Mercia Knowledge-intensive EIS Fund

Mercia Asset Management is a well-established investor with £1.8 billion in assets under management (September 2024). It has a focus on regions outside London with 11 UK offices and a network of university partnerships to generate deal flow.

Mercia seeks to attract and invest in promising early-stage companies through its “complete connected capital” solution: its EIS and VCT funds, and its later-stage regional investment funds, as well as Mercia Asset Management itself.

Since 2013, Mercia has invested £125.1 million in 148 EIS and SEIS companies and delivered realised returns of £31.3 million, with a remaining portfolio balance of £98.3 million (September 2024). Past performance is not a guide to the future.

The ‘KI approved fund’ structure may offer tax-planning advantages. As the fund closes this tax year investors should be able to obtain tax relief for 2024/25 and have the option to carry back to 2023/24 (tax rules can change and benefits depend on circumstances).

• Target return of c. 2.5x over a holding period of at least 7 years – not guaranteed
• Target portfolio of 12 companies, tax certificates expected 12 months from the close date
• Minimum investment of £10,000

AIM-quoted Mercia Asset Management has been providing venture capital to regional businesses for four decades. It now manages £1.8 billion across venture capital, private equity, private debt, and its own balance sheet funds (September 2024).

The EIS fund is overseen by Mercia’s Ventures division, which also manages the Northern VCTs. The 58-strong team is led by Managing Director Will Clark and manages £913 million from 11 offices across the UK. The EIS fund itself is overseen by Julian Dennard, Investment Principal for EIS.

Each team member maintains a local network to help source opportunities and support portfolio companies post-investment. The team has access to the wider resources of the Mercia group.

Before your subscription is invested, the cash will be held by the custodian, Apex Unitas Limited. Shares will be held by the nominee, MNL (Mercia) Nominees Limited.

Mercia has always focused on the regions. Its university partnerships and regional office network mean 78% of its existing EIS portfolio is based outside the capital. By targeting areas where investment is scarcer, Mercia believes it can access quality opportunities at competitive valuations.

The fund looks for companies with modest capital requirements, clear opportunities to scale and multiple exit routes. Companies often operate in specialist sectors and should have a disruptive technology targeting a large addressable market.

Mercia has access to over 3,000 opportunities a year, and would expect to invest in around 200 across all its funds.

Mercia’s wider business can provide private equity and debt funding, including from its own balance sheet. So, it can potentially support successful companies from seed through to later-stage growth – what Mercia calls this its “complete connected capital” solution. Companies also have access to Mercia’s in-house support team which can help with talent management, corporate advisory, legal and research services.

The fund targets a return of £2.50 per £1 invested including tax reliefs (£3 including tax reliefs) rules can change and benefits depend on circumstances.

Since 2013, Mercia’s EIS funds have invested £125.1 million in 148 companies.

The Mercia Knowledge-intensive EIS Fund targets a portfolio of 12 companies across a broad range of sectors, including Life Sciences & Digital Health, AI & Software, Clean Tech, and Deep Tech.

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.

As is to be expected when investing in smaller companies, not all investments will work out. Sense Biodetection (“Sense”) is an example.

Mercia EIS invested a total of £1.5 million, starting from seed stage in 2016 and follow on investments in 2019 and 2020. That helped the company develop new technology for highly accurate biological test for various diseases, including Covid-19.

In 2021, Sense raised $50 million in a round that valued the company at up to 22x the seed investment cost. A new management team was appointed and the company quickly moved towards a sale.

Unfortunately, the economic environment changed and a last-minute acquisition pulled, resulting in a low-value sale in 2023, which did not return any cash to investors in the Mercia EIS.

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, for a knowledge intensive EIS fund you will need an EIS5 certificate. Certificates can be issued once the fund has invested 90% of its capital, which it is required to do within 24 months of the close. Tax reliefs depend on the portfolio companies maintaining their EIS-qualifying status. For capital gains tax deferral and inheritance tax relief the investment date is when the capital is invested in each company, not the fund close date. 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.

Mercia is an experienced investor in early-stage technology companies. The business has £1.8 billion in assets under management and is supported by a large team of investment professionals and its regional network. This could provide deal flow which managers based in London or the South East may miss.

In addition, Mercia’s VCT business, regional development funds, and Mercia Asset Management balance sheet funds should strengthen the manager’s “complete connected capital” solution. That may further increase the appeal of Mercia as a destination for ambitious businesses seeking growth capital, although this is not guaranteed.

Mercia’s track record of returning capital to investors continues to develop, with significant profitable exits from Oxford Genetics, GENBA Digital, Clear Review and C7 Health, although past performance is no guide to the future.

In our view, the Mercia Knowledge-intensive EIS Fund builds on the appeal of the Mercia EIS with a structure offers greater clarity on the timing of income tax relief and the convenience of a single tax certificate. Overall, Mercia has a good reputation, with a well-resourced investment team and significant financial firepower. Experienced investors should form their own view.

This financial promotion has been communicated and approved by Wealth Club Ltd on 20 February 2025

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.