Continuing on the theme of how to obtain funding and expertise from Silicon Valley investors (see earlier post on comparative advantage) from outside the Valley ...

My thesis, for which I get violent agreement from, for example, US Venture Partners, is that it ought to be much easier for UK companies to raise money from Silicon Valley angels and VCs. In particular, the whole process of building up an entrepreneurial mindset both in UK startups and investors would be accelerated if more UK companies followed in the well trodden path of Israeli startups, by re-incorporating in Delaware with an HQ in California once they have passed the initial proofs of traction. If they do this, they have the opportunity to be competitive in the world market, of growing at a rate which makes them an investable business, and growing their UK development teams faster.

One of the British companies with which I'm working asked "If we re-incorporate in the US, so that our headquarters are there, and we have a UK subsidiary, what does that do to EIS tax relief for our investors?" which turns out to be one of those questions which is much easier to ask than answer.

HMRC's Enterprise Investment Scheme tax relief (on both income and capital gains) rules are complex (much too complex, according to the UK Treasury Office of Tax Simplification (OTS)- calling Sir Humphrey Appleby). They are designed to help small companies raise equity finance by making it attractive for individuals to to buy their shares.

Finding an answer to the question took some digging and several exchanges with helpful lawyers. There isn't a set of standard terms, although the OTS has suggested that an electronic online clearance procedure would be useful.

It is possible to retain EIS status, and at least one company has done so. There are likely several more, but there's a general reluctance to talk about it, for fear of an ignorant backlash. (See, for example, Huddle Inc, featured in the 31 October 2012 Financial Times, which is a California corporation with a London office)

The basic requirement is that the UK company must be organized, or re-organized, so that the UK share holdings translate to their equivalent in the new US corporation, according to EIS "disposal relief:share exchanges" guidelines. The UK company (now a subsidiary of the US parent) should continue operations in the UK, from a "UK permanent establishment" as, again, defined by HMRC. HMRC will review in each case, in advance, if a company and a share issue qualifies.

References

Helpful lawyers included Dug Campbell, at MBMCommercial in Edinburgh. http://www.mbmcommercial.co.uk/

http://angelacade.me/2012/08/30/10-reasons-to-be-an-angel-investor-reaso...

http://www2.accaglobal.com/uk/members/technical/advice_support/tax/capit...
The Enterprise Investment Scheme (EIS) is administered in HM Revenue & Customs (HMRC) by the Small Company Enterprise Centre (SCEC).

Huddle moved to SF
http://www.ft.com/intl/cms/s/0/a98892c0-1838-11e2-80e9-00144feabdc0.html

Huddle’s national identity is an issue they must navigate carefully: they want to benefit from their status among London’s tech start-ups; but they also need to reassure security officials in Washington and to stay in touch with experienced investors in San Francisco. For a moment, the two fall silent. Then the squawkbox crackles: “If you cut us open, we’re British all through the middle,” Mr McLoughlin says. “But, given the type of businesses who may eventually acquire us or, given the type of customers we want to be working with, and given the money that we aim to raise that has always meant we have to have a strong US-based operation out here on the west coast.”
At the same time, Mr Mitchell says software developers are now easier to find and cheaper to hire in London than in San Francisco. “We get some of the best guys out of the banks.”

HMRC links
http://www.hmrc.gov.uk/manuals/vcmmanual/vcm32300.htm
http://www.hmrc.gov.uk/cap/s247.htm

Other recent commenters

Paul Singh at 500 startups
http://resultsjunkies.com/blog/why-immigration-policy-matters-for-startups/

"One of the big opportunities in early stage investing is to be the API to venture capital and functional expertise for companies that aren’t already in the US. In other words, let’s use our experience with things like data, design and distribution to help foreign companies climb the learning curve faster than their peers — regardless of whether they’re targeting the US or foreign markets."

Stefano Barni, moved from EU VC to SF office of Betable
http://venturebeat.com/2012/10/30/why-eu-startups-are-an-incredible-oppo...

Taking Comparative Advantage http://www.cunningsystems.com/2012/09/comparative-advantage-and-companie...

Seedcamp workshop on the Seed Enterprise Investment Scheme (SEIS) http://www.seedcamp.com/2013/01/the-seis-workshop-led-by-seedcamp-10-dow...

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