An SEIS investment fund is a type of venture capital fund that is specifically aimed at investing in early stage companies. The goal of an Seed Enterprise Investment fund is to provide these young companies with the financial backing they need to get their business off the ground. In return for investing in these companies, investors in SEIS funds can receive some pretty lucrative SEIS tax reliefs together with the potential upside of the start up appreciating in value. But what exactly is an SEIS fund from a structural perspective? Read on to find out.
What is a SEIS Investment Fund?
An SEIS or EIS Investment Fund is a discretionary investment management service managed by a Financial Conduct Authority (“FCA”) approved Investment Manager. Funds are not legal entities but groups of individual bare trusts to enable subscription monies to be held on behalf of investors under a nominee arrangement. Each investor will be the sole beneficiary of each bare trust to be collectively known as the Fund (or Portfolio). The Custodian (via a Nominee) is the registered legal holder of investments on behalf of each investor.
The Role of the Investment Manager in an SEIS Investment Fund
The role of the Investment Manager is to invest the money of the investors on a discretionary basis into companies selected by the Investment Manager. The Investment Manager is required to hold the necessary permissions to act as a manager under the terms of the AIFMD in order to fulfill their role. This means that the Investment Manager must meet an enhanced level of regulatory and compliance requirements.
The Role of the Custodian In an SEIS Investment Fund
The Custodian is responsible for safeguarding the investment and investors’ cash. They will deposit and hold investors’ cash in one or more bank accounts, which may be aggregated with any regulated bank institution after being instructed to do so by the Investment Manager. The Custodian will also deposit any funds derived from a liquidity event in a segregated client money account in accordance with FCA rules and guidance.
The Custodian is not deemed to have any control or discretion over investment funds . Investment decisions are taken solely by the Fund Manager and the Custodians role is administrative
The Role of the Mentor/Investment Adviser An SEIS Investment Fund:
The Investment Adviser / Mentor is responsible for providing important advice to the Investment Manager about potential start up investment targets. This includes reviewing the suitability of these companies and making recommendations on which ones to invest in. In addition, the Investment Adviser can provide legal, taxation, marketing, accounting, public relations, information technology and other expert advice to the startup companies.
The Life of An SEIS Investment Fund:
The life of the fund is such that investors must hold their shares for three years in the companies which the Fund has invested in. The life cycle of start ups usually requires that investors will hold their shares for longer periods, typically up to ten years. The Investment Manager typically retains the right to sell investors’ shares at any time, even within the SEIS/EIS three year period. Therefore, the purchase and sale of shares in the companies the Fund invests in is at the discretion of the Investment Manager.
In sum, therefore, the role of the investment manager is to approve investments made by the SEIS fund, while the custodian ensures that the fund’s assets are protected. The mentor provides guidance and support to the invest in startup companies throughout the entire process. If you are looking for an SEIS investment fund, be sure to research all of your options thoroughly so that you can choose the one that best suits your needs.