3 changes to investment that tech start-ups need to know about
The mini-budget this week contained some great news for digital tech start-ups and scale-ups raising investment. I have set out some of the highlights and asked Nick Horrocks of X.0 Advisory and Rhian Owen of Slater Heelis for their thoughts, ahead of our workshop on raising late-seed and Series A investment next week.
The investment community had been concerned about the future availability of tax incentives but the chancellor made a commitment to early-stage investment beyond the previous sunset clauses for the Enterprise Investment Scheme and Venture Capital Trusts.
From April 2023 three key changes are:
Insights
Rhian: “The changes to SEIS will positively promote the UK tech ecosystem within the UK. It is pleasing to see that the commitment to EIS will be safeguarded beyond 2025 as this will further enable businesses to secure equity investment and grow rapidly.”
James: “Increasing the SEIS limit will be a huge help to early stage companies looking to raise investment and enable them to attract more investment in their first raise. Many founders used to aim to raise ￡150k, knowing that this fitted within the SEIS limit. This used to frustrate me as I’d encourage them to raise the actual amount they needed - the investors would still be getting the SEIS relief and perhaps some EIS relief. I suspect the “amount needed” will increase to ￡250k going forward!”
Nick: “The previous SEIS limit of ￡150,000 was already feeling tight so with rising costs it makes sense to increase it to ￡250,000.”
Rhian: “Increasing the limit to ￡250,000 will now take into account inflation and the present economy, ensuring that companies have enough capital to fulfil start-up costs.”
James: “The time limit increase to 3 years recognises that many start-ups need longer to develop and test their technology, especially deep tech. Start-ups need to test their product in the market to improve its performance but also to gain valuable feedback from real users. Previously some companies found themselves having to raise their first round very quickly to fall within the SEIS limits before they were quite ready. Others simply forgot that they had made a small trade early on and discovered that their company was ineligible for SEIS, making them less attractive to investors.”
Nick: “The changes are a good thing for the ecosystem as it will make it easier (but still not easy!) for digital tech start-ups to raise capital. Start-ups need time to get on their feet so increasing the time limit to 3 years is important, especially as we go into turbulent economic times.”
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James: “The increase in the SEIS limit for individual investors will not only increase the amount of investment finance available, it will also impact the funding landscape. The previous limit made raising and managing SEIS funds difficult as it was necessary to find a significant number of individuals to make the economics viable. We may now see more and larger SEIS and EIS funds, a welcome addition to the start-up ecosystem, particularly in regions with fewer angel investors.”
Rhian: “The increased personal investor limit of ￡200,000 should unlock additional investor money which is needed to meet the growing demands for capital from tech start-ups across the UK.”
If you would like to join our free, online workshop on raising Series A and late-seed investment next Tuesday (4th October) please sign up here.
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Further details
EIS: Enterprise Investment Scheme is a scheme to encourage more investment into early-stage companies, it provides various types of tax relief to individual investors (often referred to as angel investors).
SEIS: Seed Enterprise Investment Scheme is a scheme to encourage more investment into very early-stage companies, it provides various types of tax relief to individual investors.
VCT: Venture Capital Trust is an investment vehicle that invests money into companies in exchange for shares using government-approved tax breaks.
More information on the Enterprise Investment Scheme including SEIS and VCTs can be found on the HMT website here