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Can you reduce your tax bill by investing in early stage companies?

Early Stage Companies

Why Invest in British Early Stage Companies?

The UK has developed one of the most active startup ecosystems in the world thanks to a unique combination of strengths: the largest concentration of higher education institutions in Europe, the presence of most Fortune 500 companies, specialist tech capabilities, great infrastructure, a pre-eminent financial centre, and supportive policies for early stage companies and SMEs.

Early stage companies are also increasingly getting better access to capital which is necessary to accelerate their growth: in 2016, more than £3bn of angel and venture capital investment was made into UK companies despite the turbulent political and economic environment.[1]

This eco-system is already producing its first wave of success stories: the UK has generated more “unicorns” than any other European country.[2] Unicorns are startups which were created after the year 2000 and are now valued at more than one billion dollars by public and/or private markets.

From an investor’s point of view, this shows not only a big market opportunity but also a clearer route to “exit”* (the realisation of gains for investors) either via trade sales to established firms or public listings of fast growth companies.

*Note: Exit strategy is contingent on individual circumstances and  and maybe subject to change in future.

What is the (Seed) Enterprise Investment Scheme?

The UK Government’s Enterprise Investment Scheme (EIS) and Seed EIS (SEIS) schemes were implemented to give a generous short term tax incentive to Investors prepared to support such early stage ventures.

Some of the main benefits of the schemes include:

  • Capital Gains Tax Exemption on disposal of the SEIS/EIS investment if the investment is held at least 3 years.
  • Capital Gains Tax Reinvestment Relief of 50% on up to £100,000 of any gain made in the same tax year.
  • Loss Relief in the event of a loss which can be offset against either Income Tax or Capital Gains Tax liabilities.

The main difference between the EIS and SEIS schemes is the level of income tax relief which is a 30% rate under EIS against 50% under SEIS. This reflects the fact that EIS investments are typically slightly less risky as companies tend to be more advanced and established.

Investing Through an SEIS/EIS Fund to Diversify your Exposure

Fundamental to angel investing is the need for portfolio building and diversification as returns tend to be very concentrated on a minority of investments that are very successful.

The Startup Funding Club SEIS/EIS Fund has been designed with the intention to give Investors exposure to a diversified portfolio of 10-15 high potential early stage companies operating across diverse sectors, this breadth of opportunity spreads the risk of commitment and maximises the probability of picking the “winners”.

The Fund will be a SEIS/EIS Fund, offering investors the opportunity to invest in either EIS Qualifying or SEIS Qualifying Companies or both, each attracting the tax reliefs on offer.

Who are Startup Funding Club?

Startup Funding Club have been running this Fund since 2013 and have made investments into more than 65 young companies with good performance to date and several “growth stories” emerging out of the portfolio. [3]

Startup Funding Club combines its award-winning Business Angel Syndicate [4] with the SFC Fund in an innovative model which allows the Investor to invest in a portfolio of high potential startups alongside experienced angel investors and benefit from a tested post investment infrastructure.

In July 2016, SFC received the prestigious Lead Syndicate of the Year Award granted by the UK Business Angels Association.[5] This award further evidences SFC’s central position in the early stage investment scene and is a testament to the strength of the co-investment model pursued, the quality of its deal flow and the strong activity and diversity of its angel network.

Angel investors can play a key role in achieving the successful growth and outcome of startups by providing patient and intelligent capital, implementing management best practices and sharing their sectoral expertise. SFC plans to leverage its award winning network of experienced individual investors to enable the Fund to benefit from their long-term involvement especially when further funding rounds are called for.

The intention is that over time a significant number of portfolio companies will develop to the point where they can deliver J-curve growth in revenue, profit, and value, and provide investors in the Fund with a significant tax-free gain.

Please visit Startup Funding Club for more information and to view their available opportunities.

RISK WARNING: Tax treatment is dependent on individual circumstances and may be subject to change in the future. Investors in the Startup Funding Club SEIS/EIS 2017 Fund can, subject to their own individual circumstances, obtain tax reliefs under the Enterprise Investment Scheme (“EIS”) and Seed Enterprise Investment Scheme (“SEIS”). The Fund is managed by Innvotec Ltd, a limited company registered in England under number 02030086 and whose registered office is at Stable Cottage, Castle Hill, Rotherfield, East Sussex TN6 3RR. Capital At Risk.

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Startup Funding Club