How I secured £150,000 using the seed enterprise investment scheme (SEIS)
Gloople.com founder and CEO Warren Knight reveals how he raised growth capital – and how you can too
Last week, London-based social sharing e-commerce start-up Gloople.com secured £150,000 via the seed enterprise investment scheme (SEIS) in a deal valuing the business at around £1m.
For those unfamiliar with SEIS, the government announced in the Budget this year that investors would be entitled to up to 78% tax relief on up to £100,000 if they invested in businesses less than two years old that met the qualifying criteria. By offering such a huge income and capital gains tax boost, the government hopes to stimulate investment in young companies with potential.
Here, Gloople's founder and CEO Warren Knight tells his story and explains how he used the scheme to maximum effect: “Having been involved in retail for the last 20 years and the social media and digital commerce space for six years, I have worked with over 100 small and mid-sized companies helping them integrate their offline business with an online presence by working with various e-commerce platforms that have been around for many years. It was apparent to me that there was a need in the market.
I knew that to build a global brand starting with the UK market, the only way to do it was to work with a team of specialists in their own right, based in the UK.
I felt that the current tools for small, independent, retailers were inadequate and didn't enable them to really embrace online and social commerce. After finding the right team and spending weeks finding the right name with a meaning and getting the .co.uk and .com, Gloople was created as a way of gluing people together.
We have created the world's first social sharing e-commerce platform designed specifically for smaller businesses to have a multi-channel retail environment, enabling a big brand experience at a price they could afford. From launch in 2010 we've built more than 20 bespoke online stores. In order to achieve our growth plan we needed funding. On the 6th April 2012, the investment sector changed dramatically when the Seed Enterprise Investment Scheme was introduced (SEIS).
Having spent the last nine months looking for investment, it wasn't until I appointed another specialist company, Conduit Consultancy to help with the investment structure, that things started to change. We eventually closed our first round of funding for £150,000 last week, with most of the investment coming via a London Business Angels (LBA) syndicate of angel investors. The process gave us some real insights for other companies that might qualify.
The SEIS scheme allows up to £150,000 of investment in a single company. We had to plan our investment strategy around this scheme.
To be eligible for the SEIS, your business must;
- Be less than two years old
- Have fewer than 25 employees
- Have less than £200,000 in gross assets
- Not have an investor owning more than 30% of your company
We've spent nearly two years proving the concept and building a stable platform, giving us a higher business value, than a company with an idea and no revenue. My team have proved to be crucial in the valuation of my business. This isn't just our in-house team, but also the advisers and mentors that have worked on the business with me.
1. Register as a Limited Company at Companies House
We started the business by registering as a Limited Company with Companies House. At this point, we already knew we wanted to get investment and decided on how the initial shares of the business would be split with the shareholders, making it easy for dilution, based on the future rounds of investment.
2. Get SEIS approval from HMRC
To get the ball rolling for the SEIS scheme, we needed to get approval from the HMRC. We spoke to the Small Company Enterprise Centre, which has specialist staff available to advise on SEIS and its bigger brother, the enterprise investment scheme (EIS). It is worth noting that you can't be seen to be taking money from any investors before you have confirmation from the HMRC, otherwise it may cause implications for the investors when they are going to claim their tax relief.
3. Hire an accountant who knows the scheme
While filling out the forms with our accountant, who I advise, should have experience in getting investment through the EIS with previous clients, we were still negotiating with our investors to make sure we were ready to close the investment round as soon as we had approval.
4. Complete the paperwork
Once we agreed the investment with our new investors including their shares and percentages, we asked them to sign two documents:
- Term SheetA term sheet breaks down the terms of giving investment (what is expected as an investor and as the business owner, what you expect from that said investor) and in some circumstances, you may find that the lead investor will want to be a non-executive director and member of the board.
- Share Application FormThe share application form will be for the investor to sign stating how many shares they are getting from the investment.
Then just wait for the money to hit the bank account! With the government and the treasury 100% behind the SEIS scheme, they have drafted the Finance Act 2012 specifically for SEIS. The backing of both the government and the treasury makes the scheme so crucial for the future of small businesses and especially, for Gloople.
This has all been made possible with a clear vision, hard work, dedication by my team and my mentors and without them, the SEIS scheme and the London Business Angels, Gloople would not have received the investment needed to take the business to the next stage.”
Warren Knight is the founder and CEO of social e-commerce platform Gloople.com. www.gloople.com