SEIS Update December 2022

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Learning objectives

How did you do?

Identify the main developments and news in the SEIS market

Evaluate the key fees and charges applied by SEIS managers

Covered in section 2: Market Update

Covered in section 3: Consideration for Investment

Outline the statistical trends in SEIS investment and tax relief in recent years

Outline budgetary developments that could be impactful to SEIS

Covered in section 4: Industry Analysis

Define some of the key events likely to impact SEIS in the near future

Benchmark products and providers in the market against one another

Covered in section 5: Managers in Focus

Covered in section 6: What’s on the Horizon

7. Further Learning

Learning objectives
CPD and feedback
About Intelligent Partnership
Disclaimer

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What the managers say

So how are the managers feeling about the SEIS market and overall investment market conditions? Here's what they have to

The current crisis has put start-ups and start-up ecosystems everywhere in grave danger. How can a scheme like SEIS make a difference in the UK?

Historically, economic downturns have been when great fund vintages with super-sized returns have occurred. As such, investing over the forthcoming eighteen months should be seen as an opportunity rather than time of danger.

Entry valuations are coming down to reasonable levels; staff lay-offs at larger technology companies are making top talent available for smaller start-ups; and inefficient businesses are being “flushed-out” of the system.

The economic downturn will require start-ups to be financially disciplined and extremely customer-focused. The ones that are successful in doing this will set a solid platform for future growth over the forthcoming years.

DOMINIC KEEN

The IMF forecasts UK GDP growth of 3.6% for 2022, and 0.3% for 2023 – that’s down from 0.5% at the time of its previous forecast (made in July). How will SEIS fare in the slowing economy?

Managing Partner
Britbots

As large businesses struggle to grow their revenues during a downturn, they increasingly need to look for ways to better control their costs. Adopting automation is one way to achieve this and start-ups developing relevant technologies traditionally have been counter-cyclical, meaning that they actually thrive during tougher economic environments.

Consequently, SEIS-eligible companies that are developing productivity-enhancing technologies in areas such as robotics and applied artificial intelligence are likely to progress well in this environment.

What steps would you like to see the government take to boost investment into early-stage British companies?

Schemes like SEIS are extremely good at encouraging greater investment interest into early-stage technology businesses in the UK. Nonetheless, we feel more could be done to encourage the adoption of emerging technologies across the wider economy.

We’ve long thought that a government-backed “early-adopter voucher” scheme to help de-risk new technology adoption by small-and-medium-sized businesses (SMEs) would be a helpful complement to the SEIS scheme.

Whilst initiatives such as the capital super-deduction tax break are extremely welcome (and should be extended beyond 2023), they are quite complex. A more straight-forward voucher system would reduce the cash-flow barriers that prevent SMEs from trialing and rolling out new technologies to boost their productivity.

The current crisis has put start-ups and start-up ecosystems everywhere in grave danger. How can a scheme like SEIS make a difference in the UK?

We disagree that startups are in grave danger. There have been two budgets in the last few months where SEIS has been endorsed. In the latest budget, the SEIS changes were retained as the government is supportive of the schemes and they understand that the underlying companies support growth in the economy. Something that is much needed! The SEIS makes a difference and investment in young and exciting companies is to be welcomed. The biggest challenge is investor confidence!

Later-stage markets have seen a real downturn which is in turn affecting later-stage funding. We invest much earlier in the lifecycle of a company where valuations have been and continue to remain attractive however of course as our portfolio progresses and raises later-stage monies the market does affect this. Ultimately though there is a lot of VC money out there and it will go to the very best companies out there.

FRED SONEYA

Co-founder and Partner
Haatch

The IMF forecasts UK GDP growth of 3.6% for 2022, and 0.3% for 2023 – that’s down from 0.5% at the time of its previous forecast (made in July). How will SEIS fare in the slowing economy?

In our view, they will fare better than most. Every existing industry is looking for new ways of doing things better, more efficiently and more sustainably, and SEIS companies are often the starting point for these changes. For example, we invested in AeroCloud, which provides innovative IT solutions for the aviation sector using AI, at the height of the pandemic when no one was flying but airports were looking to make cost-savings and to do things more efficiently. Aerocloud was the perfect answer for them, they are cheaper and far more efficient than the legacy players in the aviation sector and have excelled over the last few years. They are now closing their Series A investment round.

What steps would you like to see the government take to boost investment into early-stage British companies?

I think the key things are communication and education - they need to find new ways of telling investors and companies about SEIS and EIS and how the schemes can help!

The current crisis has put start-ups and start-up ecosystems everywhere in grave danger. How can a scheme like SEIS make a difference in the UK?

I think this is true for start-ups in the later stages, where valuations have been frothy for way too long, and approach to investment has been questionable time and time again. Right now, the UK pre-seed and seed stage ecosystem is strong, and quite often during downturns it gets stronger, due to the very nature of the ventures and founders that make it hum. If we all start to perpetuate this false belief it is in trouble, it may just run the risk of becoming a self fulfilled prophecy.

The IMF forecasts UK GDP growth of 3.6% for 2022, and 0.3% for 2023 – that’s down from 0.5% at the time of its previous forecast (made in July). How will SEIS fare in the slowing economy?

ALISTAIR MARSDEN

This is a question I always struggle with. The way I see it is, there has been a reason not to invest every year since I was born.. 42 years ago! The data shows time and time again that the people who retracted their investment strategy at these times fared worse over the long term. It really doesn’t always have to be doom and gloom - there is room for more optimism here!

Director
Nova Growth Capital

What steps would you like to see the government take to boost investment into early-stage British companies?

Promote, much more, the schemes it already has in place to UK and international investors

The current crisis has put start-ups and start-up ecosystems everywhere in grave danger. How can a scheme like SEIS make a difference in the UK?

SEIS is a critical driver of Britain’s growth funnel. It propels innovation-led Startups through the first stages of development and should be a key tool in our march towards growth. As awareness of the scheme increases, we expect growth in the amount invested under SEIS.

The IMF forecasts UK GDP growth of 3.6% for 2022, and 0.3% for 2023 – that’s down from 0.5% at the time of its previous forecast (made in July). How will SEIS fare in the slowing economy?

Early-stage markets are less impacted by environmental factors. SEIS investments go into companies at the beginning of their innovation and commercialisation journey so tend to be uncorrelated to general macroeconomic trends because they are more resilient to short-term challenges. With larger investors making up for the loss of smaller investors exiting the market, we’re also confident the flow of capital will increase.

ED PRIOR

Head of Investor Services
SFC Capital

What steps would you like to see the government take to boost investment into early-stage British companies?

The importance of the upcoming rule changes cannot be overstated. It is brilliant news for investors and startups. Now we need to raise awareness for the scheme. Too many have never heard of the SEIS, let alone understand its benefits. It’s the responsibility of industry leaders like us to change this by working in partnership with the government.