Review – Foresight Williams Technology

Foresight Group has joined forces with Williams Grand Prix Engineering Limited to launch Foresight Williams Technology EIS Fund. The offer focuses on early-stage, high-growth, technology companies. 

Highlights

  • Investing in early-stage, high-growth technology businesses 
  • Combined talents of Foresight Group and Williams Grand Prix Holdings
  • £10,000 minimum investment 
  • 6–10 companies expected in the portfolio

The offer

This offer gives the opportunity to invest in early-stage high-tech companies chosen and nurtured by Foresight Group, one of the UK’s leading venture capital companies and Williams Advanced Engineering, a division of Williams Grand Prix Holdings and owner of the Williams Formula One team. 

Foresight Group manages over £2.2 billion in client assets across VCT, EIS, IHT and third party funds. It started as a technology investor, before expanding into clean tech and renewables. 

Williams Advanced Engineering (‘WAE’) was established in 2010 and is a wholly owned division of Williams Grand Prix Holdings plc. WAE provides technical innovation, engineering, testing and manufacturing services to a diverse client base in the automotive, aerospace, defence and energy sectors. It specialises in the commercial application of aerodynamics, advanced lightweight materials, hybrid power systems and electronics derived from Formula One racing to other uses. In total, there are about 200 people (including scientists and engineers) working in WAE.

WAE is currently working on 40 projects, from energy storage to hybrid power, applying to other uses the technology they’ve been working on for years. For instance, KERS technology, originally developed for Formula One, was developed further by WAE and as an energy saving measure for other motorised areas. It was trialled in London buses and became the idea behind Williams Hybrid Power, which was successfully sold a few years ago to GKN. 

Another example is the collaboration between WAE and UK start-up Aerofoil Energy. The WAE team used its proven expertise in aerodynamics to develop a retrofittable system that attaches to open-fronted fridges in supermarkets and convenience stores. It reduces the fridge’s’ energy consumption and retains more of the cold air inside the fridge, making supermarkets’ fridge aisles less cold. Sainsbury’s is currently testing the product. 

These are just two examples of the type of company in which the Foresight Williams Technology EIS fund might invest. 

To be considered, companies must have technology with potential for annual sales of at least £75 million and some defendable intellectual property. WAE brings the commercial, technical and scientific expertise and Foresight adds its experience in deal structuring, mentoring and knowledge of exits. 

Williams had been developing the idea of an EIS fund for the last few years, but didn’t have the vehicle to invest – hence the partnership with Foresight.

The EIS will invest up to £2 million per company. Companies are likely to be pre-profit, and with no revenue, typically operating in the hard tech sector (i.e. not software) as this is where Williams’ expertise lies: in designing, testing and manufacturing. WAE will only invest in companies where it can add value – this isn’t a passive portfolio where the underlying companies are left to get on with it.

For this EIS, the “Technology Readiness Level” scale is actively used. 1 on the TRL indicates only basic research has been conducted whereas 9 indicates it has been deployed fully into the market place. Between 4 and 8 on the scale is the hunting ground for this EIS. This means the concept is working as a minimum and quite likely prototypes have been produced and are in testing. 

Materials science is a key area as it can be applied in many different sectors i.e. new lightweight structures. Battery and energy storage are other areas of expertise as are connected with vehicles and mobility. The fund won’t include biotech, fintech or cyber security.  

For every deal, the underlying company will have a master service agreement with WAE. The agreement gives access to WAE capabilities, for example, wind tunnels and aerodynamicists, design and manufacturing of products. 

Williams has looked at about 500 opportunities already which it has narrowed down to a shortlist of about 60 businesses. 

Target return

Companies invested in must have the ability to deliver 10× returns, in the view of the investment management team. Please note, returns are not guaranteed and there are likely to be failures.

Exit strategy

Foresight has many exits under its belt with companies that could have been suitable candidates for this fund. An example is Alaric that was sold in 2013 resulting in a 5.3× return for Foresight investors. Please note past performance is not a guide to the future. Foresight will lead the exit strategy. It is expected that most businesses will be sold to third party trade buyers rather than floating on a stock market.

Risks

This is an earlier-stage, higher-risk EIS therefore it is quite likely there will be failures in the portfolio. Earlier-stage companies typically take longer to come to fruition therefore investors should not expect an exit within three to four years; it is quite likely the time frame will be six to seven years. Earlier-stage companies often need more than one round of funding and this could cause an investment to be diluted if new shareholders are required.  

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 cannot afford to lose. Tax benefits will depend on individual circumstances and tax rules can change.   

Fees

There is a 5.5% initial charge for investment in the fund. There is a 2% annual management fee plus an additional 0.3% annual secretarial fee. The first two years’ annual fee will be deducted at outset to cover the investment period. From year three the fee will accrue and be repaid upon the sale of investments or the receipt of dividends. There is a performance fee of 20% of proceeds once investors have received their original fund investment back in full. Arrangement and monitoring fees may also be payable by the underlying companies.

Summary

Despite the association with Williams, you won’t be investing in Formula One. This early-stage, high-growth, high-tech offer looks to invest in cutting edge companies that can benefit from help, expertise and nurturing from the Williams Advanced Engineering division of the Williams Racing team. Whilst it doesn’t guarantee success WAE can add a level of expertise and technical knowhow that in our view makes this high risk offer extremely attractive and potentially rewarding.

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.

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