When it comes to investing in startups, there are a few different options available to investors. One option is to invest in a venture capital fund. This type of investment can be a great way to get exposure to investing in a large number of startups and have the potential for significant returns if one of the startups in the portfolio is successful. In the UK, investing in early-stage companies is made more attractive by Seed Enterprise Investment Scheme (SEIS) qualifying companies which qualify for health tax reliefs. In this post, we’ll take a look at what venture capital funds investing in seed enterprise investment scheme companies are as well as explain why Seed Enterprise Investment Scheme companies may be a good investment choice for startup investors.
What is a venture capital fund?
A venture capital is a private equity investment firm that provides investment and advice to startup companies. A venture capitalist typically invests in startups that are considered high risk and have the potential for high return. Venture capitalists will also provide advice to the startup about how to grow and expand their business. In some cases, they may also help the company find new customers or partners. The venture capitalists typically invest in companies that are in the early stages of development. Seed funding or funding involves investing in startups at the earliest possible stage of their development – usually before revenue has been generated.
What is the seed enterprise investment scheme?
The seed enterprise investment scheme is a tax reliefs scheme that allows investors investing in startups to claim tax reliefs on their investment. For instance an investor providing seed funding to a qualifying start up, allows that individual to claim relief on investments of up to £100,000 per tax year, in return, receiving an individual income tax break of 50% of the amount invested.
The seed enterprise investment scheme (SEIS) offers a number of additional benefits to investors. These include exemption from capital gains tax on profits from shares held for at
at least three years, and no inheritance tax on shares held for at least two years. The scheme also offers the individual exemption from capital gains on earnings from shares. In addition, if the company fails or the shares are eventually sold at a loss, investors can claim the loss against their income tax.
To qualify for relief under the SEIS, the individual investor can not be connected to the company in any significant financial or employment interest. For example, they cannot be a paid Director or Partner and they must not hold more than 30% of the company’s overall shares. For the company to qualify it must be under 2 years old. In addition, companies only issue £150,000 of seed enterprise investment scheme shares – so the scheme only really applies to seed funding stage UK companies.
What is venture capital funding investing in the Seed Enterprise Investment Scheme?
These are seed funds which specialize specifically in investing in startups which have been given advanced assurance by HMRC that they qualify for the Seed Enterprise Investment Schemes.
The advantage of these funds is they can provide investors with a mixed basket of investments which may be hard to find as a nonprofessional investor So, if you are looking for a good investment opportunity that has the potential to offer significant tax breaks, Seed Enterprise Investment Scheme qualifying venture capital funds are definitely worth considering. Make sure to do your research and partner with a reputable fund in order to get the most out of this type of investment.