Experts are calling on reforms to the Seed Enterprise Investment Scheme (SEIS) as funding rounds into seed-stage start-ups plateau.
There were 1,635 first-time seed-stage deals completed in 2021, up only 1.2 per cent from 2020’s deal volume and an 18 per cent decline since 2018.
That contrasts with the trend in later-stage funding, as the volume of investment deals worth over £1m almost doubled between 2020 and 2021, jumping from £495m to £989m, according to Beauhurst.
To reinvigorate seed-stage investment, SFC Capital, the UK’s biggest investor into seed-stage start-ups, wants to see the SEIS funding cap double from £150,000 to £300,000.
Stephen Page, its founder and chief executive, said: “What we’re seeing is that the early-stage start-ups with SEIS still available are, on average, asking for more than £500,000. Between May 2021 and April 2022, from the 135 funding applications we received, only 24 asked for £150,000 or less. This shows how demands have changed, and how outdated the £150,000 SEIS cap has become.
“SEIS has been with us for a decade and has been crucial for UK innovation during that time. But start-ups have come on leaps and bounds and their needs have evolved, with inflation only adding to their challenges by eroding the value of their funding runway.
“SEIS funds collectively raised less than £25m in the entire 2021/22 tax year – a miniscule amount compared to demand, clearly showing the supply-side problem with very early-stage capital. The current SEIS cap has clearly become a limiting factor, and if this is not addressed then start-ups will ignore the scheme entirely.”
A lobby group for tech start-ups, Coadec, agrees, saying the 10-year-old scheme which has helped 13,800 businesses raise £1.4 billion since its inception, is “out of date”.
Chief executive Dom Hallas said: “SEIS has been instrumental in helping to get some of the UK’s best tech start-ups funded. But it’s now out of date and with start-up creation slowing it needs to be expanded to keep pace with the needs of a new generation of start-ups. Hopefully, amongst other changes, we will see the company allowance increased soon.”