Venture Capital Schemes

These are venture capital schemes in the UK.

I joined Rbbl a few months after graduating from university in a completely different field to startups so learning what terms are used in the startup world is like learning another language. A resource which is easy to understand and easy to access can be hard to find because there are a lot of resources available to a founder.

This article is about the different types of venture capital schemes which can be used to raise money for your startup. The SEIS was featured in last week’s discussion post.

All companies must carry out a qualified trade to be able to raise investment through venture capital (VC) schemes. Most trades qualify for these schemes but you can check if your trade qualifies on the government's website. Companies that receive this funding will have to follow specific rules to avoid their investors being penalised by HMRC. Investors must also be eligible to invest within the UK.

Enterprise Investment Scheme (EIS)

Who qualifies for this type of funding

The money raised by the new share issue must be used for a qualifying business activity, which is either a qualifying trade or preparing to carry out a qualifying trade (which must start within 2 years of the investment), or research and development that’s expected to lead to a qualifying trade.

The money raised by the new share issue must be spent within 2 years of the investment or within 2 years of beginning to trade. It must not be used to buy all or part of another business. It must be used to grow or develop your business.

What is offered to investors

30% up front tax relief for any investments made up to £1 million. Investors cannot claim tax relief on any investments over £1 million unless they have invested in a KIC.

An investor cannot have more than 30% of the shares in a company.

The rules a company has to follow

A company cannot have more than £15 million in assets and more than 250 employees.

How much can be invested

A company can raise £5 million per year and £12 million in a lifetime.

Seed Enterprise Investment Scheme (SEIS)

Who qualifies for this type of funding

A company can use the scheme if it carries out a new qualifying trade, is established in the UK, and is not trading on a recognised stock exchange at the time of the share issue. A company cannot control another company unless it is a subsidiary or be controlled by another company. There cannot be arrangements to become a quoted company or a subsidiary of one at the time of the share issue.

A company and any of its subsidiaries must not have gross assets over £200,000 when the shares are issued or be a member of a partnership. A company must have less than 25 full-time equivalent employees in total when the shares are issued.

What is offered to investors

50% on any investments made up to £100,000 can be claimed for income tax relief.

The rules a company has to follow

If a company has received money through any other VC scheme, SEIS cannot be used as a method of fundraising.

How much can be invested

An investor can invest £100,000 per year. A company can raise £150,000 in a lifetime and anything raise contributes to limits of other venture capital schemes.

Social Investment Tax Relief (SITR)

Who qualifies for this type of funding

The companies which qualify for this funding are:

  • Registered charities
  • Community interest companies
  • Community benefit societies with an asset lock

Companies must use the money raised for a qualifying trade or are preparing to carry out a qualifying trade (which must start within 2 years of the investment).

Companies cannot:

  • have more than £15 million in gross assets immediately before the investment is made
  • have 250 or more full time equivalent employees at the time of investment
  • be controlled by another company
  • have more than £16 million in gross assets immediately after the investment is made

What is offered to investors

A 30% tax relief is offered on qualifying investments up to £1 million.

The rules a company has to follow

For 3 years after the investment is made, you cannot:

  • Be controlled by another company
  • Be quoted on a recognised stock exchange
  • Be in a partnership
  • Control another company that is not a qualifying subsidiary

Money must be used within 28 months of an investment being made.

How much can be invested

A company can raise £1.5 million in a lifetime. Any investments under SITR will also count towards any limits for later investments through other venture capital schemes.

Venture Capital Trust (VCT)

A venture capital trust is a company that has been approved by HMRC and invests in or lends money to unlisted companies.

Who qualifies for this type of funding

Companies which have no more than £15 million in gross assets, have less than 250 employees, and it has not been more than 7 years since its first commercial sale.

What is offered to investors

Tax relief is available on investments up to £200,000 in a tax year if shares are held by the VCT for at least 5 years.

How much can be invested

A company can raise £5 million per year and £12 million in a lifetime.

You can find events about funding on the Rbbl website.