Why SEIS is key to fuelling the economy Post-COVID-19
In 2011, the Seed Enterprise Investment Scheme (SEIS) was brought in to support young companies seeking to raise funds and grow. Former MP and Angel Investor, Brooks Newmark discusses the importance of the scheme ten years on, and why it is critical for the economy post-COVID.
Ten years ago, I helped establish the Seed Enterprise Investment Scheme (SEIS) to give fledgling firms a financial boost. In the aftermath of the financial crisis, this was instrumental in helping start-ups grow. As we face a new recovery, it will be just as critical.
Unfortunately, recent statistics have shown a worrying decline in SEIS investment since 2018. Instead of tens of thousands of companies taking advantage of it, we are seeing numbers of less than 2,000. This needs to change. (reference: SFC Capital).
When the subprime mortgage crisis toppled the global economy in 2008, it was a surprise to no one that investors were nervous about making investments. The result of this was an environment inconducive to growth, with start-ups struggling to raise capital from angel investors, and this reluctance to invest was still felt years on.
When I became an MP and a member of the Treasury Select Committee, I had a background investing in private companies as a senior partner at Apollo Global Management, a leading private equity firm. In 2011, we identified that despite angel investors having ample funds to invest, they still weren’t choosing to deploy this capital to support small companies, a reflection of this being at the riskier end of the investment cycle. To address this, we established SEIS as the solution, which was supported by the then Chancellor George Osborne.
Devised as a child of the Enterprise Investment Scheme (EIS), it would provide even more attractive tax breaks than EIS: 50% versus 30% deductible from income tax. In addition, if investments were held for more than three years there would be no capital gains tax, inheritance tax relief and up to 50% Capital Gains Tax reinvestment relief. The target companies had to be unquoted, less than 24 months old, have gross assets of less than £200,000 and fewer than 25 employees.
The scheme has transformed the landscape of seed-stage funding, and today it continues to prove its worth by enabling more individuals to become early-stage investors. Since 2012-2013, over 12,040 companies have received investment and over £1 billion of funds have been raised (reference: HM Revenue).
Today, as the pandemic continues to wreak havoc on the economy, we are seeing businesses struggling to raise early-stage investment, and I believe schemes like SEIS are crucial in nurturing the post-crisis environment for innovation as it was after the financial crash. To turbocharge homegrown talent and innovation, we need more proactive support from Government about these proven, existing schemes and for them to be made more accessible to investors.
While there has been significant focus from the Government on scaling-up, there is a danger that by chasing big ticket listings we may see capital funnelled away from new, innovative start-ups. The Treasury and Business Secretary should be aggressively supporting and expanding SEIS to support start-up investment, and encourage, incentivise and reward individuals who support new companies.
Since I left Parliament in 2015, I have been actively investing in start-ups as an angel investor, and experienced the talent of British entrepreneurs and innovators first-hand. If we are going to scale the impact of innovation and champion early-stage businesses who are pioneering critical technology like AI, fintech and quantum, schemes like EIS and SEIS should be front and centre of the Government’s economic and business strategy today.
Without this support for early-stage companies post-Covid and a strong start-up pipeline, the Government will struggle to achieve its ambition to ‘level up’ the country and to become a tech and science super power it could and should be.
Brooks Newmark was MP for Braintree from 2005 to 2015, a government whip and minister for civil society. He is now an accomplished angel investor, who supports and has successfully invested in a number of early stage tech start-ups.