Review: MMC Ventures EIS Portfolio

MMC Ventures is a well-established technology investment manager. This EIS portfolio will invest in 8 to 12 technology-enabled businesses.

Highlights

  • Evergreen EIS fund investing in technology-enabled businesses
  • Focus on four sectors: fintech, digital media, consumer internet and business software
  • Mix of new and follow-on investments
  • £25,000 minimum investment

The manager

MMC Ventures started in 2000 as a syndicated investment service for high net worth individuals. It was founded by Bruce Macfarlane, the current managing partner, and Alan Morgan. It launched its first EIS fund in 2005. Today MMC has over £190 million under management and has invested in over 50 companies. 

MMC have maintained a consistent investment style for 17 years. They only invest in high-growth technology-enabled businesses. 

MMC was started as a vehicle for its founders and like-minded individuals to invest their own money. This ethos continue to this day. The MMC team has invested around 6% of total assets under management: this is a high level of involvement for any manager and aligns their interests with investors. 

Strategy

MMC focuses on four sectors: fintech, digital media, consumer internet (including ecommerce), and business software.

Currently, the the digital economy is growing 50% faster than the wider economy.

New investors into MMC’s EIS portfolio will receive approximately half of their investment into companies targeting consumers (B2C) and half into businesses selling to other businesses (B2B).

MMC does not invest into brand new firms. All companies must have sales and revenue, ideally annual sales of at least £1 million and up to £5 million in total sales. They will have often previously received business angel financing or seed money. MMC then assesses how much further financing is needed to reach a cash break-even point.

Any new potential deal is screened by two associates in the investment team. If they think it has merit they will meet the entrepreneurs behind the business. If this is successful, there will be a further meeting with the entire MMC investment team followed by a site visit. The team then presents a paper to MMC’s investment committee. The investment committee comprises founders Alan Morgan and Bruce Macfarlane alongside Jon Coker (co-managing partner). This committee has to approve all deals. Virtually the entire MMC team will meet a company prior to any investment.

In total MMC looks to invest £4 million to £5 million per company. The sweet spot is £1.5 million to £3 million in first round funding, but MMC often co-invests alongside other institutional investors so the total deal size is closer to £5 million. In 2016 the portfolio attracted £65m of third-party investment. 

New investors are likely to have their money invested into 8 to 12 companies within the first 13 months – ideally into 10 companies, half new investments and half follow on ones.

As well as providing capital, MMC aims to engage with investee companies to help them grow and realise the best returns. They assist companies in areas such as senior hiring, strategy, fundraising, governance and exit.

Target return

The fund aims to return 2–3x the invested amount over a 4–7 year investment period. This is not guaranteed.

Exit strategy

MMC assesses the routes to exit and considers potential buyers when it conducts its initial due diligence on investee companies. 

So far two companies have been listed on AIM and another has been sold to an AIM-listed business. Private equity and trade buyers have also bought companies. To date, there have been seven exits since inception. Ten companies have been written off. Past performance is not a guide to the future.

Example companies held in the portfolio

Tyres on the Drive (TotD) allows customers to compare prices, order tyres online and have an engineer fit new tyres at a time and location of their choice. 

MMC first invested in 2012 when TotD had one regional depot and 7 vans. Since that investment TotD has seen strong year-on-year sales growth; it now has 8 regional hubs and covers 85% of the UK.

MMC’s most recent investment in the firm was as part of a £10.5m funding round in January 2017; Halfords plc invested £8m of this to acquire a minority stake. 

Signal Media is a media monitoring platform that uses AI (artificial intelligence) to help knowledge workers, communications teams and research executives to monitor markets and get actionable business insights from the world’s media.

The company principally targets the financial services, legal and professional services sectors. Its clients include Freshfields, Old Mutual Wealth and PageGroup.

MMC invested in Signal Media in late 2016 as part of a £5.8m funding round, co-investing with Hearst Ventures. The funding will be used to drive expansion into new markets, power AI product development and grow Signal’s team. 

Gousto is a recipe box business that delivers a weekly box of healthy, responsibly-sourced ingredients, providing everything needed in the right quantities for couples or families to cook.  The business has grown rapidly: it now has more than 200 employees and delivers around 100,000 meals every week.

The latest investment round completed in August 2016 and brought in an additional £10 million of funding. MMC Ventures participated alongside Unilever Ventures and BGF Ventures. 

Risks

There is a high risk of losing capital. MMC states investors should assume a failure rate of about 25% as these are earlier stage, high growth opportunities. 

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 an upfront fee of 3%. The annual management fee is 2.5% (+VAT) and is structured to reward long-term investors. The first two years’ fee is withheld at launch and paid quarterly to MMC. The following three years’ fee is accrued but only paid after an exit has been achieved. There is no annual management fee after the fifth year. A performance fee is charged on the whole portfolio, but only once investors have got back their original subscription. MMC receives 20% of any profit over the original investment. MMC also typically receives a one-off 2% deal arrangement fee and 1% per annum monitoring fee from underlying companies.

Summary

MMC Ventures is a credible and experienced venture capital company. It focuses on four key high-growth areas and has invested in these sectors consistently for a number of years. MMC has already started to deliver exits, with a mix of trade sales and AIM flotations. The fee structure is aligned with investors’ interests: from year three the annual fee is accrued but only paid to MMC after the first exit. We also like the fact that the management team have invested a significant amount of their own money in the fund.

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.

Read more about the MMC Ventures EIS Portfolio

MMC Ventures EIS Portfolio

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