Amidst the pandemic, there has been a decline in the number of first-time funding rounds into UK seed-stage startups for the second consecutive year in 2020. This was at its peak in 2018 and dropped by 36% last year, claims a research by SFC Capital, the UK’s most active seed-stage investor.
The data indicates that there were reductions in both the amount of money invested in the first-time rounds and the number of funds equipped to make these investments. SFC Capital calls for urgent action to reinvigorate seed-stage investments and secure the future of next-generation companies that will drive the UK Government’s economic agendas.
First-time seed-stage deals in the UK
In 2020, there were 1,427 first-time seed-stage deals, which is 17% lesser than such deals in 2019 and 36% lesser than in 2018. The analysis based on Beauhurst’s data includes every UK deal, be it announced and unannounced.
Commenting on the decline, Stephen Page, founder and CEO, said: “Some of this decline can be attributed to the impact of Covid-19 in 2020 – from dented confidence to changes to the investment landscape and founders’ priorities caused by the Government’s introduction of the Future Fund and other financial relief programmes. But only some. The biggest shock is the low number of early-stage businesses seeking SEIS funding. SEIS is one of the best support schemes available to early-stage companies anywhere in the world, and we saw spectacular year-on-year growth in the number of first-time funding rounds into innovative new companies from its introduction in 2012 until the peak in 2018. There should be tens of thousands of companies taking advantage of SEIS every year, not less than 2,000.”
The Seed Enterprise Investment Scheme (SEIS), which was introduced in 2012 transformed the landscape of seed-stage funding. It did this by providing the incentive (through tax relief) and convenience (through funds) for many more individuals to turn themselves into early-stage investors.
To date, SEIS has helped a total of 14,921 businesses raise £5.8 billion since its inception. The volume of first-time seed deals increased every year from 620 in 2011) to 2,055 in 2018. However, in 2018, SEIS introduced stricter requirements for applicants, thereby bringing a decline in the first-time seed-stage deal volume before Covid-19 hit last year.
Also, SEIS has had an unintended limiting effect on the size and timing of first-time seed-stage deals. Additionally, a “sunset clause” requiring SEIS to be wound down from 2025 as part of EU State Aid regulations threatens to make it harder for early-stage businesses to secure funding.