For decades, early-stage capital formation in the U.S. has been constrained by access, risk, and investor incentives. While venture capital and angel networks support a fraction of startups, the vast majority struggle to secure funding. Investment crowdfunding has emerged as a powerful tool to democratize startup investing, yet it still lacks a key driver that has fueled early-stage investment in the UK for years—tax incentives.

In the United Kingdom, the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) have transformed the funding landscape, directing £24 billion ($30 billion) into 33,000 startups since inception. These programs provide tax breaks to investors willing to back early-stage companies, reducing risk and increasing long-term commitment.

With investment crowdfunding gaining traction in the U.S., the time is now to introduce a U.S. version of EIS/SEIS, integrating tax incentives into the next Tax Cut and JOBS Act proposal. The impact could be transformative, unlocking billions in new investment, creating jobs, and fueling economic growth.

How the UK’s EIS/SEIS Works—and Why It’s Successful

The UK’s EIS and SEIS are among the most successful investment tax incentives globally. They provide significant tax relief to individuals investing in early-stage companies, encouraging more risk-taking in the startup ecosystem.

EIS (Enterprise Investment Scheme): Supporting Growth-Stage Startups

• 30% income tax relief on investments up to £1 million per year.
• No capital gains tax on profits if held for at least three years.
• Loss relief—if the company fails, investors can offset losses against their income tax.
• Over £1.96 billion raised in 2022-2023, funding 4,205 companies.

SEIS (Seed Enterprise Investment Scheme): Supporting Early-Stage Startups

• 50% income tax relief on investments up to £200,000 per year.
• No capital gains tax on profits after three years.
• Loss relief similar to EIS.
• £157 million raised in 2022-2023, funding 1,815 companies.

These tax breaks reduce investor risk, incentivize long-term holding, and increase capital availability for startups—all of which are crucial for a thriving entrepreneurial ecosystem.

What If the U.S. Had a Similar Tax Incentive for Investment Crowdfunding?

To estimate the potential impact of a U.S. EIS/SEIS-style tax program, we can scale the UK results based on economic size and population. The U.S. economy is 5-6 times larger than the UK, meaning a similar tax incentive program could generate $13–$16 billion in new startup investment annually.

If applied to Regulation Crowdfunding (Reg CF), which currently raises about $600M annually, a tax incentive could 20x the capital flowing into early-stage businesses.

Beyond capital formation, the economic impact would be substantial:

• Job Creation: Based on UK multipliers, this level of investment could create 39,000–64,000 new jobs per year.
• GDP Growth: A 3.5x economic multiplier suggests a $45B–$56B annual boost to U.S. GDP.
• Increased Startup Survival Rates: EIS/SEIS-backed companies in the UK are twice as likely to survive beyond five years. Applying the same logic, U.S. investment crowdfunding issuers could see significantly improved long-term viability.

How a U.S. Version of EIS/SEIS Would Work

A U.S. adaptation should integrate targeted tax incentives for investors backing startups via Reg CF and Reg A+.

Key Features of a U.S. Investment Crowdfunding Tax Credit:

• 30% tax credit for investments in growth-stage startups (similar to EIS).
• 50% tax credit for investments in early-stage startups (similar to SEIS).
• Capital gains tax exemption for investments held at least three years.
• Loss relief allowing investors to offset startup losses against income tax.
• Investment cap of $1 million per year per investor to encourage broad participation.
• Eligibility criteria focusing on startups with <$15M in assets and <250 employees.

This structure reduces risk, attracts more investors, and provides startups with the capital they need to scale.

Why the Time to Act is Now

With Republicans controlling both chambers and a new administration negotiating the next Tax Cut and JOBS Act proposal, this is the perfect moment to introduce investment crowdfunding tax incentives.

Entrepreneurship, innovation, and job creation are bipartisan priorities. A tax credit system that empowers small businesses, reduces investor risk, and stimulates local economies is something both sides of the aisle can get behind.

The U.S. has the largest startup ecosystem in the world, yet we are missing a key incentive that has driven billions into UK businesses. By adapting the EIS/SEIS model, we can unlock massive new investment, create thousands of jobs, and supercharge the startup economy.

Wall Street has tax incentives. Real estate investors have tax incentives. It’s time for early-stage startups and investment crowdfunding to have one too.

Let’s make it happen.

#Startups #InvestmentCrowdfunding #TaxPolicy #EIS #SEIS #Entrepreneurship #VentureCapital #RegCF