What investors look for in a company seeking to raise EIS/SEIS funds

This article is kindly contributed by Martin Sherwood, a partner at Enterprise Investment Partners LLP (EIP). EIP are specialists in fund-raising for smaller companies through tax-efficient structures, with a particular emphasis on the Enterprise Investment Scheme (EIS). Martin’s contact details are at the end of this article.

When the founders of smaller companies raise funds for their businesses, they often want to give prospective investors the tax benefits associated with EIS or SEIS investments. Common sectors include Renewable Energy, Leisure and Technology propositions, amongst others.

No matter which sector the proposed offer is focused on, however, we look for the same attributes in each potential investment proposition. The key features are listed below.

  • A top quality management team with a track record of success and experience within their sector.
  • Sector should be a large or developing market with attractive growth potential.
  • A clear, easy to understand product or offering.
  • A clear exit strategy after a period of no more than about 4 years.
  • Reasonable management remuneration viz. low salaries offset by fair management incentives.

It goes without saying the company must comply with EIS/SEIS qualifying criteria, as follows:

EIS:

  • Must be an unquoted company at the time the shares are issued.
  • Must not be controlled by another company, and must not control another company without that company being a qualifying subsidiary.
  • The Gross Assets of the Company cannot exceed £15million before new money.
  • Must have fewer than 250 full-time employees or equivalent at the time the shares are issued.
  • Must carry on a qualifying trade.

SEIS:

  • Must be an unquoted company at the time the shares are issued.
  • Must have fewer than 25 employees.
  • The Gross Assets cannot exceed £200,000 before new money.
  • The Company must not have had any investment from a VCT.
  • The trade being carried on by the company at the date of share issue must be less than 2 years old.
  • The Company must not have carried on any other trade before it started to carry on the new trade.

Analysing potential businesses against these criteria allows us to engage with highly performing management teams with viable products, who are able to provide a high calibre service and potentially excellent returns to investors.

Martin Sherwood, the author, is a partner at Enterprise Investment Partners LLP. He can be contacted on 020 7487 8482 or at msherwood@enterprise-ip.com.