SEIS: Guide to the Seed Enterprise Investment Scheme
Founders guide to SEIS. Find out how it helps startups and investors, eligibility criteria, how to get Advance Assurance...
In April 2023 the SEIS limit changes from £150,000 to £250,000. That’s awesome. But it’s not yet April, and those changes haven’t yet been passed by Parliament.
So, should you raise £250K with SeedFASTs now, which will convert when the changes get approved by Parliament?
Or wait until the changes become law and raise £250K then?
Or raise £150K now and top up another £100K later?
And, what’s the right messaging for your investors, given the changes are promised but not yet approved by Parliament?
In this video we explain all the variables to help you come up with the optimal strategy for your business, and how SeedLegals can help you whichever way you go.
Can’t watch the video? Click to expand the full transcription:
It’s almost April – everyone’s thinking about should I raise now or should I wait until the SEIS changes come in soon.
This is a big question. Everyone’s confused. The new SEIS changes are amazing – instead of raising £150K SEIS, from the beginning of April, you’ll be able to raise £250K SEIS.
But there are a couple of issues:
#1: Can I raise more than £150K now without waiting for April?
#2: The SEIS changes haven’t gone through Parliament yet. What if they don’t? Will it work or not?
Founders keep calling [to ask us] us at SeedLegals – I thought I’d do a quick video.
So the first thing is if you’re fundraising and you’re thinking, ‘should I raise now or should I wait?’ Well, of course if you need the money now, you should raise now. Otherwise, of course you can wait. But in general, a bird in the hand is worth two in the bush – if you think [your] investors will wait until after April, great, but of course getting money now is good – getting investors and promising them their SEIS in this tax year (and they can backdate it to last tax year) is good. If you can use their remaining SEIS allowance and persuade them to use their allowance for this year, you may have an opportunity to raise from them now, rather than competing for their next year allowance. So the starting point to the discussion I think is: if you need money now, try to raise now.
The second thing is as we near April, and if you’re planning to raise more than £150,000 in SEIS, you have the dilemma which is that Parliament hasn’t passed the Bill. A Chancellor has come and gone, another Chancellor has come and gone. It’s been announced. It’s the only thing in the original [Autumn] Budget which has survived and all the articles suggest that it’s safe, there’s no problem, that Parliament will pass the legislation before April – but they haven’t yet.
The first thing that you want to be aware of is you don’t want to be in a position where you have misled investors. You don’t want to be in a position where they can come to you with recriminations that you promised them something, so what you want to do is indicate to investors that you should be able to raise £250K now, thanks to the upcoming legislation changes. However, it has not been passed by Parliament. You can pass [investors] the SeedLegals articles. You can do a Google search on SEIS 250K changes. You can point them to the many articles on the internet about it. You can point them to the Codec the industry investment coalition industry group that shows that it’s coming. You don’t want to be in a position where personally you’re on the hook – you want to show this is a well-known thing, that the legislation will be passed, and you can also explain that in the worst case, where they to invest now, then they would get the balance potentially as EIS rather than SEIS – it’s not like everything is lost. And ultimately if you both want to make that risk / reward – that you need the money now to grow the business, to increase the valuation – but if they’re not comfortable with it, then of course they may wait until Parliament has approved the new changes.
Now let’s go through a few scenarios and see what might be your best strategy.
Scenario 1: if you just want to raise £150,000, of course, you don’t need to worry about these new changes. Just go raise £150k in SEIS and do your funding around right now on SeedLegals.
Scenario 2: let’s say you wanted to raise £300,000. Now you’ve got your dilemma. If you raise £250,000, you can either wait till April – hopefully when the new legislation is approved – and raise £250,000 in SEIS at that point. But wait! If you use SeedFAST on SeedLegals, you can raise £250K now that will convert in April or when the new legislation passes, because the date of the £250,000 allowance is the date when shares are issued so as long as your SeedFAST converts within six month (the maximum SEIS allowed time for a SeedFAST or Advanced Subscription Agreement), then you should be able to take the money now and raise and convert in April or beyond.
Of course again, the legislation hasn’t been passed so everyone is at risk. But if you’re raising, let’s say £300,000, you might set it up so that each investor is getting three quarters of the investment in SEIS and one quarter in EIS, and you’ll create multiple SeedFASTs now that will convert after April. And when they convert then the investors will get most of the investment in SEIS and some in EIS. In the worst case, their investment will be 50% EIS and 50%
SEIS. So it’s not the end of the world. They get a blended 40% all up.
Another approach is you could say what I’ll do instead of raising with SeedFAST now for a larger amount, I will just do a £150K SEIS round now, or raise £150K in SeedFAST SEIS now, and then I know I’m completely safe. And then I’ll raise the rest after April, or raise and promise EIS afterwards.
So it’s only really if you want to take advantage of more than £150K in SEIS and not wait until the legislation changes that you have to be a bit more careful in case things don’t work out. Not that anyone thinks they weren’t work out – but it’s not done until it’s done.
To wrap up, I would say if you’re looking to raise £300,000, I would – if it was me – raise with SeedFAST now as much as you can. Or wait until you’re in April if you didn’t need the money now and do a funding around then.
Then again, you never know what happens between now and then – always better take the funds earlier.
And lastly, if you don’t want to take any risk and you do want funds now, you can mix and match. You can do a funding round now, raising £150,000 on SeedLegals, use our Instant Investment to leave the round open as a rolling close. And then when April arrives, you can top up with SEIS funds after that.
Now the only thing to watch out for is the SEIS gross assets test – this means that when you issue your SEIS shares (it’s not the date of the SeedFAST when you took the funds, it’s the date of the issue of the shares, this side of the legislation change) the company can have no more than £200,000 in gross assets, which excludes the SEIS money itself. So if you raise let’s say £400,000 and it’s going to be £250,000 worth of SeedFAST for SEIS and £150,000 EIS and now it’s going to convert in April, then the SEIS £250K won’t count towards your gross assets test, but the £150,000 you have from the EIS investment will count. So your company will have £150K in gross assets along with any other gross assets that it had before. So in that model, it’s probably no problem unless you happen to have lots of cash in the bank already – and remember that the cash you spent between now and then, you won’t have either so that’s a possibility.
Where it does get tricky is if you, let’s say, raise £600,000 with SeedFAST, and then they all convert and then you may find you’ve got more than £350,000 because the gross assets test increases after the legislation changes in April.
Anyway, you want to watch that to make sure that you don’t have too much cash in the bank excluding the SEIS shares that are issued on a particular date, lest you get caught out by the growth assets test.
If you’ve got any questions hit us up at SeedLegals, we’re here to help. One of the many beauties of SeedLegals is you can keep changing your mind. So if you do a funding round, but actually the funding round is going slowly – no problem use SeedFAST to close the smaller initial investments. Or you’ve got lots of SeedFAST, but actually it looks like you’re going to get a whole funding round and it’s going to get there in time – switch it over to funding round instead. You can turn on a dime, so to speak. The SeedLegals team and platform are there to help with anything you need. Hit the chat bubble or hit me up on LinkedIn. Let me know. Thank you.