Last updated: 11 December 2025
Key Takeaways
- Tax Relief: Claim back up to 50% of your SEIS investment and 30% of your EIS investment through income tax relief.
- Professional Management: Expert managers select and support companies, giving investors access to high-profile startups.
- Diversification: Invest in multiple startups, not just one. SEIS & EIS funds are using a portfolio approach with 10-15 companies to diversify your investment.
Background
SEIS and EIS are two popular schemes for investors who want to invest into promising UK startups while securing tax relief benefits. So, how do they work?
Raising capital is one of the toughest challenges that entrepreneurs face when developing startups. Bank loans and credit cards are difficult to access for emerging businesses because early ventures carry extraordinary risk. Thus, young companies rely on angel investors for essential initial capital.
Business angels invest in startups and buy shares at low values, expecting them to grow over time. When they succeed, they sell their shares at substantially higher prices and profit. Angel investing can be rewarding but requires capital, expertise, a network, patience, and luck.
What are SEIS and EIS?
The UK government introduced the Enterprise Investment Scheme (EIS) in 1994 to support small business growth through angel investment. EIS encourages individuals to buy and hold shares for at least 3 years by minimising investment risks. Investors in EIS-qualified companies can claim up to 30% income tax relief on their investment, plus capital gains tax exemption on profits or loss relief if the company fails.
Following the success of EIS, the UK introduced the Seed Enterprise Investment Scheme (SEIS) in 2012. SEIS supports the earliest-stage companies by offering investors more generous tax benefits than EIS. Investors can claim up to 50% income tax relief on their investment, plus additional tax benefits. SEIS and EIS are the world's most generous tax incentives for startup investment and have driven UK tech ecosystem growth.
How SEIS and EIS Funds Work
Although the SEIS and EIS schemes were originally designed for individual investors, fund managers spotted the opportunity to make these schemes accessible to passive investors. These funds suit investors who want exposure to risky, illiquid assets and can claim the tax benefits but lack the time or expertise to select startups themselves.
The Investment Process:
- Fundraising
Fund managers raise capital from high-net-worth and sophisticated investors. At SFC Capital, investors choose between SEIS or EIS funds deployed over a defined period, building diversified portfolios gradually. SFC typically runs concurrent SEIS and EIS funds, deploying five or more SEIS funds and two or more EIS funds annually. - Deal Sourcing and Selection
Fund managers source opportunities through their networks, partnerships with accelerators and universities, and startup applications. The selection process is rigorous: at SFC Capital, we review thousands of companies annually and invest in a small percentage. Our investment committee evaluates each opportunity based on team quality, market opportunity, product traction, and scalability.
- Due Diligence
Before investing, fund managers conduct comprehensive due diligence: financial analysis, legal review, reference checks, and market validation. This protects investors from pitfalls individual angels might miss.
- Investment Execution
Fund managers negotiate terms, structure deals, and complete legal documentation on investors' behalf. Investments are made through the fund entity, with each investor holding a proportional portfolio share.
- Certificate Distribution
Once investments complete, investors receive SEIS and EIS certificates corresponding to their portfolio share. These certificates, typically issued within three to six months, enable investors to claim tax relief through their annual self-assessment return.
- Portfolio Management
Fund managers provide ongoing support to portfolio companies through:
- Board observer rights
- Strategic guidance and introductions
- Follow-on funding
- Performance monitoring
This active involvement protects investors' interests while supporting company growth and maximising exit potential.
- Exits and Returns
When portfolio companies are acquired or go public, fund managers handle the exit process and distribute proceeds. Throughout the fund lifecycle, investors receive regular updates on portfolio performance, company developments, and market conditions.
Benefits for Investors
SEIS and EIS funds combine generous government tax incentives with professional fund management, offering advantages that individual angel investing cannot match.
Tax Benefits:
- Income tax relief: Claim back 30% (EIS) or 50% (SEIS) of your investment
- Capital gains tax exemption: Pay no CGT on profitable exits
- Loss relief: Offset losses against income tax if investments fail
- CGT relief (SEIS only): Reduce existing capital gains by reinvesting in SEIS
- CGT deferral (EIS only): Defer existing capital gains by reinvesting in EIS
These tax incentives make SEIS and EIS arguably the world's most generous startup investment schemes. However, claiming these benefits traditionally required investors to source deals, conduct due diligence, and manage investments themselves – a time-intensive process demanding expertise and networks. Fund managers handle the entire investment process on investors' behalf.
Fund Management Benefits:
- Professional selection: Expert managers screen and select the most promising startups
- Diversification: Invest across 5-30 companies instead of backing one or two startups
- Time efficiency: No need to source deals, conduct due diligence, or negotiate terms yourself
- Ongoing support: Fund managers provide post-investment support to protect your interests
- Administrative ease: Receive certificates and documentation handled on your behalf
- Access to deal flow: Gain entry to investment opportunities typically reserved for established angels
Spreading capital across multiple companies significantly reduces the impact of any single failure—a critical advantage when investing in early-stage ventures where most startups don't succeed.
Benefits for Startups
SEIS and EIS funds typically invest £50,000 to £500,000 per company, allowing startups to secure substantial funding through a single relationship rather than coordinating multiple angels. Raising from a fund is often faster than assembling an angel syndicate. Fund managers have capital ready to deploy and can commit within weeks of completing due diligence, where individual angel rounds might take months.
Beyond capital, funds provide strategic value. Fund managers bring experience across multiple companies and sectors, offer introductions to customers and follow-on investors, and provide guidance on scaling, hiring, and fundraising strategy. Securing investment from an established fund also signals quality to the market, helping startups attract employees, customers, and subsequent investors. Many funds reserve capital for follow-on investments in their strongest performers, providing portfolio companies with a reliable funding source for future rounds.
These advantages of SEIS and EIS funds help make the UK Europe's best market for startup seed funding.
Understanding the Risks
Although SEIS and EIS funds offer diversification and generous tax benefits, they remain risky investments. Investors may lose part or all of their capital. Early-stage investment involves illiquidity, no dividends, potential loss, and dilution. Investors should include these funds as part of a diversified portfolio only. Tax benefits depend on individual circumstances and may change. Investors should seek independent tax advice before investing.
Sources:
HS341 Enterprise Investment Scheme – Income Tax relief (2025) - GOV.UK (www.gov.uk)
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