Guinness EIS

The Guinness EIS fund looks to offer scale-up capital to later-stage ventures. While any EIS investment is high-risk, Guinness targets more mature businesses with durable revenue streams as well as structuring deals and co-investing where possible.

The EIS fund is managed by an experienced team and is backed by an established parent company, Guinness Asset Management. Under its current strategy, since 2018 the fund has deployed more than £85 million into growth capital investments and has achieved a partial exit. Please remember past performance is not a guide to the future.

Important: The information on this website is for experienced investors. It is not advice nor a research or 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, so you could get back less than you invest.

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Highlights

  • Established EIS manager
  • Targeting a portfolio of diverse businesses
  • Evergreen offering
  • Focus on later-stage, revenue generating companies
  • Targets 10 investments per client portfolio, not guaranteed 
  • Target return of £1.25 per £1 invested after 4-5 years, not guaranteed
  • Quarterly closes
  • Minimum investment of £20,000, you can apply online

The manager

Guinness Asset Management Ltd (“Guinness”) is one of the largest EIS fund managers operating in the UK. The business has raised £200 million across its EIS funds since 2010.

An industry stalwart, Tim Guinness has over 35 years’ investment experience. He co-founded and ran Guinness Flight Global Asset Management until its acquisition by Investec in 1998. Following this, he led Investec’s Global Energy Fund before launching Guinness Asset Management in 2003.

Now, the company has over £2.4 billion in assets under management (as at September 2020). While much has changed, Mr Guinness is still involved in the business where he acts as Chief Investment Officer.

In total, Guinness Asset Management manages nine equity funds together with two EIS and two IHT funds. They are overseen by a venture team of 15. Established in 2010, the team is led by Shane Gallwey, a chartered financial analyst. Mr Gallwey is assisted by five fund managers as well as portfolio manager, Bridget Hallahane, whose role centres on supporting founder development.

While there is no requirement for management to invest in the EIS, the team has committed £2.0 million since the fund’s inception: this aligns interests with investors.

Watch an exclusive video interview with fund manager Shane Gallwey:

Investment strategy

Guinness has always been a generalist investor, however, it had to adapt its strategy several times due to EIS rule changes. Originally, the fund invested solely in renewable assets. When these were no longer permitted for new EIS investments in 2016, the fund pivoted towards asset-backed investments. Most recently, the fund moved to a pure growth capital strategy in early 2018. Since then it has completed seven growth capital tranches – it aims to allocate investors’ capital quarterly.

Under the current strategy, the EIS investment team looks for companies requiring scale-up capital with proven technology or services. Companies should be generating revenue as a minimum criteria, preferably £1 million or above. Guinness targets young businesses with good growth potential and seeks to manage risk by selecting businesses with strong balance sheets and cash flows.

Most investment opportunities will be sourced through the Guinness network of advisors alongside accountancy firms and AIM brokers. On average, the investment team expects to review close to 600 deals a year of which 2-3% will receive investment.

Due to the number of opportunities the team reviews, Guinness employs a quick filtering process, to ensure companies it believes to be the best receive attention. The investment team pitches new deals daily and will only progress the strongest candidates into the next stage of assessment. A company will receive funding if the investment committee is confident it meets the fund’s brief and sufficient due diligence measures have taken place.

If possible, Guinness aims to add deal structuring and syndication.

Target returns

The fund targets a return of £1.25 per £1 invested after 4-5 years. Please note neither returns not timeframes are guaranteed. 

Exit strategy

Guinness will consider potential exit routes and timeframes before committing to an investment. Since 2016, it has completed three exits via trade sales but would also consider a management sale or IPO if either were appropriate. Exit options and timeframes are not guaranteed.

Portfolio

Since 2010, Guinness has raised over £200m into EIS since 2010, £57m into renewables, £22m into AIM and £123m into its generalist investments. The fund has invested £85 million across 30 companies since switching to a growth capital strategy in 2018. 

Guinness will target an investment portfolio of 10 investee companies (the average over the previous two tax years has been 11), split over a range of sectors. The targeted hold period is four to five years, not guaranteed. 

Source: Guinness Asset Management, as at 2 October 2020.

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. 

satchel – Guinness EISSatchel (recent investment)

Satchel is the trading name of Teachercentric Ltd, an educational technology company producing software exclusively for the education market. Satchel’s main product is the UK’s leading homework management software “Show My Homework” used in 30% of UK secondary schools with over a million monthly active users.
 
With most pupils having to study from home for a large part of this year, Satchel has found itself a core part of a solution for schools. Satchel provides software products to schools to help teachers and pupils interact and manage homework, schoolwork, and feedback.

The Guinness EIS invested £2.1m into Satchel in the 2019/20 tax year.

Pasta Evangelists – Guinness EIS FundPasta Evangelists

Pasta Evangelists, which counts Great British Bake Off’s Prue Leith as a founding shareholder, delivers high-quality fresh pasta, sauces and garnishes direct to customers’ homes nationwide. Ingredients are sourced seasonally and sustainably from a network of small farmers and growers across Italy. The company is expanding its retail channel with concessions at Harrods and M&S. Its products are also available on Deliveroo, Ocado and Amazon. 

The business has seen a surge in demand and following changing consumer habits brought on by the Covid-19 outbreak. Revenues have now exceeded £1 million per month, up tenfold on last year: past performance is not a guide to the future.

Guinness Asset Management has invested £3 million in total into Pasta Evangelists having first invested in September 2018. Guinness made a follow-on investment in February 2020, as part of a larger £3.5 million funding round with Pembroke VCT. 

Jones Food Company – Guinness EISJones Food Company (example of previous exit)

Jones Food Company (‘JFC’) operates Europe’s largest vertical farm. A growing industry, vertical farming improves crop yields by providing consistent growing conditions throughout the year. Plants are typically arranged in a ‘stacked’ fashion which maximises available space and increases output.

JFC constructed its first site in North Lincolnshire, the location is more than 5,000 square metres and can produce around 500 tonnes of herbs and other plants in a year.

Guinness invested £4.9 million into the business in early 2018. However, following a bid from Ocado it completed a partial exit after just 15 months. The sale generated cash proceeds of £6.4 million as well as £1.4 million of Ocado shares. Please note, as the exit was made within the minimum 3-year EIS holding period the investment did not qualify for EIS tax relief.

MyHomeGroup (an example of previous failure)

As with any early stage investment, not all will work out as planned. One such example is MyHomeGroup.

MyHomeGroup was an online estate agent that sought to offer customers the full benefits of a traditional high street estate agent but without the associated costs. 

Unfortunately, like others in this sector, expected growth in the number of housing transactions in late 2019 and early 2020 did not materialise, and with lockdown earlier in 2020 the Company ceased trading altogether. MyHomeGroup went into administration on 17 April 2020, and there with be no residual value to shareholders. 

Performance

Since 2015, Guinness has exited 67 companies although 59 of these were AIM stocks. Of the remaining eight, seven were renewable assets and one has been a growth capital investment. The average exit multiple, excluding AIM investments, is 1.2x before tax reliefs. Please note past performance is not a guide to the future.

The chart below details the performance of the EIS fund through previous iterations. Please note, the Guinness EIS fund first began making growth capital investments in 2018. The chart below shows the valuation as at 02 October 2020, had you invested £100 in each tax year.

Source: Guinness Asset Management, as at 2 October 2020. Figures are net of all fees. Past performance is no guide to future performance. These figures do not include any realised returns which would be available through loss relief. In the above examples, initial tax relief of up to 30% could also apply. So, for the tax year 2015/16, the total return including initial tax relief would be £111, 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.

Future funding rounds may dilute existing investments. 

Exit could take considerably longer than three years.

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. 

Investor charges
Full initial charge 3%
Wealth Club initial saving 0.5%
Net initial charge through Wealth Club 2.5%
Annual management charge
Administration charge
Performance fee 20%
Investee company charges
Arrangement fee 2%
Annual charge 2%
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

The fund anticipates taking up to 12 months to fully deploy investor capital following the closing dates. However, it may take longer.

For applications received by 18 December 2020, Guinness intends to fully deploy investors' capital by the end of tax year 2020/21. Although this is not guaranteed, the fund raised £34m in the 2018/29 tax year and £27m in the 2019/20 tax year, both amounts were fully invested within the same tax year as they were raised. 

Our view

The Guinness EIS fund aims to invest in scale-up opportunities in companies which have demonstrated an ability to generate revenues, have strong financials and sound business models.

The fund has a modest target return in line with its strategy: it aims not to pursue higher-risk opportunities and seeks a more prudent approach. However, as with all EIS investments capital is at risk.

The investment team is well resourced, and the fund has raised and invested a sizeable amount in the two years since it first began making growth capital investments. Furthermore, investments have been made into a number of later-stage businesses in competitive funding rounds. Guinness Asset Management has shown an ability to attract deal flow and deploy investors capital: note past performance is not a guide to the future.

Guinness intends to deploy subscriptions received by 18 December 2020 this tax year, meaning investors should be able to carry back to 2019/20. Whilst timings can never be guaranteed, last year, Guinness successfully invested subscriptions to their intended timeframes, so this offer could be a consideration for experienced investors planning to carry back via an EIS fund. 

Read important documents and 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
Various
Target return
1.25x
Funds raised / sought
-
Minimum investment
£20,000
Deadline
18 Dec 2020 for 2020/21 allotment
Last updated: 22 October 2020

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