The end of SEIS? Why we should fight to keep it on the UK’s books

So a couple of people have told me that, as the UK government is desperately struggling to raise tax revenue without (directly) hitting the “man on the street”, SEIS might be facing the chop. There are two things they will be looking at in the “get rid of it” category (in particular), and one thing in the “it’s got to stay” category, and I’m confident the latter will win the day, with good reason. Here’s why:

The arguments against…

• Dead weight — inevitably, there are lots of companies that raise finance, that would have raised finance even if SEIS did not exist. In these cases, SEIS is essentially a lovely bung from government to those investors — on investments that they would always have made — SEIS or no SEIS. So if government is trying to use money to incentivise extra investment, this portion of money is being wasted.
• “Shitty” companies getting funding — the SEIS incentive is huge. In fact, I reckon it’s much bigger than 99.9%* of the UK population actually understand. Basically, government contributes half of your investment, and then you also get further protection on the downside if your investment completely fails. As a result, a lot of rubbish companies get seed funding that probably shouldn’t. Government doesn’t want to support seed investment for the sake of it — it only wants to support good companies, so again, this portion of money is wasted.

…but why it has to stay

• Genuinely additional investment in good companies. Not all the SEIS funded companies would have been funded anyway — they are genuinely additional — and not all of these additional companies are “shitty” — some of them are genuinely good. What we need, is for government to have the mindset of a VC — to take a portfolio approach, and recognise that the big outcomes of the winners they back is worth the lost investment of the many losers.

IMHO, the need for this is only going to increase if other reasons for building a startup in the UK — say, the availability of internationally competitive engineers… — are undermined as the UK jumps ship from the EU. The startup ecosystem will need all the support it can get.

*No survey has been carried out…