British founders are being urged to think twice before accepting cheques from investors lured by tax breaks, after fresh analysis revealed that companies relying on the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are overwhelmingly failing to scale.
Antler, the Singapore-headquartered early-stage venture capital firm, has crunched the numbers on more than 40,000 UK funding rounds over the past decade and concluded that the schemes, long held up by successive chancellors as the jewels in the crown of British start-up finance, are doing the opposite of what was intended.
Just 12 per cent of all UK companies raise follow-on capital after their initial round, according to Antler’s research. For those backed exclusively by EIS or SEIS money, the picture is bleaker still: a mere 3.7 per cent ever go on to secure further investment.
Adam French, partner at Antler and a familiar face on the British venture scene, did not mince his words. The schemes, he argued, prioritise “quantity over quality” and fail to provide founders with the strategic backing they need to grow into the kind of businesses that genuinely move the dial.
“If you were an investor in an SEIS fund, you’re primarily excited about the fact that you’re going to get 30 to 50 per cent of your investment back as a tax benefit in your tax return, and you don’t care as much about the outcome of the business that you’re investing in,” Mr French said.
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