Ascension launches first SEIS targeting small tech firms

Law firm Howard Kennedy and Ascension Ventures have brought the first Seed Enterprise Investment Scheme (SEIS) to market since the programme’s launch in April.

The Ascension Seedcapital for Creative Enterprise and Digital (ASCEND) SEIS Fund will seek to raise £1.5m by 6 July 2012. It will be managed by Ascension Ventures Limited, a Howard Kennedy client.

At the same time Ascension has also launched a standard EIS, Ascension Creative Enterprises, seeking at least £5m in funding to complement the ASCEND SEIS fund.

Ascension’s strategy will be to build a portfolio of around 15 to 20 companies from sectors including audio-visual content production, social and video gaming, live entertainment, designer fashion, product design and e-commerce.

SEISs were billed by Chancellor George Osborne as a way to rekindle the economy because they offer generous incentives to investors who back qualifying start-up firms.

Many venture capital companies expressed excitement when the new schemes were announced but have since complained it is difficult to launch the funds because the restrictions make it hard to find the right companies.

But Sanjay Wadhwani, founder and chief executive of Ascension, said this is likely because many venture capital fund managers lack expertise when it comes to entrepreneurship and are not attracted to managing an SEIS’s smaller size. He said Ascension is a specialist in this area and therefore has access to people who have experience with small start-up firms and knowledge of companies launching in the market.

“You’ve got to be very entrepreneurial; that’s one of the things that’s lacking in the venture industry in Europe,” he said, adding, “Other managers also have a bit of an agenda of pooh-poohing the scheme because it doesn’t work from a fund manager’s perspective because it is smaller than a normal EIS.”

He added, “I wouldn’t say it’s easy, but it’s taken a fresh approach to venture investing as a whole to make the SEIS work as a fund.”

Wadhwani said his SEIS works because it is being launched alongside an EIS that is acting as a follow-on fund for the companies.

Will Bateman, solicitor at Howard Kennedy, said, “It’s certainly true SEIS is more restrictive than EIS in terms of the companies that can be invested in, but where Ascension comes in is they have a pipeline of investments where the companies are suitable.”

He added, “I think there’s an apprehension from some fund managers that they would rather have a larger fund. SEIS suits the technology and media sector where someone started the company from their bedroom and the only employee is them.”

First announced by the government in November 2011, the SEISs came into effect for tax year 2012/13. They are similar to EISs but offer a higher rate of income tax relief for subscription of restricted amounts in smaller, early stage companies. Investors in an SEIS fund may be able to claim up to 78% tax relief on a maximum investment of £100,000, while in an EIS the tax relief is 58% on a maximum of £1m.

This is achieved by claiming income tax relief equal to 50% of the amount invested while claiming as much as 28% relief from capital gains tax (CGT) on other assets sold during the same tax year.