An interview with The Times - Empirical Ventures call for the creation of Knowledge Intensive SEIS to add rocket fuel to DeepTech
Ensilitech - an EV portfolio company talk about how KIC SEIS would have helped them raise their first pre-seed round.
Knowledge Intensive SEIS - the Catalyst for UK Growth
Covered by Hannah Prevett
Overview:
SEIS is a vital mechanism for supporting early-stage businesses, but it is not currently equipped to meet the needs of Knowledge Intensive Companies (KICs). Unlike EIS and VCTs, SEIS lacks the flexibility to provide the higher funding levels required by KICs at the pre-seed stage, even though the average seed round for KICs now exceeds £1.2m.
We propose increasing the SEIS funding limit for startups to £1m (from £250k) and raising the annual investment allowance for individual investors to £500k (from £200k). These changes would align SEIS with the requirements of capital-intensive KICs, enabling them to access the funding needed to commercialise innovation and drive the UK’s economic growth.
Desired Outcomes:
We are looking for partners who would like to support our campaign to see the Government and Treasury extend KICs to the SEIS scheme and provide enhanced benefits to private investors to invest into sectors most strongly aligned with the UK’s industrial strategy.
- Provide private market investors with enhanced incentivisation to invest in Knowledge Intensive Companies (KICs) by enhancing the SEIS scheme
- An increase in the SEIS allowance for qualifying KICs, allowing them to raise up to £1m (an increase from £250k)
- An increase in the personal SEIS allowance for individual investors to £500k per year when investing in qualifying KICs under the SEIS scheme (an increase from £200k)
Background:
At the heart of the government's industrial strategy is the concept of partnerships. As R&D technologies are commercialised the partnership between public and private funding is paramount to a successful entrepreneurial ecosystem. The SEIS and EIS schemes are exceptional mechanisms that encourage private investors to invest capital into high-risk companies. SEIS is particularly important to the first private investment round, providing risk capital of up to £250k for companies and providing tax-relief benefits to individuals who can invest up to £200k per annum via this scheme.
Encouraging private markets to invest in the commercialisation of scientific innovations that enhance the Future Successes of the UK in key sectors like life sciences, artificial intelligence, quantum computing, advanced engineering, materials science and energy generation will be critical to establishing the UK as a scientific innovation hub on the global stage.
Knowledge Intensive Companies (KICs) were introduced in the 2015 Finance Act to support companies in these key sectors. Currently KICs status is only applicable to the EIS and VCT schemes. We have grouped the benefits currently available from the company and investor perspectives;
Company side:
Raise up to £20m lifetime (£12m for non-KICs)
Raise up to £10m per year (£5m for non-KICs)
Fundraising window extension to 10 years (7 years for non-KICs)
Increased company head count eligibility 500 (250 for non-KICs)
Investor side:
Invest up to £2m per year (£1m into non-KICs)
Market Opportunity:
In the key sectors outlined above, the median pre-seed round size is significantly higher than the £250k SEIS limit. For example any company doing R&D intensive activity with 5.0 FTEs, lab space and overheads raises on average £1.2m in equity financing. This is because KICs are capital intensive operations.
Private market investors view KICs as higher risk investments due to the R&D risks involved in the commercialisation of their technology, reducing their allocations to KICs investments
Only a small proportion of private market individuals utilise the additional £1m benefit per annum when applied to EIS investments, there isn’t an investor side benefit that is targeted at the whole market for KICs
This is an opportunity for the UK to double down on DeepTech and capitalise on the UK’s world-leading capabilities in research, talent and innovation.
Please add your voice to the conversation and support this campaign on the link below.
