OnePlanetCapital is launching a Seed Enterprise Investment Scheme (SEIS) Climate Change fund…but why should you care?

OnePlanetCapital is an early stage climate change investor. We have deployed investors capital into 31 investments across 21 portfolio companies via our award winning EIS fund. This fund is designed for advisers and investors who want exposure to early stage, high growth potential companies that are combating climate change. To mitigate risk within this fund we do not invest into pre revenue business. We feel this provides the correct level of risk vs return for the objective of the fund, however we know we are not able to invest in some of the most interesting early stage climate tech businesses as we need to be investing at a pre revenue stage to catch some emerging technologies.

Consequently we (OnePlanetCapital) are launching an SEIS Fund. This fund will deploy investors into pre seed and seed stage businesses within the climate change sector. There are a few market drivers behind this decision and some key reasons that *should* be beneficial for investors.

The SEIS rules have changed

The SEIS rules were recently changed and came into effect on 6th April 2023. This was an extension on the limits available for both investors and companies.

For investors the annual limits that apply to the investment amount on which individuals can claim income tax and Capital Gains Tax reinvestment reliefs will increase from £100,000 to £200,000.

But more interestingly (for us as an investment manager - and potential investors) is that the company investment limit that can be raised under SEIS has increased from £150,000 to £250,000. This is a significant increase in capital that companies can raise under the SEIS tax scheme and it provides a much more meaningful equity raise for early stage companies.

What should this mean for investors? Two main things. Firstly, with all things being equal, it should allow companies to raise funds more easily. This should mean that companies are better funded at stage 1, with longer cash runways, leading to a better stage of development when they raise EIS funds which should enhance both valuation and success at that stage.

Secondly, the increase in SEIS allowance allows the manager a greater equity at that stage which could lead to more influence on that companies’ progression. This means that investors interests can be better protected, a higher likelihood of information flow and board seats made available for the SEIS manager.

Seed stage can mean exposure to ‘interesting’ climate change assets

Via our EIS fund we see a plethora of exciting opportunities within the climate tech space, last year we completed due diligence on ~400 climate companies. Due to our mandate we cannot invest into pre revenue businesses within our EIS fund.

This excludes access to a number of high growth potential sub sectors including battery technology and hydrogen applications to name a few. These sectors are still emerging and although we see innovative technology, often these companies are pre revenue and tend to have a longer gestation period. They are undoubtedly high risk but have high growth potential and simultaneously have the potential to generate a significant amount of positive climate impact.

It is currently difficult to gain exposure to these types of assets and subsectors via retail products and could make for interesting additions to those investors' portfolios.

SEIS is an underserved market

As of writing (23/05/24) there are currently 47 open EIS fund offers open on MICAP with 3 listed as having a climate theme. Conversely there are only 9 dedicated SEIS funds open on MICAP and none of these dedicated funds have a climate tech offering.

We are delighted to be first to market with an SEIS climate tech offering and are confident that this will also enable us to tap into less competitive valuations at this stage of the venture capital cycle.

SEIS funds are undoubtedly high risk investment vehicles however due to some of the drivers discussed above, coupled with the potential tax reliefs that are available to investors - we believe this fund could make an interesting addition to investors’ portfolios.

What are the risks?

The companies targeted within the SEIS fund are generally pre seed and seed stage investments and by definition are very early stage with limited revenues and customer validation - this means that there is a greater degree of risk around company failure compared to later stage investments. Such risks are countered by the potential tax benefits of the SEIS scheme and  the higher number of companies within an investor portfolio that most SEIS funds offer.

Tax treatment depends on the individual circumstances of each investor and may be subject to change in future.  The availability of tax reliefs depends on the Company invested in maintaining its qualifying status.

References 

https://www.gov.uk/government/publications/venture-capital-schemes-expansion-of-the-seed-enterprise-investment-scheme-seis

https://micap.com/fund-finder/