SEIS – How to invest in start-ups

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The Seed Enterprise Investment Scheme (SEIS) is a well-kept secret among investors in the know, but finding out which companies are looking for cash is a harder task for many.

Plenty of information is online about SEIS tax breaks, but only a few places list start-ups seeking investment.

SEIS has two ways to invest – going direct to the company or staking money through a SEIS fund.

If you want a DIY SEIS investment that cuts out the middleman and their percentage of managing your cash, the Enterprise Investment Scheme Association (EISA) is a good place to start.

EISA publishes a list of open investment scheme offers– but not all are SEIS.

Where to source SEIS investments

Companies should not promote themselves as SEIS businesses if they do not have pre-approval from HMRC, but pre-approval does not mean that HMRC has carried out due diligence on the business plan. Investors still have this job to do.

The EISA list also includes some SEIS fund managers.

Many crowdfunding platforms include SEIS pre-approved ventures with an icon or badge showing they are in the scheme.

One of the leaders in the market to find startups is www.SEIS.co.uk

Besides the 36-month rules for holding SEIS shares to qualify for tax breaks, many other rules apply to investors and the SEIS company as well.

For example, employees cannot invest in the company they work for – but directors can.

Controlling interest problems

No one holding a controlling interest can invest – that includes controlling 30% or more of the shares, voting rights or destination of assets if the company is wound up.

Companies also face some strict rules, like the type of business they run, a cap on asset value of no more than £200,000 after the SEIS investment round completes and the business must not have more than 25 employees.

The SEIS shares must be ordinary shares with no special rights that are subscribed in cash.

Any money raised must be a qualifying business activity and the money must be spent during the SEIS 36-month term.

A lot more rules apply that investors should consider in their own due diligence before parting with any cash.

Download the SEIS guide here

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