With the recent Autumn Statement championing British SMEs, now seems to be the time for both start-ups and investors to take advantage of tax-efficient Seed Enterprise Investment Schemes (SEIS). But is £150,000 per start-up really enough to succeed in today’s economy?
Since its introduction in 2012, SEIS has helped some 1,250 businesses. However, with just £150,000 per start-up available to small and early-stage businesses, many of these start-ups will face fundamental problems due to the lack of follow-on capital.
Whilst SEIS is helping to pave the way for business growth, more is required if chancellor George Osbourne is serious about ‘backing British businesses all the way’.
So what can be done? Mercia Fund Management’s request to the chancellor is to expand the level of seed investment available through SEIS to at least £250,000 per start-up. This increased level will give early stage companies the capital needed to accelerate growth, increase export potential and create strong employment prospects.
Funding alone isn’t the answer though. Start-ups throughout the UK face a double dilemma. In addition to capital, most will need an investment partner with strategic input to support them over the medium to long term.
Take for example, the university spin-out sector which offers exciting new opportunities. We work with eight universities that are behind some of the most innovative new businesses in the UK today; the issue however is that the founders of these companies are scientists and technologists first and business people second.
The level of guidance necessary for university spin-outs and other start-ups is often provided by highly networked and seasoned industry veterans, and is often not available for £150,000 funding levels. For example, we are witnessing seed funding offered by crowdfunding sites, but these platforms offer capital but little else to help start-ups to develop and thrive.
Providing a blend of early stage, development and growth capital, hybrid Enterprise Investment Scheme (EIS)/SEIS investment funds can help address not only the immediate funding requirements of early stage companies, but can also drive future growth through follow on capital.
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Mercia Growth Fund 3, for instance, backs its portfolio from initial SEIS investment to the medium to long term funding through EIS, whilst providing an essential support framework to help accelerate the growth in portfolio companies.
LM Technologies is just one Mercia Fund Management portfolio company – this WiFi and bluetooth manufacturer saw revenue increase by 30 per cent since investment, whilst biotech company PolyTherics’ revenue increased by 200 per cent. Following a recent funding boost from Mercia Growth Fund 1 and the company’s existing shareholders, Oxford-based The Native Antigen Company’s revenue has increased by 40 per cent.
Sustainable construction advocates Ventive Ltd received an equity raise of £900,000 earlier this year, and has since reported strong revenue growth and will no longer require further funding. High-tech loudspeaker specialist Warwick Audio Technologies secured an investment package of £1.25 million. The Coventry-based company now has limited turnover on investment and will reach profitability within its first year of trading.
By expanding the amount a new company can receive as part of a seed funding package, investment in start-ups and alongside them social enterprises will be further encouraged. In addition, the increase in capital available will provide a better equipped platform for UK start-ups to nurture a business through development and early trading, which can help reduce the failure rate in early stage enterprise.
An increase in seed funding will also ensure investors find it more attractive to invest here in the UK, whilst providing support for thriving British businesses in need of initial and follow on capital.
In the meantime, Mercia Growth Fund 3 will aim to support the small yet fast growing and revenue-driven businesses within the technology sector. We see a huge opportunity for success in many technology driven fields, especially in e-commerce and digital sectors. Our recent appointment of Mike Hayes, the ex CEO of SEGA Europe, underlines our belief in attractive returns in these sectors.