Tag Archive for Tax Incentives

SEIS Window

18/10/2012 / / No comments

A new Government backed website, www.seiswindow.org.uk has launched with the aim of increasing awareness of the Seed Enterprise Investment Scheme (“SEIS”).  We’re pleased to have played a role in helping put it together.

The project has been led by Doug Richard, founder of the School for Startups, with contributions from a number of interested parties including HMRC and the Department of Business Innovation and Skills.

www.seiswindow.org.uk is a new resource providing information for new investors, experienced investors and entrepreneurs on how to benefit from the SEIS, which offers investors generous tax reliefs for investing in startups and early stage ventures.  There’s even a calculator so potential investors can view an illustration of how the potential benefits of the SEIS may apply in their personal situations – http://www.seiswindow.org.uk/experienced-investor/experienced-investor-seis-calculator/.

In addition, as part of a series of events taking place around the country in October and November, called “Windows of Opportunity”, Sanjay Wadhwani will be speaking at the London event on 14 November 2012.

For more information on the events and how to register, go to www.schoolforstartups.co.uk/woo and to book a place at the November event in London, go to http://www.schoolforstartups.co.uk/woo/venues/london-november-14th-2012/

Category: Ascension News, Investment, Tax Incentives / Tags: , , ,

Certified Halo – Raising Awareness of the Seed Enterprise Investment Scheme

18/06/2012 / / No comments

This morning sees the launch of a campaign by a group called Certified Halo.

Certified Halo are a group of London based startup entrepreneurs in tech who are on a campaign to raise awareness of startups and the opportunities to invest in them.  I met with the founder of Certified Halo Rayhan Rafiq Omar and his colleagues a few weeks ago when they contacted me about the campaign. I listened to their objectives which are borne out frustrations that many startup entrepreneurs face and with which I empathise.  I thought I would share some of those (and mine) here.  Today and tomorrow Rayhan and his colleagues, who are all founders of new enterprises in digital media and tech, are flyering the City and Canary Wharf as the launch of the campaign to raise awareness of startups and the opportunities for individuals to invest in new and early stage enterprises, which have been given a boost by the Seed Enterprise Investment Scheme (SEIS).  One problem they cite is that many people aren’t even aware of the SEIS, which is something we have found since we launched the first SEIS fund in the market – our ASCEND SEIS Fund.  Raising awareness of the SEIS is one of the objectives of the campaign and we have got behind Certified Halo to help raise that awareness.

Awareness of new enterprises and how to access them

This is a big issue.  A lot of people are aware of Silicon Roundabout but very few people have any idea how to access investment opportunities emanating from the creative entrepreneurs setting up new enterprises there. So far there are a few VC firms that have backed companies in the sector but these are not open to most private investors and in the main, VC funds invest at a later stage than seed stage (which for us doesn’t necessarily mean as early as a person and an idea, but can be a business that is up to two years old, with a product or service built and ready to take to the market or may already be in the market and now looking to scale).

Awareness of the SEIS

Another problem.  The Government introduced the SEIS scheme in December 2011 to take effect from 6 April 2012 (subject to the formality of Royal Assent which is expected in July 2012) and still very few people know anything about it.  The idea behind the SEIS is sound – it is to encourage investment in new enterprises which otherwise fall into the equity gap and should lead to employment, earnings on which tax is paid, exports and growth for UK plc.  But it won’t lead to anything if no one knows anything about it.  Even many IFAs I have been speaking to know very little about it or had not understood it, and had already formed the view that it is not something they will be considering for their clients.  In part that’s also a result of a wider cultural issue which is another problem for start ups in the UK.

Culture and education

As Certified Halo note in their flyer, the US has a culture that allows companies like Google, Apple, Cisco and others to start up, innovate and deliver outsize returns to investors.  There are two reasons why: 1. It is as normal to invest in start ups as it is to invest in exchange traded stocks and funds; and 2. Investor love business and innovation and want to be part of the story and share in the rewards.  It’s different here.

I agree with that.  There is a real cultural issue in the UK where entrepreneurship is little understood and rarely supported.  Not everyone can be a entrepreneur, nor should they be, but  if more people understood entrepreneurship then this would lead in my view to two things.  Firstly more people would be more entrepreneurial, which is not the same as being an entrepreneur, but has ramifications for entrepreneurs (I’ll explain why below) and secondly there would be more investment available from private individuals for entrepreneurs as a culture of allocating a small portion of one’s portfolio into new enterprises, perhaps through SEIS/EIS/VCT funds, as an asset class would develop.

More entrepreneurial people in industry is a good thing for entrepreneurs.  Take for example an entrepreneur who has a new product to bring to the market and who wishes to obtain retail distribution via a major high street retailer.  He has to persuade the buyer at that retailer to take the product, which being new, carries a risk.  It doesn’t matter how good that product is, how much better or cheaper than existing products it might be, if the buyer is not entrepreneurial he or she simply won’t take that risk.

This is something that needs to be examined in education.  Education in the UK is focussed on preparing people for employment.  It does this by preparing people to become equipped with qualifications which serve as signals which they take into the employment market in order to attract employers’ attention for interview and employment.  If the focus of education policy were to equip people with the skills to make a living as opposed to obtaining a job, if enterprise and entrepreneurship were taught in schools, we would have better equipped entrepreneurs and a better understanding and appreciation of it amongst the employed (and many private investors).  That would be good for everybody.

Complexity of the Seed Enterprise Investment Scheme

The SEIS rules are complex.  Unfortunately they need to be, because tax incentives have a habit of being abused.  See my post here about Project Finance v Company Investment in the Creative Industries.  The rules are new and we will be reviewing how they work in practice and offering our ideas to Government to simplify it without making it more vulnerable to widespread abuse, so the costs of compliance borne by companies and new enterprises reduce.  At Ascension we can manage these costs as we have been studying the legislation ever since it was published and we have many years’ expertise in tax and experience in EIS and VCT compliance – but to an entrepreneur on his or her own, the costs of compliance can be a very significant portion of the available finance.

Good luck Rayhan and Certified Halo!

The Certified Halo website is here: www.certifiedhalo.com.

Category: Ascension News, Comment, Creative Business, Investment, Tax Incentives / Tags: , , , ,

Finance in the Creative Sector

21/03/2012 / / No comments

Excellent article in this week’s The Economist (and not just because they very kindly make reference to our ASCEND SEIS Fund)….

http://www.economist.com/node/21550277

The Economist makes excellent points we have been banging the drum about for a while and we think the time is ripe now for investment in the creative industries, particularly with the support of the Government through the introduction of the Seed Enterprise Investment Scheme which, despite its low limits of £150,000 per company, should be enormously valuable to companies in the creative sector.  £150,000 wouldn’t go a long way in many other sectors, but the impact of digital technology has dramatically reduced the investment requirements for creative enterprises right across the supply chain from creation, production, distribution and marketing.  Valuable intellectual property rights can be created nowadays with very little investment in expensive capital equipment and using the Internet and harnessing social and mobile platforms to reach audiences and consumers in a targeted, trackable and cost effective way.

That’s one of the reasons why, as The Economist also notes, start ups in the creative sector fare better than other young businesses in other sectors.

 

Category: Comment, Creative Business, Investment, IPR, Tax Incentives / Tags: , , , , ,

Enterprise Investment Scheme – Unapproved versus Approved

22/02/2012 / / No comments

It’s that time of year again when investors are considering tax efficient investment strategies. Gaining popularity this year is the Enterprise Investment Scheme because of the increase in the income tax relief from 20% to 30%, making it compare very favourably against VCTs which don’t offer the same CGT reliefs and require a longer hold period before gains become capital gains free.

A comparison between EIS and VCT is the subject of another post but here we compare Unapproved and Approved EIS funds.

Firstly, Approved in this context means HMRC Approved. It does not mean that the fund is approved by anyone giving an opinion about the quality of the investments, investment team, investment strategy or anything in fact. It doesn’t even mean that the investments made by the fund are pre-approved as actually qualifying under the EIS. The only difference between an Approved and an Unapproved fund is that the Approved fund prospectus has been reviewed by HMRC and, provided the fund invests at least 90% of its assets in EIS qualifying investments within the 12 months following closing the fund, then investors in the fund will be treated as having made the EIS investments as at the date the fund closes and not, as is the case with an Unapproved fund, when the fund actually invests in the EIS investments. Apart from another minor difference – there being no £500 minimum investment in Approved EIS fund – that’s it.

If there was ever a case of the tax tail wagging the investment dog choosing one fund over another because it is Approved is it. In fact there are many good reasons to favour Unapproved over Approved. Leading publication Investors Chronicle summarises the point pretty well:

“From an investment perspective, an unapproved fund is potentially in a better position as it has longer to choose its investments and build a more diversified portfolio. This can mean approved funds spread their risk over fewer investments due to the time restriction.”

“An unapproved fund gets its income tax relief on the date of each investment, provided it qualifies. Ultimately, when choosing an EIS, you have to balance certainty of tax relief with the potential for better returns.”

http://www.investorschronicle.co.uk/2011/09/15/your-money/strategies-for-investing-in-eis-OfuoaIHVyvJ301AfQ7eMhL/article.html

Another reason to favour Unapproved over Approved is the flexibility over the use of the available income tax relief. Here’s an example:

An investor in an Approved EIS fund rushes to get their investment in before the 5 April 2012 deadline and makes a £100,000 investment. As it is an Approved fund he/she can claim 30% income tax relief against their 2011/12 income or, if they elect to treat some or all of the investment as having been made in the year ended 5 April 2011, only 20% income tax relief in that prior tax year. The investor won’t be able to claim any income tax relief in the tax year ended 5 April 2013 without making a new investment in an EIS in that tax year (or if the fund manager blows the Approved fund status).

If the investment is made in an Unapproved fund, either before or after the 5 April 2012 deadline (but obviously before the fund closes which it must do before the manager can invest from it) the position is different. Income tax relief is available following each investment by the manager so assuming the manager takes up to 2 years to invest the fund and manages the timing of investment so the fund is deployed equally over the 2 years, then the income tax relief is available across 3 tax years, all of which are at 30% (assuming no changes in the legislation applying to the year ended 5 April 2014).

Here’s an example with a £100,000 investment in an Unapproved fund which commences investment after 6 April 2012. If the fund is deployed equally over the two years ended 5 April 2013 and 2014 then the investor has the following options:

  1. Treat £50,000 as having been invested in the year ended 5 April 2012 giving income tax relief at 30%; and
  2. Treat £50,000 as having been made in the year ended 5 April 2013 giving income tax relief at 30%

Or

  1. Treat £50,000 as having been invested in the year ended 5 April 2012 giving income tax relief at 30%; and
  2. Treat £50,000 as having been made in the year ended 5 April 2014 giving income tax relief at 30%

Or

  1. Treat £50,000 as having been invested in the year ended 5 April 2013 giving income tax relief at 30%; and
  2. Treat £50,000 as having been made in the year ended 5 April 2014 giving income tax relief at 30%

Or

  1. Treat £100,000 as having been invested in the year ended 5 April 2013 giving income tax relief at 30%

Finally, as noted above an Approved fund must invest 90% of the total subscriptions in EIS qualifying companies within 12 months. Private company investments take a lot of due diligence and time with management prior to investment to get right so unless at fund closing there’s already a good pipeline of investments in place and on which the fund manager has been carrying out the necessary due diligence, that’s not a lot of time to source, win and diligence opportunities that merit investment, IMHO. YMMV.

This blog post is for information only and does not constitute investment or tax advice.

Category: Comment, Investment, Tax Incentives / Tags: , , , , , , ,

Seed Enterprise Investment Scheme SEIS the day!

18/02/2012 / / No comments

I saw that title on a blog post (click here) by Mike Hyland of Grant Thornton about the Seed Enterprise Investment Scheme and I liked it so I hope he won’t mind me borrowing it.

A good point Mke makes is that given the way the loss reliefs work and the interaction with the 50% income tax relief and the additional CGT exemption worth 28% in the first year of Seed Enterprise Investment Scheme is that an investment in SEIS can actually give you 103% tax relief if your entire investment fails.

Here’s how:

  • £100,000 invested in Seed Enterprise Investment Scheme after 6 April 2012 gets 50% income tax relief (incidentally the investment may be treated as having been made in the year ended 5 April 2012 and hence the relief obtained earlier)
  • If the taxpayer also has a capital gain which is realised in 2012/13 which is claimed as having been reinvested in SEIS then the 28% capital gain will be wholly exempted
  • In the event the investment fails the net investment after income tax relief i.e. £50,000 is also available to offset against taxable income, so for a 50% tax payer that’s worth another £25,000 (or 25% of the original investment)

Add it all up and you get to 103%.  That’s some underpinning in the downside case and to my mind makes Seed Enterprise Investment Scheme a no brainer in 2012/13.  Of course this is based on the draft Finance Bill and it remains to be whether it makes it into the final legislation.  As long as it doesn’t give rise to abuse (and with 60 pages of legislation, most of which is anti-avoidance, hopefully HMRC already have it covered) that is a great one year offer by the Government to stimulate investment in new enterprises and provide a much needed boost to the economy.

The Government is effectively saying to investors: For the first year of SEIS, rather than pay income tax and capital gains tax, use your money to invest in SEIS and put the money to work stimulating new employment and creating something of value.  If the investment succeeds and you realise your investment after three years you keep all the gains and don’t pay any tax on it.  On the other hand, since new ventures are risky, if the investment fails, you can get a further income tax relief that effectively means you didn’t lose anything at all.

In any event waiting to do SEIS in the new tax year makes much more sense than rushing to invest in and EIS or VCT before the tax year end since you can carry back the income tax relief on SEIS to 2011/12. It certainly doesn’t make sense for most people in the 50% tax bracket to do a regular EIS this year and certainly not an Approved Fund since you are limited to income tax relief at 30% in 2011/12 or, if you make the carry back claim, only 20% in 2010/11.

More on this point later.

 

Category: Comment, Investment, Tax Incentives / Tags: , , ,

The Seed Enterprise Investment Scheme and the Creative Industries

03/02/2012 / / No comments

We launched ASCEND last night at an event held at the offices of our friends at Arbuthnot in the City.

It was a great evening and for those that are interested I reproduce the text of my address below.

The Creative Industries

The Creative Industries – what are they?

Well if we use the DCMS definition it’s all of these: Advertising, Architecture, Art and Antiques Markets, Crafts, Design, Designer Fashion, Film and Video, Interactive Leisure Software, Music, Performing Arts, Publishing, Software and Computer Services, Television and Radio.

These industries are vital to the UK economy, amounting to £59bn or around 7% of UK GDP, and forecast to grow over the next 4 years according to PricewaterhouseCoopers who produce a comprehensive survey of Global Media and Entertainment trends every year.

However within that overall sector growth there are subsectors that are high-growth:  in particular e-commerce, online marketing services, digital media, video games, live entertainment.  Online fashion for example is forecast to grow at 9.9% per annum over the next 4 years.

The UK has a long tradition of creativity and British creative talent is recognised around the world.  You can see that in the comparative data and in awards British creative businesses win.  The UK creative industries are a major earner of foreign income: exports of services by the creative industries totalled around £9.0 billion in 2009, equating to 10.6% of all services exported.  The Government has identified “Digital and Creative Industries” as a “key growth industry.”

The Equity Gap

However access to finance for small companies has long been, and remains, a structural challenge for the creative sector: the creative sector is made up of a range of businesses that vary in size, scale, and business model, with which many institutional investors have less experience and confidence in financing.

Compounding this is the fact that many creative companies require relatively small amounts of investment, usually falling in the few hundreds of thousands of pounds to £1-2m range.  This is precisely the equity gap that small and medium-sized enterprises, of which there are a disproportionately high number in the creative sector, have to contend with.

Past Governments have sought to address the issue through tax incentives, such as capital allowances for film investment and the VCT and EIS regimes.  These have led to the development of a number of tax-structured offerings which focus on project financing rather than building sustainable companies in the creative sector and where the tax tail has been all too often been wagging the investment dog.

Entrepreneurs in the creative industries have also sought investment from within the industry itself from the “majors” – most of which are overseas multinationals.  In doing so they face losing their independence and limiting their future strategic options and the opportunity to maximise value for themselves.

There is therefore an opportunity for an independently managed fund, managed by a manager with extensive industry credentials and know-how, to bridge the equity gap in the UK creative industries, to invest behind the best entrepreneurs and ventures in the sector to create value and earnings growth and allow them to retain their independence and thus opportunities to maximise value on exit – for the benefit of all the equity holders in the business.

Creativity and Business

The creative industries are populated with a great many businesses which excel in their creativity but all too often suffer from insufficient depth in business skills and experience; the best and most successful creative businesses marry both.  It is a mix of capital, experience, know-how and access to key decision-makers in the industry together that make the difference between success and failure, and we partner with creative entrepreneurs and their businesses to ensure they have the sufficient wherewithal and skills to capture maximum value from their creative endeavours.  We aim to help enterprises to build sustainable businesses ultimately to become world-class companies promoting the best of British creativity and enterprise.

The smaller end of the creative sector is the most exciting, because this is where innovation really takes place.  It is small independent companies that foster the right environment for creativity to flourish – small companies are fleet of foot, don’t have legacy business models to protect and hence can harness the disruptive force of new technology in the creative industries to maximum effect.  Spotify, Zynga, Netflix, Last.fm, Mind Candy and many more besides were borne out of ideas and speed to market that simply couldn’t have been executed by the major record, video games and movie companies.

We look to invest in early stage and growth capital opportunities.  We focus on sectors where relatively small investments can create highly scalable intellectual property owning and exploiting businesses.

To do this we think you need to be a specialist in the sector.  And in fact you need to be both specialists in the creative industries and in digital technologies.  To really navigate the landscape in the creative industries you really need to understand the road maps in digital technology.

That’s why we are calling our SEIS fund ASCEND – Ascension Seedcapital for Creative Enterprise and Digital.

At Ascension we combine expertise in working with businesses in the creation, production and exploitation of intellectual property rights and in realising value from intellectual property rights and rights-owning businesses with research and analysis of digital technologies, services, hardware and software products, and in particular their impact on media production, distribution and consumption, e-commerce, and the marketing and communications industries.

We’re supported by a world-class Ascension Media Advisory Board consisting of individuals who really get the way the landscape has changed and is changing.  Our  Advisory Board members include several experienced entrepreneurs and professionals who have a track record of success in the creative industries and digital media, e-commerce and technology in the last decade.

That was important to me when I brought them together – my view is that the landscape in our sectors has changed so dramatically in the last decade or so and continues to so rapidly, that if all your experience was gained from running a theatre company or radio company in the 1980s/1990s, no matter how successful they may have been, that’s of little value in understanding today’s creative industries.

Deal Flow

We have really strong deal flow – a pipeline of deals we have been developing since we started business in 2010.

Our Advisory Board help deal flow and refer opportunities to us as well as assisting us on giving the businesses we work with the benefit of their experience and networks.  Naturally we have relationships with corporate financiers, accountants, lawyers and other advisers to entrepreneurs.  Our network in the industry of media executives brings us referrals and insight on where and who the talent is.

But we also conceive of new opportunities ourselves and find the right people from our network to back to execute them.

Being a specialist and what we offer in addition to investments makes for strong deal flow and a more attractive partner so we normally have access to opportunities before they come to the wider market.

Where are the opportunities?

Here are some themes:

  • Disruptive media companies The media landscape is shifting at an unparalleled pace, as the fixed-line and mobile internet have re-defined the ways consumers consume and engage with content.  New and innovative products and services continue to emerge; opportunities in our pipeline centre around social media and gaming on fixed-line and mobile platforms
  • New models for old businesses The shifting media and technology landscape is presenting opportunities for traditional media businesses to reinvent themselves: management companies are able to transform into become rights-owning companies; and entertainment talent and brands can be exploited to create new branded events, products and services
  • Mobile media and marketing businesses High speed mobile broadband technologies combined with innovative new multimedia devices are fuelling a new growth phase for mobile content and also mobile marketing services and technologies
  • Digital technology companies Cutting edge digital technology impacts the entire media value chain, enabling and transforming the creation, production, exploitation, distribution, publishing, broadcasting, consumption and storage of media content
  • Content and design rights creation, production and rights-owning companies The proliferation of content delivery platforms has resulted in a surging demand for content, and in fashion, demand from the Far East for British designs is booming. Britain has a great track record of success in creating and exporting content, formats and fashion

The Seed Enterprise Investment Scheme

The Seed EIS is almost perfectly designed for new ventures in the creative industries where it is possible to get a lot of growth bang for the investment buck.

Investing in the creation of intellectual property rights in the creative industries doesn’t require much in the way of investment in tangible fixed assets, plant and machinery, real estate etc. and anything in fact that results in large fixed overheads or capital expenditures .

Digital technologies are dramatically reducing the cost of creation and production of IPR – whereas musicians once needed access to expensive studios or film makers needed expensive camera equipment today a laptop or an HD Digital SLR will get professional results – and digital distribution and marketing means the cost of reaching your audience or consumers has come down.

Building a website costs a fraction of what it did only a few years ago  – there are numerous tools, plugins and open source softwares available for online businesses which can be customised at very little cost to get up and running.

And marketing a product can cost next to nothing now through use of online media and increasingly importantly social media.

That’s not to say there aren’t barriers to entry or competition – there are, but the barriers are less about huge amounts of capital and more about the quality of the intellectual property, and that is not just the creative input but the intellectual capital that goes into developing the right strategy to commercialises it, whether we are talking about content or ultimately brands.

Capital is just one of the ingredients that new ventures require and often it’s not even the most important of the ingredients but the Seed EIS as you have seen will now provide a great incentive for investors to provide that capital.

If the Seed EIS were to operate as the Government envisaged then we’d see a lot of new ventures being funded in friends and family rounds which would end up with lots of people getting tax reliefs but still losing money and businesses failing.

Conventional fund structures wouldn’t fare much better because small investments per company means small funds and the conventional fund management model means fund managers can’t spend much time on making the investment decision and even less on supporting the companies invested in.

That’s why we’re excited about the SEIS – it fits with a model we’ve already developed since we started in 2010 – we partner with entrepreneurs where we bring as much of the “business” end to the partnership with the “creative” end to make a good viable “creative business”.

We have a team of excellent professionals experienced in strategy, marketing, finance, management and operations all of which are the essential inputs for new ventures but which they can little afford to pay for full time so we provide it to them for a lot less than paying consultants or hiring full time staff of the equivalent experience.

For the investor in the fund they are getting an investment in a diversified portfolio where each company is getting a team experienced in all aspects of business, deployed to devote as much input as the venture needs to get through to achievement of critical milestones before raising further rounds of finance from the world of funds and institutional investors in our network.

And we focus only on the creative industries and related digital technologies – because it is such a fast moving and dynamic sector I believe you can only safely navigate your way around it if you are a 100% committed to it and specialise in it – I think you absolutely have to.

Category: Creative Business, Investment, Tax Incentives / Tags: , , , , , , , , , ,

Seeding Growth

14/12/2011 / / No comments

I’ve been going through the draft legislation published yesterday on the Seed Enterprise Investment Scheme (SEIS) coming in from April 2012.

This is a really exciting initiative for the creative industries. In fact, I can’t think of a sector better suited to SEIS than the creative industries.

Investments in companies under the SEIS are limited to a maximum of £150,000. That’s not a lot for a new venture in clean energy or life sciences or pretty much anything in fact, other than the creative industries, where you can get a lot of bang for your investment buck.

I’ll be writing more about this shortly but in the meantime I’m thrilled about the Chancellor’s Christmas present…for now. Let’s hope this actually makes it onto the statute books in a way that makes it useable and it’s not just for show (you know who I mean).

Category: Comment, Investment / Tags: , ,
 
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