Petition to UK Parliament - Improve entrepreneurial schemes and their implementation

17 November 2015

Please sign the petition here if you agree with the points highlighted below. This petition is based on my experience as an entrepreneur for last 2 years running CityFALCON and also based on discussions with other entrepreneurs. We hope that this petition will be a start of constructive dialogue with the Government.

While the UK media may portray that there is a lot of funding, mentoring and support for startups in the UK, the reality is less positive. Serial entrepreneurs and those with strong personal networks have done well, but the rest of us are struggling; several startups have attempted to scale, have shut down due to lack of funding, and have also left some entrepreneurs in financial distress.

The Government has done an applaudable task of appreciating the value that entrepreneurs and small businesses can create in the UK, and launched various entrepreneurial schemes. A few changes to these schemes could significantly boost the startup space.

Below are the issues we’ve faced and our recommendations:

Issue 1: Several benefits are for investors, but only entrepreneurs’ relief for entrepreneurs.
Entrepreneurs do NOT get any SEIS/EIS benefits if they hold more than 30% in the company. Currently, if an investor invests money in a company, they receive 30% / 50% tax rebate, no capital gains payment on upside and downside protection if the company fails. On the other hand, an entrepreneur who takes the highest risk and who is most likely to hold more than 30% of the company, doesn’t get any benefit for investing in the company, has to pay at least 10% capital gain, and does not receive any benefit if the company fails. The argument we’ve heard is that this is to prevent people from receiving fraudulent benefits, but this can never be a reason to deny benefits to the deserving.

Our recommendations:
  • Remove the 30% holding cap to receive SEIS and EIS benefits. 
  • Consider capital gains exemption for up to a small limit (e.g. £500K) for entrepreneurs.
  • Consider providing some tax benefit for the entrepreneur’s opportunity cost in the event of failure of the business. Alternatively, consider a monthly stipend or a tax rebate for eligible entrepreneurs.

Issue 2: Grant procedures are slow and cumbersome
For instance, a Smart Grant application from Innovate UK requires a detailed plan including a Gantt chart. For a start-up, we don’t have the luxury to build such comprehensive plans, and have to end up hiring consultants who charge a fixed fee and up to 20% of the value of the grant.

Our recommendation:

  • Modify the process of applying for grants to be similar to the process of raising funds through investors. Focus on the team and opportunity rather than a detailed plan.

Issue 3: SEIS limit is too low, and SEIS is affecting scaling up of start-ups
SEIS limit of £150K is affecting scaling up of start-ups. Most of the money is chasing the SEIS benefit and so startups are struggling to raise money to scale the business if they need more than £150K in capital to reach the next funding stage, i.e Series A. Moreover, with significant increase in tech labour costs, £150K is not enough to build a proper business in the UK. In the US, startups on average raise between £350K and £700K in the seed round.

Our recommendation:
  • Increase the SEIS limit from £150K to at least £300K
  • Think about other ways to help startups scale up in the UK