The Seed Enterprise Investment Scheme (SEIS) is helping university spin-out companies break new ground.
Cambridge University has sunk millions into start-up businesses through two investment funds – with a third ready for lift-off.
The funds are raising cash from the university’s alumni and their friends and families.
The money is staked against spin-out companies trying to carve a commercial niche for technology, medical and pharmaceutical research carried out by the university.
The university’s last SEIS fund raised £1.7 million capital for eight companies during the last 18 months.
Funding records broken
“One of the keys to our start-up funding is SEIS,” a university spokesman told <name> of specialist investment web site SEIS.couk.
“SEIS allows former students and friends of the university to target their investments within our spin-out program while benefitting from the tax breaks offered under the scheme.”
In return for an equity stake in a new company, investors can pick up some of the most generous tax breaks available:
A 50% reduction on income tax paid for investing up to £100,000, which is worth £50,000 for some taxpayers
Disposing of other assets to raise a SEIS stake gives investors a 50% capital gains tax exemption
If the spin-out company is successful, any proceeds from selling shares at the end of the three-year SEIS term are free of capital gains tax as well.
Even a failed company offers investors tax relief, as they can offset losses against other income.
SEIS has played a part in Cambridge University breaking start-up funding records for two consecutive years.
The third fund follows a total of £2.7 million of seed capital investments already this year, already ahead of last year’s total of £2.3 million.
SEIS is not only important to university spin-outs.
Industry experts say the business climate stoked by SEIS and Enterprise Investment Scheme (EIS) cash has led Britain to establish 11 of the G20’s 30 technology companies worth more than a billion dollars.
“Companies are feeding off the UK. Business leaders can draw on the best talent,” said Philipp Stoeckl, London’s Tech City UK Future Fifty director.
“Firms seeking to grow prosper from an increasingly favourable investment climate. Venture capital available to UK-based companies is increasing.”
Stoekl holds up companies like Zoopla, Asos and AO.com as shining examples of fast-growing technology firms that are benefitting from SEIS and EIS tax breaks coupled with an unrivalled talent pool.