If you haven't yet got to grips with the concept of the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS), the you should check out our guide here.
Now that you have an understanding of the tax benefits available to individual investors through the EIS/SEIS schemes, you may be wondering how you might come across qualifying investment opportunities. Chances are you are a busy individual and haven't got a huge amount of time to meet with founders and perform due diligence on their businesses. That is where EIS and SEIS Funds come into play.
These funds are managed investment vehicles, such as that of RLC Ventures, which enable individual investors to invest in a diverse portfolio of underlying EIS and SEIS eligible startups. This allows investors to gain exposure to of companies, technologies and opportunities than if they invested directly into companies themselves.
Make sure you have understood all the options available for Tax Mitigation - read more here.
You can get EIS relief by investing in newly issued company shares. You can invest in multiple different companies through different schemes, as long as you keep within the limits for each scheme in that tax year (£1m EIS and £150k SEIS per annum).
Points to consider
There are a wide variety of EIS and SEIS funds in the UK market. You need to do your own research to figure out which one works best for you - a good starting point may be to check out our list of EIS and SEIS funds here and see which each invest in.
Investing in startups generally is a highly illiquid: once you’ve invested, you will be unable to get your capital out easily and are unlikely to see any form of return for at least three years (the minimum time you must keep your shares to retain the tax reliefs). Realistically, you are unlikely to see returns for five to seven years, if at all.
Most funds specialise in a few sectors, which can be both a benefit and a drawback. Funds that focus on one sector tend to have a high degree of domain expertise and are therefore likely to be well equipped to assess those types of opportunities. On the other hand, by investing your entire £100k in SEIS or full EIS allowance into a single sector, you're exposing yourself to potential additional risk by not having a diverse portfolio.
By building a portfolio of uncorrelated investments across multiple sectors, you reduce that risk.
At RLC Ventures we invest in B2B Software, Fintech and Entertainment - three distinct and unique sectors, all undergoing rapid technological shifts through the rise of Software and Digital Transformation.
Most EIS funds invest in five to eight companies per fund, although there are some that invest in many more. At RLC Ventures we look to back at least 10-12 companies per year, depending on which fund we are investing from.
Most funds will charge fees in line with traditional VC models (2% management for five years plus 20% carry), but this does differ from fund to fund. You can read more about RLC Ventures in the Q&A section of our fund page.
Please note that individual tax relief depends on circumstances and may be subject to change.
Professional Investors only.