Unpopular opinion: SEIS isn't solving the problem in startup funding.
After working with over 300 fundraising businesses, I believe the Seed Enterprise Investment Scheme (SEIS), introduced in 2012 by the coalition government, misses the mark.
Designed to make early-stage investments attractive with generous tax reliefs, SEIS was supposed to open up funding for startups and encourage innovation. But in practice, SEIS mainly serves a small group of founders with network access and financial resources, limiting its impact and inclusivity.
What SEIS has delivered in two years
In the past two years:
- 5,560 companies applied, raising £350 million under SEIS.
- Taxpayer contribution reached £175 million, or around £31,470 per SEIS-backed company.
Despite these numbers, the funding overwhelmingly flows to founders with networks who already have access to early capital and resources.
We know for a fact that SEIS rounds are largely funded by family and friends, which creates a two-tier system: those with the resources to pay for Advance Assurance and raise money from their network, and those without.
A basic income for founders
A fresh approach could be a universal basic income (UBI) for founders: £30,000 for your first year in business.
- Level the playing field. This would provide a basic level of support to all founders, enabling more diversity without network-based funding requirements.
- Encourage organic growth. Founders could focus on building viable businesses that naturally progress to EIS, where investors still get 30% tax relief.
- Promote real innovation. Instead of benefiting those with network access, a founder UBI could support a broader range of ideas and voices.
Tax breaks or cash in the pocket?
The biggest resistance to this change would come from the SEIS funds that currently profit under the existing system.
But if we want to make an actual difference in supporting UK startups, it's time to question whether SEIS is achieving its purpose, or whether it's time for a new approach.
Do investors need tax breaks, or do founders need cash in the pocket to build a business? I think it's the latter.