News for great technique reduction of the assessment in the US can make you hold your breath as a startup founder. The change in the story may suggest a slow summer ahead and speculative investments will prove unpopular.
That said, the latest from KPMG venture capital statement reveals a rich environment for the success of British startups. Scaleups raised more than £ 6.9 billion between January and March alone. The race will be hot.
In response to this new environment, founders must do everything possible to make investment decisions easier for venture capitalists and angels. In the UK, HMRC’s enterprise and start-up investment schemes (SEIS and EIS) are one of the best ways to do this, as they offer tax breaks to investors at an early stage, which can give them an incentive to take a dip.
However, EIS and SEIS applications are not simple business. In fact, about 23% fail (in some yearswas about 40%.) As funding comes from taxpayers’ money, HMRC is very careful about who it allows to use the schemes.
There is no misleading system designed only for those classified as ‘high risk’ companies. As a result, you will need to prove that your business is real, and since many forget, you will also need to present a strategy for success.
Your business plan will be the first place HMRC seeks this proof. Here’s how to prepare it before applying.
Clarity is key
If your plan involves high capital investment costs, this can reduce the “risky” aspect of your business, which invalidates your application for the SEIS scheme.
The first step to HMRC-proofing your business plan is to present everything with perfect clarity. You need to demonstrate an unmistakable ability to demonstrate market gaps and potential solutions that can fill them. This is particularly important in the current market.
As required by the application, the founders must provide “details of any commercial or other activities to be carried out by the company”. There is no room to rotate around fine details. HMRC will not be deceived. Avoid jargon, demonstrate how your business provides a solution to a problem in a clear and calculated way, and show how you plan to make money. Use evidence.
One of the most common reasons we see disqualified applications is “continuing to trade”. This refers to attempts to circumvent the eligibility of SEIS, which includes a two-year age difference.
A group of Swedish founders we met wanted to expand their business in the UK using SEIS. Their application failed (despite our 99% success) because HMRC found that the company had been operating for more than two years, just under a different IP address. It is for this reason that HMRC requires such rigorous business plans from its EIS and SEIS applicants.
Some other activities can also exempt you from the schemes – banking, insurance, lending, debt factoring and repayment financing, to name a few. Make sure you cover all the basics. Only clear descriptions of your revenue streams will reassure people who evaluate your application.