British Design Fund 3 EIS/SEIS
The UK has the second largest design sector in the world, and the largest in Europe. It produces some of the world’s leading inventors and product innovators. Despite this heritage, there appears to be a significant funding gap for early-stage businesses within this sector. In a 2018 report, the Creative Industries Federation highlighted the need for greater funding: “Creative enterprises looking to transition out of their startup phase reported that there are few funding options available to them and many highlighted a gap in the provision of more modest amounts – £50,000 to £250,000 – to enable and sustain their growth.”
The British Design Fund (“BDF”) was launched to address this and looks to support entrepreneurs designing innovative physical products.
BDF’s core team has a strong background within the product, retail, and manufacturing sectors. This experience will be used to help portfolio companies scale their businesses and enter new markets. Each investee company will receive a considerable amount of mentorship from the core team and BDF’s network of industry experts.
This is the third EIS/SEIS fund launched by BDF and it aims to invest at least £100,000 in a minimum of five companies .
Read important documents and apply
- Invests in the UK product design and manufacturing sectors
- The UK has the second largest design sector in the world
- Investors are expected to hold a minimum of five portfolio companies
- Mixture of EIS and/or SEIS investments
- Target return of £3 per £1 invested after six years - not guaranteed
- £10,000 minimum investment
BDF was founded in 2017 by a team of experienced design experts and entrepreneurs. The team is headed by Damon Bonser, a serial entrepreneur with over 15 years’ experience in building and running product design and manufacturing businesses. The fund’s chairman and co-founder, John Mathers, is the former CEO of the Design Council and has more than 40 years’ experience within the brand and design industry .
Other founding directors include David Motum, an experienced publisher within the events and media sector; David Kremer, co-founder of Rubik’s Brand Limited; and Jonathan Silverman, an IP specialist.
The team expects to be able to use its experience to add considerable value to its investee companies. For instance, by providing advice on licensing or distribution agreements.
BDF acts as the fund mentor, Sapphire Capital is the fund manager.
Watch a video interview with Damon Bonser:
The BDF invests in and supports early-stage, well designed, product businesses. It works with entrepreneurs with scalable products who are ready to accelerate growth and build long-term shareholder value.
This iteration of the fund seeks to invest at least £100,000 in each investee company in return for c.10-20% equity, across at least five companies. Every company must have a physical product that solves a tangible problem or meets a compelling need. Founders must have excellent knowledge of their market and should be able to demonstrate clear market demand – this can take of the form of pre-orders, early sales or crowdfunding.
BDF will only invest if the company has developed a prototype and secured some level of IP protection. Furthermore, the companies should be realistically capable, in BDF’s view, of trading within 12 months after investment. For this reason, the investment team will avoid businesses with large R&D requirements, such as medical devices, which typically need to go through multiple lengthy clinical trials before they can trade.
Post-investment support – Twenty20 Mentoring Limited
Each investee company will be required to enter into a mentoring agreement with Twenty20 Mentoring Limited. Via Twenty20 Mentoring, the BDF team members will provide a comprehensive range of mentoring services to support the growth of the investee companies. Investee companies will be charged an annual fee equivalent to 4% of the sum invested by BDF per annum for mentoring services.
Key areas of support provided are:
- Market entry
- Sales strategy and execution
- IP protection
- Manufacturing and product development
- Brand development
- Marketing and PR
- Finance and stock control
- Financing growth through structured debt
As part of the support each investee company is assigned a lead mentor, a board observer, and has access to a pool of sector expert mentors and coaches.
The fund targets a return of 3x after six years, however, this is not guaranteed.
Exits may be achieved through a variety of routes – none of which are guaranteed. This includes trade sale, management buy-out or sale of shares to other shareholders. The target holding period is six years.
To date, BDF has invested £0.44 million into five SEIS companies and £0.55 million into five EIS companies.
The target for this fund is a portfolio of 10-15 companies, a minimum of five with £100,000 invested in each. While the fund will only invest in companies with physical products, it is relatively sector agnostic although it is unlikely to invest within the medical sector due to strict clinical regulations.
Below are portfolio company examples from previous iterations of the fund. They are outlined to give a flavour of the types of companies you might expect but are unlikely to be part of a new investor's portfolio.
Kokoon was founded by Tim Antos to solve a simple problem – to help people sleep. An insomnia sufferer himself, Mr Antos was recommended audio techniques after visiting a sleep clinic. Whilst the audio worked, it was difficult to find headphones that were comfortable enough to sleep with. Unsatisfied, Mr Antos designed Kokoon headphones specifically to promote good sleep hygiene and comfort.
Kokoon headphones are wireless, noise-cancelling and cushioned. Collectively, the company produced over 200 prototypes to get the ergonomic design correct. In recent years, the product has been developed to integrate sleep tracking software into the headband. This allows the headphones to track R.E.M cycles and determine the best period to play audio to promote sleep or function as an alarm.
BDF invested £150,000 in December 2017 to help drive sales and marketing. In the last two years, the company has shipped over 30,000 units, generating over £5 million in revenues – past performance is not a guide to the future. The company is currently in the process of developing its next product, NightBuds, and anticipates a Spring 2021 launch – not guaranteed.
Coco Worldwide Ltd (trading as Cyclo)
Founded by Josh Cohen and Dominic Cotton (former BBC journalist), Cyclo claims to have developed the first truly packable helmet made out of recycled waste.
Using a simple button on the helmet, a user can collapse its top “dome”, reducing the height by 60%, so it can fit in a bag or backpack. Importantly, the helmet surpasses both the EU and US safety standards.
Cyclo has generated over £50,000 in pre-orders through an Indiegogo campaign with more 1,600 backers. Furthermore, the team has secured several letters of intent from large delivery companies and bike manufacturers.
BDF invested £125,000 (EIS) into the company in January 2021. The funding will be used to drive the B2C marketing strategy, develop new supply tools, and kick off an initial production run of stock.
Previous exits and failures
To date, the fund has not achieved any exits nor suffered any failures, however, this is partly due to the fact it is still a relatively young portfolio. These are high-risk investments and you should expect some failures.
The first BDF launched in 2017.
The chart below shows the average performance of the total subscribed into the fund each tax year, based on valuations as at 22 January 2021, expressed on a £100 invested basis. Please note, individual investor portfolios' performance will deviate from the average.
Source: BDF, as at 22 January 2021. Past performance is no guide to future performance. These figures do not include any realised returns (exits) as there have not been any. In the above examples, initial tax relief of between 30-50% – remember tax rules can change and tax benefits depend on circumstances.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
EIS/SEIS investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
Tax rules can change and benefits depend on circumstances.
This EIS fund invests in early-stage businesses which are more likely to fail than larger ones. So you should expect a number of failures in the portfolio, or even be prepared for all companies to fail.
A summary of the main charges and savings is shown below. Some of these will be payable by the investor, whilst others by the investee companies. The investment may have additional charges and expenses: please see the provider documents, including the Key Information Document, for more details.
|Full initial charge||—|
|Wealth Club initial saving||—|
|Net initial charge through Wealth Club||—||Annual management charge||—|
|Performance fee||20%||Investee company charges|
|Initial charge||5%||Annual charges||4%|
More detail on the charges
Timing of the offer
The fund anticipates that subscriptions will be substantially invested within 12 months of the final close of the fund.
The next deadline for the fund is 31 March 2021 for allotment in 2021/22. There is no carry back potential to 2019/20.
The British Design Fund operates in a sector in which the UK is a world leader. The BDF believes that despite this, the sector is underfunded – this is especially true of early-stage businesses – thereby creating an attractive opportunity for investors.
BDF was set up to exploit such an opportunity, but whether it can capitalise on it and deliver investor returns remains to be seen. The BDF launched its first fund in 2017/18 so it has a limited track record. However, the investment team has considerable industry expertise and significant experience to be able to provide post-investment assistance and mentoring. This is likely to be attractive to founders seeking a supportive venture capital investor.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
- Target return
- Funds raised / sought
- £2.0 million sought
- Minimum investment
- 31 Mar 2021