VCM8154 | Venture capital schemes: companies receiving risk finance investments: exceptions to the basic age condition: follow-on funding – condition A

If a company has received its first relevant investment before the end of its initial investing period, it may be eligible to receive EIS or VCT investments as follow-on funding even after the end of the company’s initial investing period under condition A of the permitted maximum age condition if:

• the funding is used for the same (“relevant”) qualifying business activities as for the first relevant investment and

• the need for the follow-on funding was foreseen in the company’s business plan at the time the initial investment was planned (see VCM8160).

Each tranche of follow-on funding must meet the other conditions for eligible funding, including the growth and development condition. The money cannot be used for a new project or for the company’s other business activities.

There is no need for the initial relevant investment to have been made under the same scheme as the follow-on funding. For example, the initial relevant investment may have been made under the Seed Enterprise Investment Scheme (SEIS) and follow-on funding could be any combination of EIS and VCT investments.

Where a company has received an initial risk finance investment and part of its activities funded by the investment have since failed, the company can still obtain follow-on funding under condition A for the remaining activities. However follow-on funding may not be used for activities that differ from those for which the initial funding was used. If the company needed funding for a new activity it would need to meet the basic age condition or condition B (see VCM8158) in respect of those new activities.

For the EIS only, if a company (S) that has received funding before the end of its initial investing period or under condition A is later acquired by a new parent company (P) under a share for share exchange within the terms of section 247 ITA 2007, company P can raise funds under condition A provided:

• the need for follow-on funding was foreseen in the business plan of company S

• the money raised by company P is used for company S, and for the same business activities as the earlier funding.