Legal insight

In the early days, unless you’re a business in a darling sector trailed to be the next unicorn, survival is about bootstrapping and capital efficiency. Alongside raising equity finance, supplement this with capital raised from non-diluting sources –grant funding, R&D tax credits and of course customer revenue.

When fundraising, consider whether your investors are looking for tax relief (SEIS, EIS or VCT). If so, your funding round must enable them to secure this. You’ll need experienced advisors on board to help. Investments under these regimes have numerous bear traps, and it’s all too easy to fall into one.

You don’t need us to tell you that failing to secure SEIS or EIS relief won’t help your investor relationships!

And the risk of losing VCT relief is even higher, causing the entire VCT fund to lose its status with the liability pushed onto your company. Once the funding round has closed, bring your investors into the fold. Have honest and frank conversations with them and keep them informed and engaged with the business. If investors and the management team develop a strong trust relationship, it’s likely that your investors will back you even if things don’t go to plan like if the business needs to pivot or if market conditions deteriorate.

ZickieLim Partnerandheadof venturecapital investments, Mills&Reeve

Tax relief – what do all the acronyms mean?

SEIS – Seed Enterprise Investment Relief

EIS – Enterprise Investment Relief

VCT – Venture Capital Trusts

The purpose of all the above is to encourage investment in UK unquoted (which includes AIM listed) trading companies by offering generous tax relief to investors.

The income and capital gains tax benefits are attractive but considerable care is needed to obtain them and a range of conditions must be fulfilled by both the company issuing the shares and the investor.

The bottom line

• Scaling requires founders to adopt a new mindset that prioritises efficiency and flexibility – failing to adapt can prove fatal.

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• Make sure you’ve found a robust product-market fit before scaling – the best way to do this is through exploration.

• Seeking external investment isn’t the right route for everyone – but it can prove transformational.

• Remember, investors can offer much more than just a cheque – look for an investor who’s the right strategic fit.

Our legal experts have decades of experience supporting tech founders –from start-up to scale-up and beyond. We take the time to understand your business, your sector and most importantly, your culture. If you have further questions about anything discussed in this eBook, get in touch.