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Before Deliveroo became a household name and floated with a £7.6bn valuation, it was a London start-up with an idea and very little else. What it had, alongside ambition, was Enterprise Investment Scheme (EIS) backing. The same is true of nearly half of the UK’s active unicorns, including Paddle, a fintech company that reached a $1.4bn valuation in 2022, and Thought Machine, the cloud banking platform backed by Lloyds and JPMorgan. The EIS and its younger sibling, the Seed Enterprise Investment Scheme (SEIS), are the engines behind much of Britain’s most consequential entrepreneurial activity. Since the EIS launched in 1994, the schemes have channelled £34bn of private capital into more than 59,000 businesses; businesses that employed 386,000 people and generated £28.2bn in turnover in 2023 alone. The European Commission has rated the EIS and SEIS the most successful of their kind globally, and many countries are now attempting to build their own versions.
What exactly are the EIS and SEIS?
These schemes exist to solve the fundamental problem faced by promising early-stage companies that struggle to secure the funding they need to grow, as private investors are often reluctant to back them without protection against the very real risk of failure. The UK government’s solution is to offer investors a package of tax reliefs generous enough to shift the risk-reward equation, essentially sharing the downside in exchange for the private capital that flows into early-stage businesses.
The SEIS targets the earliest stage companies: those with fewer than 25 employees, trading for less than three years, with gross assets of no more than £350k and a £250k lifetime funding cap. The EIS is broader, covering companies with fewer than 250 employees, trading for up to seven years (10 for knowledge-intensive companies), with annual raise limits of £10m (£20m for knowledge-intensive companies) and gross assets below £30m before any shares are issued. EIS companies can raise up to £24m over their lifetime, or up to £40m if they are knowledge-intensive. Many start-ups use the SEIS for the first funding round and the EIS as they scale.
What do investors receive in return?
EIS investors can claim up to 30% income tax relief on investments of up to £1m per tax year. Gains on shares held for at least three years are free from capital gains tax entirely. Investors can also defer existing capital gains by reinvesting into EIS shares, and EIS holdings held for two years qualify for inheritance tax relief. If the investment fails, loss relief limits the effective downside to 38.5p in every pound for a 45% taxpayer. The SEIS goes further, with up to 50% income tax relief on up to £200k per year, reducing the effective maximum loss on a total wipeout to just 27.5p per pound. Together, these reliefs reflect a government willing to share both risk and reward.
How risky are EIS and SEIS investments?
EISs are higher-risk investments. HMRC explicitly requires that any investment meet a ‘risk-to-capital condition’, meaning investors must face a real possibility of losing more than they gain, including all reliefs. The EIS Association’s risk guide describes a ‘J-curve’ effect that catches many investors off guard. Losses tend to come first, as the companies that fail tend to do so quickly, while the returns from successful companies arrive years later, long after the early anxiety has set in.
Spreading capital across a portfolio of companies reduces the damage from any single failure, but over-diversification blunts returns; exceptional performers get averaged out by the rest. Investors can diversify across sectors, fund managers and company maturity, balancing early-stage positions where the upside is greatest against later-stage businesses where the risk is lower.
What are knowledge-intensive companies and why do they matter?
Within the EIS framework sits a more specialist category: knowledge-intensive companies (KICs). To qualify, a business must meet strict HMRC thresholds for research and development spend, demonstrating that growth is driven by scientific or technological advancement. The rewards for investors willing to back them are meaningfully enhanced: the annual investment limit doubles to £2m, provided at least £1m is allocated to KICs. From April 2026, the amount KIC companies can raise annually doubled to £20m, with a lifetime limit of £40m for the company and any subsidiaries, a signal that the government views this category as central to the UK’s innovation economy.
OXGENE, the Oxford University synthetic biology spinout, illustrates this structure well. Founded in 2011, it attracted EIS investment from Mercia Ventures and multiple follow-on rounds over nearly a decade, the kind of long, capital-intensive journey that only a knowledge-intensive structure can support. When WuXi AppTec acquired OXGENE in 2021, Mercia realised returns of between 13x and 20x across five of its EIS funds. The patience the structure demanded was inseparable from the return it produced.
How do investors access EIS and SEIS?
Most investors access the EIS through a financial adviser or wealth manager. More experienced investors may go directly to an EIS investment manager, while business angels (serial entrepreneurs and investors who often bring expertise and contacts as well as capital) sometimes invest directly into individual companies. Crowdfunding and investment platforms are an increasingly more common route, with EIS-qualifying companies using the platforms to reach investors directly alongside more traditional channels.
How does an exit work?
Unlike listed equities, there is no liquid market for EIS shares. EIS managers and investors will consider potential exits for their investments, which include trade sales, private equity buyers, or stock market flotations often years before a transaction happens. EIS managers will often assist the company in planning an exit route. When PathXL, a health tech company developing digital pathology software capable of identifying tumours in tissue samples, was backed by Par Equity in 2012, the exit opportunity came through Par Equity’s own industry network. Philips acquired PathXL in 2016, generating a 2.7x return. The preparation for that sale was as important as the original investment decision. Exits will generally be sought after the three-year minimum holding period has passed, though the timeline varies considerably by company type.
What does the latest EIS and SEIS data tell us?
HMRC’s May 2025 statistics for the 2023/24 tax year reveal a market in two minds. The EIS saw 3,780 companies raise £1,575m, a 20% decline from the prior year. London and the Southeast accounted for 63% of EIS investment, with information and communication companies alone accounting for 35%. The SEIS told a different story, with 2,290 companies raising £242m, a 51% jump from the prior year, driven largely by the expansion of scheme limits in April 2023. The divergence is meaningful: the SEIS is growing, and the EIS is consolidating, while the pipeline of early-stage companies feeding through the system remains robust.
What broader trends should investors be watching?
Investment into EIS-backed companies with at least one female founder has grown consistently for a decade, reaching £1.42bn and representing 25% of all EIS deals in 2023. Carcinotech, an Edinburgh biotech using 3D-printed micro-tumours to personalise cancer drug testing, is one such company and was named Best EIS Investee Company at the 2024 EISA Awards.
The regional picture is also shifting. While London dominates in absolute terms, Yorkshire and the Humber saw an 85% increase in EIS funding over the past decade, and EIS-backed companies in the region now support more than 17,000 jobs. Nova Pangaea Technologies, a Redcar cleantech firm developing sustainable aviation fuel, now partnered with British Airways, is among the most compelling examples of what regional EIS investment can produce. In April 2026, Venture Capital Trust income tax relief fell from 30% to 20% making EIS comparatively more attractive for investors seeking tax-efficient exposure to growth companies.
Edison insight
The EIS and SEIS have spent more than 30 years directing private risk capital towards Britain’s most promising and yet most precarious companies. The tax reliefs are generous, the risks are real and the outcomes range from losses to extraordinary returns. Thirty years of data point to something bigger than just tax efficiency: a mechanism that has quietly shaped the UK’s innovation economy, backing everything from cancer diagnostics and sustainable aviation fuel to nearly half the country’s unicorns.
