difficult to identify with certainty at the beginning.

That is the central challenge of venture investing.

We need to be selective enough to back only the companies in which we genuinely believe. But we also need to build enough breadth into the portfolio to give those exceptional companies the chance to emerge.

One SFC fund provides exposure to approximately 15–20 carefully selected businesses from an investment of £10,000 upwards.

For investors making more substantial annual allocations, investing across several of our six funds can take that principle further - providing exposure to multiple portfolios and a much larger number of potential success stories.

We cannot know in advance which company will become the superstar.

But we can give investors more opportunities to own it.

Frequently asked questions

How many SEIS funds will SFC run this tax year?
We plan to raise and deploy six separate SEIS funds during the tax year. Each fund will contain its own portfolio of approximately 15–20 companies. If investor demand or the quality of investment opportunities does not support six funds, we will deploy five instead.

When will each fund open?
We do not set fixed opening dates for all six funds in advance. We raise one fund and, as it reaches capacity and begins deployment, open the next. The precise schedule will therefore depend on investor demand and the pace at which each fund is filled.

How much do I need to invest?
Investors can access an SFC SEIS fund from £10,000.

Can I invest in more than one fund?
Yes. Investors can choose to participate in one fund or divide their annual SEIS allocation across several funds as they open throughout the year.

Is one fund still diversified?
Yes. Each fund is expected to invest across approximately 15–20 companies, providing investors with meaningful diversification from a single investment.

Investing across multiple funds can provide an additional layer of diversification by giving investors exposure to more companies and to portfolios constructed at different points during the tax year.

Who might consider investing across several funds?
The multi-fund approach may be particularly relevant to investors making substantial SEIS allocations, such as £100,000 or more across the tax year, who would prefer to spread that capital across several portfolios rather than invest the full amount into one cohort of companies.

Capital at risk. Past performance is not a reliable indicator of future results.