Deepbridge Technology Growth EIS

The Deepbridge Technology Growth EIS fund focuses on three key technology areas: medical, energy and resource efficiency, and business enterprise. It has a dedicated technology investment team.

To date, the fund has invested in 37 EIS-qualifying companies and achieved two exits (one full and one partial), which have allowed it to start returning capital to investors: note past performance is not a guide to the future.

Important: The information on this website is for experienced investors. It is not a personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value: you could lose all the money you invest.

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Highlights

  • Technology-focused EIS fund
  • Targets portfolio of 5 to 15 investee companies, minimum £3,000 per company (not guaranteed)
  • Target return of £1.60 per £1 invested after four to five years, not guaranteed
  • 0% initial charge through Wealth Club (normally 2.5%, non advised)
  • Minimum investment £10,000, you can apply online

    The manager

    Deepbridge Capital LLP (“Deepbridge”) was set up in 2010 by Ian Warwick. Initially, he intended to launch an unquoted growth technology fund. However, when the EIS rules changed to allow investments of up to £5 million in an individual company, he considered EIS more appropriate. The Deepbridge Technology Growth EIS fund, its first EIS fund, launched in 2012 and has since invested nearly £100 million. 

    Ian 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 hadn’t managed money before but he and his founding partners all had experience in technology and in floating businesses.

    Deepbridge has grown steadily since launching its first EIS offering and now manages over £152 million across its four EIS and SEIS funds. Since launch, Deepbridge has helped create more than 300 jobs through the companies in which it has invested. 

    The investment team is split between separate life sciences and technology teams. The latter, which is responsible for the Technology Growth EIS, is headed up by Adrian Neilan, Chief Operating Officer. Adrian joined the business in November 2019, having held previous roles as IT Director at Hewlett Packard, CEO of Irish Greyhound Board, and Commercial Director of Trinity College Dublin. Adrian heads a team of three: one associate director, one analyst, and one technical partner. Further support is provided by the Supervisory Investment Committee, made up of four independent experts and one member of Deepbridge’s executive management team.

    Watch a video interview with Louise Farley, partner at Deepbridge Capital:

     

    Investment strategy

    The fund will target companies with innovation-driven products that have the potential to create new market segments or displace current offerings. The product must demonstrate significant market potential, robust IP, and should typically be in the early stages of commercialisation with up to £2 million in annual recurring revenue. While Deepbridge will consider pre-revenue companies they must have a clear and realistic path to commercialisation. 

    Deepbridge considers three specific areas when conducting due diligence:

    1. Commercial relevance: whether there is an addressable market. At this point Deepbridge will review market size, demand, macroeconomic trends, and potential competition.
    2. Technological relevance: measures the viability of the product over the long term and assesses the development roadmap, scalability, and investment required to reach commercialisation. 
    3. Investment relevance: how appropriate Deepbridge considers the investment is for the fund, particularly in regard to the investment timescale and ability to deliver a return to investors. 

    The fund will focus on three sectors: medical technologies and processes; energy and resource innovation; and business enterprise and other IT-based technologies.

    Deepbridge believes all three have strong market potential as they share common themes of increasing economic globalisation, population growth, and regional economic development. 

    Post investment, Deepbridge takes a board seat and plays an active role in each company to support its growth: 

    • Establishing procedures, controls, and financial reporting standards required to achieve exit
    • Providing advice, guidance and mentoring from – or secondment of – a member of the Deepbridge team of “business builders” 
    • Assisting in establishing a worldwide distribution network

    Target return

    The Deepbridge Technology Growth EIS fund targets a return of 160p per 100p invested, before EIS tax relief over a four to five-year period – returns and timeframes are not guaranteed.  

    Exit strategy

    Deepbridge makes a point of actively looking for early exit opportunities after the third anniversary of the investment: note there are no guarantees and investments may be held for considerably longer than three to four years. 

    Portfolio 

    The number of companies included in an investor’s portfolio will depend on the amount subscribed. The minimum is three (for a £10,000 subscription ), with typical portfolios including 5-15 companies. 

    The companies outlined below are historic investments made by the Deepbridge Technology Growth EIS fund in its previous iterations and give a flavour of the types of companies a new investor might expect. EIS funds tend to be managed on a discretionary basis so each individual portfolio is likely to be different.

    Algaecytes – Deepbridge Technology Growth EIS-min.jpgAlgaecytes – recent follow-on investment

    Algaecytes has developed patented technology to produce Omega 3 oils from freshwater algae.

    Omega 3 oils have been shown to reduce the risk of cardiovascular disease, improve circulation, lower blood pressure and prevent blood clots. However, humans cannot naturally produce Omega 3 and must rely on food sources (such as oily fish) or supplements. Consequently, demand for Omega 3 products is increasing and the sector is estimated to be worth $44 billion a year.

    Algaecytes grows and harvests microalgae to produce Omega 3 through a sustainable process that does not deplete fish stocks. The resulting product is vegetarian, tastes neutral, and is converted more efficiently in humans compared to vegetable alternatives (such as flaxseed). 

    To date, the company has demonstrated proof of concept through its pilot production facility in Kent and is opening a full-scale plant for commercial manufacturing with commercial production anticipated in late 2022 or early 2023. The fund first invested in the company in April 2013 and has continued to support the business since – its total investment currently stands at £10.4 million and is currently held at an unrealised value of £31.4 million. Past performance is not a guide to the future.

    vTime XR – Deepbridge Technology EISvTime XR

    vTime XR was founded in 2014 and in 2015 launched the world’s first cross-reality social network, vTime XR. Since launch vTime XR has been steadily upgraded and is now used in over 190 countries with more than a million downloads. 

    vTime XR allows users to interact via customisable avatars in a virtual world, and is currently free to download. The company is working to develop partner-specific content in the sports, leisure, tourism and corporate sectors, with the intention of ultimately securing a recurring revenue base as consumer uptake increases.

    Deepbridge first invested in the business in April 2017. The Technology Growth EIS has since made further investments totalling nearly £10.2 million, with the funds most recent investment made in December 2021.

    Resonant – Deepbridge Technology Growth EISResonant Software Inc. / iPipeline Holdings Inc – example of previous exit

    Resonant offers process management and decision support applications for life insurance providers that substantially improve the discipline and productivity of underwriting and new business operations. In 2017, Deepbridge helped arrange a merger with iPipeline Inc., a large cloud-based software platform for the insurance industry. iPipeline was subsequently acquired by Roper Technologies Inc for $1.65 billion. Deepbridge first invested in Resonant Software in 2013 and brought the software to the UK from the USA, under the permanent establishment condition. The exit represented a return of up to 3x for Deepbridge’s EIS investors, note past performance is not a guide to the future.

    AFIN Technologies – example of previous failure

    AFIN Technologies was a mobile app developer specialising in promotional coupons and loyalty programmes – with brands such as Buxbo, Dining Advantage and SurveyMe. The company’s apps allowed businesses to offer discounts to customers and run surveys in exchange for rewards.

    In October 2019, the company acquired US coupon company Entertainment for $25 million. Deepbridge Technology Growth EIS fund supported the business and its total investment by July 2020 stood at a little under £9 million.

    However, with the start of the pandemic, the company ran into trouble and an administrator was appointed in May 2021. Deepbridge’s investment was subsequently written down to nil.

    Performance

    Since launching in 2012, Deepbridge Technology Growth EIS fund has started to develop a track record of returns to shareholders. 

    Across all tranches, the Deepbridge Technology Growth EIS has seen one exit (Resonant Software – above) and one partial exit, with an average return multiple of 2.03x. There have also been three failures. Of the remaining investee companies, 14 are showing unrealised gains, two are valued below cost and the rest are valued at cost.

    For investments made more than five years ago (2012/13–2016/17) on average, for every £100 invested into the EIS fund, investors would have received £78 in realised returns, not including initial tax relief, and would have a portfolio balance of £213 remaining. Note past performance is not a guide to the future. 

    The chart below shows the average performance of the total subscribed into the fund each tax year, based on valuations as at 31 December 2021, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.

    Performance per £100 invested in each tax year

    Source: Deepbridge Capital, as at 31 December 2021 Performance figures are supplied by Deepbridge Capital and are net of all fees, based on Deepbridge’s valuation methodology. Past performance is not a guide to the future. In the above figures, initial tax relief of up to 30% could also apply – 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 investments are high-risk and should only form part of a balanced portfolio. As must be expected with early-stage investments, some or even all of the companies in the portfolio could fail: the fewer the companies included in the portfolio, the higher the risk of loss if things don’t go to plan. You should not invest money you cannot afford to lose.

    There is no ready market for unlisted EIS shares: they are illiquid and hard to sell and value. There will need to be an “exit” for you to receive a realised return on your investment. Exits are likely to take considerably longer than the three-year minimum EIS holding period; equally, an exit within three years could impact tax relief.

    To claim tax relief, you will need EIS3 certificates, normally issued once shares have been allotted. This can take several months: please check the deployment timescales carefully. Tax reliefs depend on the portfolio companies maintaining their EIS-qualifying status. Remember, tax rules can change and benefits depend on circumstances.

    Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

    Charges

    A summary of the fees and charges is shown below. Please see the provider's documents for more details. Some of these will be payable by the investor, 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.

    Investor charges
    Full initial charge 2.5%
    Wealth Club initial saving 2.5%
    Net initial charge through Wealth Club 0%
    Annual management charge
    Administration charge
    Performance fee 20%
    Investee company charges
    Initial charge 5%
    Annual charge 2.5%
    All fees and charges are stated exclusive of VAT, which may be applicable in some cases. Any fees and charges payable by the investee companies or the underlying businesses do not directly come out of your investment. However, they will effectively reduce the returns generated by investee companies and therefore impact your investment.

    More detail on the charges

    Timing of the offer 

    Deepbridge intends to deploy investors capital into new investments every month; investors should therefore expect to be fully deployed within a month of investing. Please note, this is not guaranteed.

    Our view

    The Deepbridge Technology Growth EIS has helped Deepbridge take a leading position in the EIS market. The fund has attracted more than £99 million in investor subscriptions since inception. 

    The team focuses on three key sectors: medical technologies, energy and resource innovation, and business enterprise and other IT technologies, as it believes these are well placed to benefit from economic globalisation, population growth, and regional economic development. 

    The fund is managed by a specialist technology team and supported by a supervisory committee of industry experts. 

    The fund is starting to build a good track record of returning capital to investors although past performance is not a guide to the future.

    Read important documents and then apply

    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.

    The details

    Type
    Fund
    Sector
    Technology
    Target return
    1.6x
    Funds raised / sought
    -
    Minimum investment
    £10,000
    Deadline
    Discretionary
    Last updated: 1 February 2022

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