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Save British Startups – Fix EIS and SEIS

Save British Startups – Fix EIS and SEIS News

Britain’s seed funding market is at risk – rethinking EIS and SEIS could be critical to the future success of the venture ecosystem

Britain’s seed funding market has inched into the realm of jeopardy. There is no other way to look at it. While later-stage markets flourished in 2021, doubling the number of investment deals worth more than £1m, the seed stages continued the worrying trend of recent years by plateauing on figures over the same period. 

Change is needed. Renewed energy is necessary. And a better understanding of the support that’s required from the government is critical to the future success of Britain’s entire venture ecosystem. 

Our innovation funnel is being squeezed and, before long, our place as leaders in global innovation will be lost. 

It’s a stark warning of a potentially bleak picture, yes. It is also why our recent panel discussion on the future of seed funding came at such a prescient time. 

The discussion quickly turned to debate, and what was intended as a panel-only event quickly evolved into a hive of ideas from the audience too. The energy was palpable and the desire from all attendees to catalyse our potential, undeniable. It was fantastic. Thank you to all those who attended. 

The event, moderated by Tech Funding News founder and Editor In Chief Akansha Dimri, was led by a panel of experts in the seed funding market: 

  • Christiana Stewart-Lockhart, Director General of the Enterprise Investment Scheme Association (EISA) and member of the Advisory Board for the All Party Parliamentary Group for Entrepreneurship.
  • Howard Leigh, Lord Hurley, Vice Chair of the APPG for Entrepreneurship and member of the House of Lords.
  • Julianne Flesher, Co-Founder and CEO of SFC portfolio company Nossa Data, a software provider that allows companies to manage and communicate their ESG performance to investors, regulators, rating agencies and for internal ESG decision-making. 
  • Stephen Page, exited entrepreneur and CEO and founder of SFC Capital. He is also a founding member of the Company of Entrepreneurs and is an advisor to and sits on the Boards of several businesses

At the centre of the debate was the role of the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). For decades, these schemes have been critical drivers of Britain’s world-leading startup ecosystem and have built resilience into our small business economy. 

More than 30,000 startups have received investment under EIS, and the creation of SEIS in 2012 levelled the playing field for founders from different socio-economic backgrounds by lowering the barriers to seed capital. This would not have happened without the schemes.  

SEIS and EIS can, and should, still be key parts of a thriving UK startup ecosystem. But they have become outdated and unable to fulfil their potential. Reform is needed urgently to release the growing pressure on Britain’s early-stage markets and catalyse our innovation funnel once more. 

The £150,000 funding cap applied to businesses under SEIS was designed in 2012, when that amount would generally provide enough runway for a new startup to launch and sustain itself for about a year. In 2022, however, £150,000 lasts no more than a few months. 

By limiting funding in this way, startups are unable to navigate the hugely uncertain and competitive fledgling stages. They are unable to compete as effectively in the global market and many are simply left behind at the starting posts. 

The SEIS, which for so long has been the source of incredible innovation for this country, no longer fulfils its original commitment to startups. SFC are calling for the Government to immediately change the rules for SEIS by doubling the funding cap to £300,000. 

We need this action to reinvigorate our pre-seed and seed stage ecosystem and enable British startups to reassert our dominance on the world stage. This was a view shared by every member of the audience during an on-the-spot poll conducted at our event and should send a clear message to the Government that urgent action is required. 

The sunset clause placed on EIS means that the scheme must officially be renewed by April 2025 or else cease to exist. 

The impact of that deadline is already being felt however, with investors shying away from making EIS commitments because there is no guarantee that an investment made today will still qualify under the scheme after April 2025. 

The impact this has on investor confidence, especially at the riskier seed stages, is enormous. The flow of capital is being restricted and Britain’s innovation funnel squeezed. 

Fixing this problem should be very easy for the Government. The sunset clause put on EIS was mandated by the European Union when Britain was a member. Now no longer part of the EU, the UK can, and must, remove this deadline entirely and secure the permanency of EIS. The success of ‘Global Britain’ is dependent on it. 

Following the event, SFC launched a petition calling on the Government to make these changes. With hundreds of signatures already, its support is clear and momentum is building. A clear message must be sent that action needs to be taken, immediately. You can sign the petition here.

 

By Ed Prior