EIS – In Good Company

EIS companies are traditionally thought of as below the radar of institutional interest being both too small and too high risk to warrant their attention.  Today however large corporates and multinational companies are challenging that perception by actively participating in investment rounds alongside the likes of EIS Growth Funds and VCTs.

It is now commonplace to find household names investing into early stage businesses, particularly in the tech sector, to gain insights and protect their market share from disruptive newcomers. Gone are the days when economies of scale were sufficient to displace new market entrants, with today’s entrepreneurs persistently seeking to discover new ways to disrupt supply chains and commandeer market share where it was previously considered unassailable.  No one wants to be the hotel or taxi company owner when the next Airbnb or Uber strikes.

The MMC Ventures portfolio demonstrates this trend well, with investment into portfolio companies coming from the likes of Unilever Ventures, Halfords, Mastercard, and Salesforce Ventures to name a few.

The involvement of these heavyweights can really move the dial for a fast growing businesses.  Take Tyres on the Drive as an example – a home delivery and fitting service for car tyres – where Halfords committed £8m into the business.  The market knowledge and expertise added is enormous, with new opportunities to increase revenue through cross selling other Halfords products. 

Moreover given EIS assets are typically held for a period of 4-7 years, investors and advisers are often keen to get a handle on the performance of their holdings.  If portfolio companies have successfully secured investment from existing market leaders then confidence can be taken in that they have been identified as a leading disrupter by those most knowledgeable in their sector – a promising indication of value.

Each of the above institutional investments were made alongside The MMC Ventures EIS Fund.   The institutions validate the historic investment and offer independent valuation uplifts. The corporate investments demonstrate that MMC EIS clients are getting access to terms and deals not otherwise available to the public – with the added benefit of the tax reliefs available through EIS. 

This ‘coming of age’ of EIS  raises the question that if these investments are considered sound enough for the likes of Unilever and Mastercard then should they not warrant the attention of the private investor seeking diversification from the public markets?

So what challenges lie ahead for picking the right EIS Fund to tap into this trend?  Large scale corporate interest showcases the ability of the fund manager to select businesses that draw the right kind of attention as they develop, transacting with key players.  Part of the value added by fund managers is their ability to open doors to larger enterprises as the portfolio company evolves; both for more substantial funding and the benefit of a strategic partner who can offer a significant step up.

In conclusion it is worthwhile investigating who is co-investing with an EIS provider, both as an indication of future value and the quality of the fund manager.

 

First published by Henry Emson in GBI Magazine, May 2017. 

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