Initial research into this suggests that it’s going to be difficult, SEIS companies should be:
Based in UK
Less than 2 years old
Less than 20% of their activity should be in investments
It is possible for us to consider setting up a UK subsidiary to enable us achieve SEIS - for instance, the UK subsidiary could potentially be the ‘consulting’ services arm of the business or something like that. But, as you can imagine, this will get complicated pretty quickly: regulatory perspective, accounting perspective, and finally ownership perspective (explaining to investors) will all make this quite difficult.
I also don’t think this gets any easier with the SPV, because the SPV needs to be investing in SEIS businesses to be able to pass on the tax relief, so in order for that to be a solution, we’d have to leave some cash in the SPV and then put that directly into companies, which isn’t ideal, and restricts our actions (in terms of ‘forcing’ us to make a decision up front about how much is going to be invested). And even in that instance, it would only be a tiny amount.
As it currently stands, we only have 2 UK investors who are soft committed to a maximum of £20K, so at present, I don’t think it makes sense to manipulate this in a way that works for them unfortunately!
One thing to bear in mind is that they only get a set amount of relief each year, so it’s possible that they’ve already used up the bulk of their relief and therefore wouldn’t be bothered about this.
Note - none of the above is relevant for the syndicate, that will be fine to achieve the SEIS benefits, because they put money into the SPV and the SPV puts money into the SEIS eligible business.
What is the legal structure of the investment round and for the investees?
Initial research suggests that investors directly investing into EAH is the simplest option, and doesn’t potentially have many significant drawbacks as compared to something more complicated than an SPV (or even more complicated than that).
There is a tax agreement between Australia and the UK to ensure tax is not paid twice, which actually makes this a fairly supported way to do this, however, further research is needed into this and I wonder if the accountants within the network would be able to advise on this.
I’ll keep working on it to get together some intelligent questions.
Do we want to allow ourselves the ability to reinvest the returns from any exits that occur? Or do we want to specify that all returns from any exits will be distributed?
How many startups do we think we can get equity in over the next X(2?) years
The quality of the startups we attract is critical to our overall success, now more than ever when taking equity instead of fees.
Where will they come from?
Do we need a marketing budget?
Or are we confident that the current methodology is attracting enough?
Would we get more and higher quality with more publicity
What is our true bandwidth - how many can we genuinely help/add value to in X period of time?
Once we are clear on an estimated range of how many we think we can attract, we can use that to forecast a range of return for investors
Cash flow considerations
For putting together a forecast, we should consider any and all ongoing costs, so we can ascertain what our fixed costs are.
Additionally, following our forecasting around the number of startups we will aim to attract, we should consider how many of those we think we can/will obtain equity, how many will pay cash, how many will decline. Using this, we can get a rough estimate of how much additional cash we can expect to generate over the X(2?) year period, thus give us a guess at how much more we may have in the budget.
Strategic decision around cash injections
As part of our thesis, do we have a perspective that we definitely want to have a certain amount of cash available to allocate to startups, if so, do we have any indication around what that amount should be?
Presenting to investors
How can we best articulate/demonstrate/name our acquisition of equity via sweat equity instead of cash investments in a way that ensures that they don’t get the wrong impression/understand the value of this approach - it benefits them by getting a larger share of the equity at the best possible rate, we just need a correct way to articulate this.
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