When the Seed Enterprise Investment Scheme (SEIS) was introduced over a decade ago, investors viewed it as a high-risk corner of the venture market. The government designed the scheme to support the very earliest stage of company formation, often backing first-time founders with little more than an idea and ambition.
Fast forward to today, the risk profile has changed materially. While early-stage investing will always carry risk, the underlying quality, maturity, and resilience of SEIS-backed companies has improved over the last ten years. At SFC Capital, we see this evolution first-hand across thousands of investments.
A Maturing Startup Ecosystem
Launching a technology business in the UK has become considerably easier and more structured than it was a decade ago. Universities have invested heavily in incubation and commercialisation programmes, enabling postgraduate students and academic staff to translate research into venture-backed companies with far greater resources than previously. UK universities have produced over 2,000 spin-out companies since 2012, which represents a major source of SEIS dealflow (source: Beauhurst).
Alongside this, the UK now benefits from dozens of world-class accelerator and venture builder programmes that guide founders through product development, customer validation, hiring, and fundraising from day one. These programmes did not meaningfully exist at scale when SEIS was first introduced.
The British Business Bank (launched in 2012) and Innovate UK have also played a critical role, deploying billions of pounds of equity investment and non-dilutive grant funding across the UK’s most innovative sectors. This funding not only extends company runways but provides valuable third-party validation of technical and commercial approaches, reducing early-stage investment risk.
While this ecosystem is particularly concentrated in London, it now exists across the UK and remains a key reason why the UK continues to outperform other European countries in technology entrepreneurship.
A Higher Calibre of Entrepreneur
This improved environment has fundamentally raised the quality of entrepreneurs entering the market. The personal and professional risk of starting a business has fallen, while the level of available support has increased dramatically.
As a result, we now see founders coming from top universities, research institutions, and senior roles in established corporates. Only a few years ago, these individuals would have been far less likely to take the leap into entrepreneurship. Starting a company is no longer viewed as a reckless career choice, and there has arguably never been as much talent and domain expertise concentrated in the UK startup ecosystem as there is today.
The Rise of Second-Time Founders
SEIS has now funded over 2,000 companies every year for more than a decade. One of the most important consequences of this scale is the recent emergence of a second wave of entrepreneurs building their second (or third) venture.
These founders bring hard-earned lessons from their first businesses, whether successful or not. They are typically more disciplined in capital allocation, clearer on go-to-market strategy, and faster at identifying what does not work. This repeat-founder dynamic is a hallmark of more mature venture ecosystems and increases the likelihood of success.
At SFC, currently circa 20% of the founders that we back have a previous startup experience, and we expect this trend to continue to increase.
The Impact of the 2023 Rule Changes
The extension to the SEIS rules introduced in 2023 have further strengthened the risk profile of SEIS investments. Companies qualifying for SEIS are now more mature, demonstrate greater commercial traction, and raise larger funding rounds than in the past.
The increased SEIS allowance has allowed companies to leverage additional co-investment, resulting in pre-seed rounds that are, on average, around 50% larger than before the rule changes. Larger rounds translate into longer financial runways, more time to achieve key milestones, and reduced financing risk.
This also means that the line between SEIS and EIS is often blurred, as companies tend to raise larger rounds mixing SEIS and EIS investors on the same round. For investors, this means it becomes more critical than ever to identify these high potential ventures as early as possible in order to secure the SEIS allowance ahead of other investors. Having an efficient sourcing network and a specialism in SEIS is a key competitive advantage in that respect.
A Fundamentally Different SEIS Market
Taken together, these structural improvements mean that SEIS investing today looks very different from SEIS investing ten years ago. While it remains an early-stage asset class, it is now underpinned by a more robust ecosystem, higher-quality founders, repeat entrepreneurial talent, and better-capitalised companies.
For investors, this evolution does not eliminate risk, but it does mean that the starting point is much stronger and the overall risk-adjusted opportunity has improved materially, even before taking into account the generous tax benefits of SEIS.
Capital at risk. Tax benefits are subject to individual circumstances. Subject to changes.
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