Downing Ventures EIS

The Downing Ventures EIS portfolio invests in early stage companies in areas like enterprise software, health technology and e-commerce. It was previously known as Downing Growth EIS Fund 4.

Highlights

• Early-stage high-growth EIS portfolio
  
• Investors are expected to hold 10-15 EIS qualifying companies
  
• Target hold period of between 4-8 years
• Downing aims to deploy funds over 12 months, not guaranteed
• Focus on enterprise software (SaaS), health technology and e-commerce
  
• Minimum investment £15,000
  

The manager

Downing LLP is an established manager with over £1 billion in assets under management, the majority of which is split between its VCT, EIS and IHT products. Most of its investment strategies have been conservative to date, however changes to VCT and EIS rules means it is now focussing on growth capital opportunities for new investment.

Downing has three main sources of investment opportunities for the Ventures fund. The first is the range of Downing VCTs, which co-invest alongside the Ventures EIS fund and allows Downing to provide substantial funding support to investee firms. Secondly, Downing has a network of VC funds across the UK, Europe and the States including Unilever Ventures, Balderton Capital and BGF Ventures. Downing has also built partnerships with government agencies, including the European Space Agency and the London Co-Investment Fund. 

Investment strategy

The fund seeks to invest £500,000 to £1 million in early-stage businesses, often as part of larger rounds alongside co-investors. It focusses on a broad range of sectors, including enterprise software, health technology and e-commerce.

Downing looks for talented entrepreneurs; early traction; defensible technology or strategy; businesses that are ready to scale; and a large addressable market. Companies will typically be at a stage where they have launched a product, are generating some revenue, and have a strong management team and board.

Target return

The fund has not set a target return.

Exit strategy

The fund aims to achieve an exit after four to eight years from the investment, although for the majority of the portfolio companies, the investment lifetime is likely to be closer to eight years. Exit opportunities depend on the growth of the business and the market conditions at the time and are not guaranteed. Although some businesses may exit via flotation, the manager expects most to be acquired by trade buyers looking to expand and enhance their operations.

Portfolio

To date, the Downing Ventures team has invested over £90 million into more than 60 early-stage businesses. 

The manager aims to spread the investment across a portfolio of 10 - 15 companies, where possible in a variety of sectors, although this cannot be guaranteed.

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. 

Live Better With

Live Better With is an e-commerce healthcare platform helping people with long-term medical conditions live better through non-medical products. It has created an online marketplace for products for people living with cancer. Products tackle common problems, from night sweats to nausea or hair loss, with the aim to make day‐to‐day life better for patients. The company launched in the UK and the US, with offices in London and New York. Downing Ventures EIS has invested £1.7 million into the company so far.

Hummingbird Technologies

Hummingbird has combined machine learning analytics with remote technology to improve crop production.

Images are captured from a variety of sources such as UAVs, drones, planes and satellites to provide detailed maps which can then be analysed. Within 24 hours, farmers can access sophisticated reports which will highlight potential problems like disease, pests or nutrition. This information allows farmers to act quicker and more efficiently which in turn can improve crop yield along and reduce the necessity for excessive chemical inputs.

Downing Ventures first invested into the company in 2018 alongside the European Space Agency and Dyson. In August 2019, it provided an additional £1.5 million of follow-on funding after the company secured investment from Salic, Saudi Arabia’s sovereign agriculture company.

Open Bionics

Open Bionics is a Bristol start-up that is developing a new wave of advanced bionic hands and arms. The company uses 3D printing and scanning technology to produce custom-made prosthetics at a lower manufacturing cost than usual, in an area considered an expensive area of prosthetics. Its first commercial product, the Hero Arm, secured commercial licenses from Disney, Marvel and Pixar to design arms for children with themes from Star Wars, Frozen and the Marvel Universe. Downing-managed funds invested alongside Foresight Williams Technology EIS Fund, Ananda Impact Ventures and Rathbone Nominees. Downing Ventures EIS has invested £0.7 million into the company so far.

Yamuna Renewables Ltd (example of previous failure)

As is to be expected, not all investments work out. One such example is Yamuna Renewables, a wood pellet manufacturer.

The company required funding to develop a new production plant in Austria which could produce up to 50,000 tonnes of wood pellets a year. Its key consumers were expected to be domestic and industrial biomass boilers, of which there were over 200,000 in Austria alone. 

Downing invested a total of £8.5 million across its funds, however, due to substantial operational issues the company has been heavily written down.

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 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.

Charges

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.

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.