Review: Deepbridge Technology Growth EIS
The Deepbridge Technology Growth EIS is an unusual EIS fund. It invests in companies that have already proven demand for their products or services. Investors know precisely – and can normally choose – in which companies their money will be invested.
- Technology-focused EIS fund
- You know, and can normally choose, in which of the companies your money is invested
- Experienced management, who are required to invest their own money in the offer
- £10,000 minimum
This EIS is evergreen, and is continually open to new money. It invests in later-stage, growth-orientated technology companies. Unlike many growth portfolios, if you invest today, you typically know exactly into which companies your money will be invested.
Portfolio companies have two important traits. Firstly, all have developed a product or service and are in the process of commercialising it. They have identified their market and established revenue streams, thereby showing market demand. Secondly, each company typically owns either intellectual property or a patented product, providing some downside protection.
Each company is assigned an investment adviser, typically an industry expert. Their role is to guide, mentor and counsel the investee management team, as well as taking a seat on the board and monitoring progress. This hands-on operational experience combined with the financial expertise provided by the Deepbridge team sets this growth EIS apart in our view and helps mitigate (although not eliminate) the risk borne by the investor.
Companies currently open for investment
As this changes from time to time, please see the EIS offer page for updates.
Deepbridge Capital was set up by Ian Warwick. Initially he intended to launch an unquoted growth technology fund. However, after the rules changed to allow investments of up to £5 million in an individual company, he considered EIS more appropriate.
Mr Warwick has had a varied career: he was in the Royal Navy, then an oil engineer in Houston and worked for one of the biggest printer companies before settling on technology start-ups in New York. When he founded Deepbridge, he didn’t have experience of managing money but he and his founding partners all had experience in technology and in listing and floating businesses.
Deepbridge’s investment team is required to invest their own money in the portfolio companies. If the portfolio loses money, they lose money, so there’s an added incentive to apply a tight investment selection process and help businesses achieve their objectives.
The portfolio aims to deliver a return of £1.60 for every £1 invested over three to four years. If you take into account EIS 30% income tax relief, that’s £1.60 for every £0.70 effectively invested. Please note though: returns are not guaranteed. Capital is at risk and you could get back less than you invest. Moreover, tax benefits depend on circumstances and tax rules can change.
Before Deepbridge invests, it tries to identify potential buyers for investee companies, but there is no set exit strategy. Thus far there have been no exits, nor failures, although they are possible, indeed likely as with any portfolio of this nature.
These are early-stage technology businesses, so they will be more prone to failure than later stage, more mature businesses. It is also likely they will require multiple rounds of funding thus diluting the stakes of earlier investors. These are long-term investments.
The usual risks with unquoted companies exist with this EIS offer. For instance, EIS investments are illiquid and capital is at risk. Investors should only invest money they can afford to lose.
The underlying investee companies will pay a fee of 2% per annum to Deepbridge. There is a 2.5% corporate advisory and arrangement fee, paid from the underlying companies. In addition, there is a dealing fee of 0.65% for sales and purchases charged to underlying investee companies and a further 0.5% per annum custody fee. Finally, there is a performance fee equivalent to 20% of the profit from each individual company with a minimum hurdle of £1.20 per £1 invested prior to any performance fee being applicable. VAT is charged where applicable.
When you invest via Wealth Club, you pay no initial fees from the subscription, so you should receive tax relief on the full amount. Deepbridge fees are paid by the investee companies.
This is an interesting, albeit higher-risk EIS offer. Investors usually have the benefit of being able to choose in which companies their money is invested, something that sets this portfolio apart. The core team comes with many years of experience in investing in, managing and floating businesses.
This review is not intended to be advice or a personal recommendation to buy the investment mentioned, nor is it a research recommendation. Wealth Club aims to highlight investments we believe have merit, but investors should form their own view on any proposed investment and read the provider's documents carefully.