Review: Seneca EIS Portfolio Service
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
This EIS service invests in later stage, established growth orientated businesses. Each will typically have an annual turnover in the region of £5 million. It is likely investors will invest in a spread of unquoted and AIM listed businesses.
- Targeting 4-6 investments
- Businesses with typically £5 million turnover
- Growth capital deals
Seneca Partners launched in 2010 with founders Ian Currie, Steve Charnook and Richard Manley. The purpose was to invest in small and medium sized enterprises (SME) and help them grow. All three founders are SME specialists by background. Their view was that many SMEs in the north of England couldn’t access capital. Seneca’s six offices across the North tap into this need.
The first fund was a small Yorkshire-based turnaround fund with no tax breaks. In 2011 Seneca raised £1.2 million for its first approved EIS fund. The latter made four investments across a variety of sectors including a damp proofing business and a contract research organisation – there has been one exit thus far.
Seneca believes there is a funding gap for traditional businesses, consequently deal flow is high. Each year it reviews around 500 opportunities in need of proper growth capital. Because of the growth focus, recent rule changes (for example banning power generation) haven’t affected it.
The team doesn’t rule in or out any sectors. Currently the portfolio invests in companies spanning from a Starbucks franchisee to a corporate travel company, and a biotechnology firm. They are looking to invest in companies with annual turnover of £5 million to £10 million making at least £300,000 of annual profits. These businesses will typically be looking for capital injections in the region of £1.5 million. Unlike many other EIS portfolio services, Seneca’s is not a high tech, early stage focused one.
AIM companies looking for capital will also be considered and founder Ian Currie is key to this having raised capital for many AIM-listed businesses in the past. Seneca knows all the brokers and the key people. It treats the AIM businesses on the same basis as unquoted. All decisions are investment led.
As at 18 May 2017, Seneca has completed 59 investment rounds into 34 Companies, 16 of which are AIM quoted. Overall £40 million has been invested into the Seneca EIS portfolio service.
£1.60-£1.80 per £1 invested, not guaranteed.
Apart from the original fund with one exit, there have been no other exits so far due to the relative early stage of the portfolio. There is no incentive for Seneca to uplift values in portfolios as its annual fee is based upon the original amount invested. Trade sales are seen as the most likely exit route. Within Seneca’s corporate finance team, there is a research analyst who looks for potential acquirers before Seneca invests.
Unlike very early stage technology based businesses, the companies Seneca looks to invest in are typically older and profitable at the point of investment. Therefore this should reduce the risk of failure. However these are still small, typically unquoted companies with a higher risk of failure than large quoted ones.
The usual risks with unquoted companies apply to 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 value of tax relief depends on circumstances and tax rules could change.
The initial charge is 2% plus VAT. The annual management fee is 2% plus VAT – this is charged for the first four years only. Seneca only receives the annual management fee if investors get their subscription back in full. Once investors have received their investment back in full and after the deduction of the annual management fee, Seneca receives 20% of any excess as a performance fee. Seneca may receive a monitoring fee from underlying companies. In addition to Seneca’s fees there is a one-off custodian fee of £275 plus VAT and entry and exit dealing charges of up to 0.35%. For a £100,000 investment, an investor would receive EIS relief on £96,930.
Many growth-based EIS portfolios focus on investing in high tech businesses therefore it is refreshing to see one that looks to back more traditional, yet still fast growing, businesses. Seneca has a wide presence in the North of England, something that helps secure exclusive deal flow. The charging structure helps to ensure fairness in the valuation procedure and incentivises Seneca to secure favourable exits. This is one to watch.
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.