Mercia Knowledge-intensive Impact EIS Fund

Offer closed

As at 4 April 2022, the Mercia Knowledge-intensive Impact EIS Fund closed and is no longer accepting applications. 

The Mercia EIS Fund, which follows a similar investment strategy, is open for applications until 30 September 2022. 

Alternatively, see other EIS offers that are currently open. 

To be notified when the Mercia Knowledge-intensive Impact EIS Fund next opens, please register your interest below.

Register to receive an alert

Mercia Asset Management is a national investor with a focus on the UK regions. The business has eight regional offices across the UK and has built a network of university partnerships to generate deal flow. In December 2019, Mercia acquired the management of the Northern VCTs. Mercia Asset Management Plc has £948 million in assets under management (September 2021). 

The Mercia Knowledge-intensive Impact EIS Fund is the latest addition to Mercia’s EIS offering. The fund’s investment strategy will be based on three principles: sustainable economic growth, reducing inequalities, and health & wellbeing.

Investment opportunities will be sourced using Mercia’s strengths as a regional investor, with expertise in a range of sectors including Life Sciences, Clean Technology and Software. 

The ‘KI approved fund’ structure may offer tax-planning advantages: investors may be able to obtain relief earlier and also have the option to carry back to the 2020/21 tax year (more details below). The fund will seek to invest in a portfolio of 8–12 companies. 

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. When you invest in early-stage businesses, you should expect some to fail. They are high risk and illiquid. You could get back less than you invest.


Highlights

  • Impact investment objective
  • Knowledge-intensive fund structure
  • Experienced and well resourced fund manager with an extensive regional network
  • Target return 3x after tax relief (2.5x before) – not guaranteed
  • 95% of Mercia’s existing EIS portfolio is based outside of London across the regions
  • Portfolio expected to consist of 8-12 companies  
  • Minimum investment £10,000 – you can apply online

The manager

Mercia Asset Management has been providing venture capital to regional businesses for almost four decades. Originally established as WM Enterprise Limited in 1982, the company began to focus on university spinouts in the early 2000s, with its first fund (MF1) targeting opportunities from the Universities of Birmingham and Warwick. The company went on to secure further university partnerships before eventually completing a management buyout in 2010, forming Mercia Asset Management. 

Today, Mercia Asset Management is an AIM-quoted company that manages £948 million across venture capital, private equity, private debt, and its own balance sheet funds. The business has a network of eight regional locations across the UK. 

In 2019, Mercia acquired the management of the longstanding Northern VCTs – boosting assets under management by almost £400 million as well as increasing its investment capability and access to regional businesses. 

The Knowledge-intensive Impact EIS fund is overseen by Julian Viggars (CIO) and Peter Dines (COO). Julian is responsible for the overall direction of the EIS fund while Peter manages the day-to-day responsibilities. Together they have considerable operational experience and expertise within the healthcare sector. They are supported by approximately 30 equity investment professionals who source deal flow for the EIS funds and who are active managers on the boards of portfolio companies.

Watch a video interview with Peter Dines, COO at Mercia Asset Management. Note, this video was recorded for the Mercia EIs Fund.

 

Knowledge-intensive approved EIS funds: how do they work?

Knowledge-intensive (or KI) approved EIS funds received the final go-ahead from the Chancellor in March 2020.

A KI fund must invest 80% of its portfolio in “knowledge-intensive” companies. These are businesses that are carrying out research, development, or innovation at the time of investment.

Provided certain conditions are met, a KI approved EIS fund allows investors to set their income tax relief against liabilities in the same tax year the fund closes or to carry back to the previous year, whereas a conventional EIS fund will allow investors to claim tax relief based on the tax year in which each individual investment is made or carry back to the previous tax year.

To claim EIS tax relief, investors will have to receive their EIS certificate first. Investors in KI funds can expect to receive a single EIS5 certificate, issued by the fund once it has invested 90% of its capital, which it is required to do within 24 months of the close. In contrast, investors in non-approved funds will receive individual EIS3 certificates for each investee company as and when the fund deploys capital.  

Please note: tax rules can change and benefits depend on circumstances. To maintain KI approved status, the fund needs to comply with requirements set out by HMRC. Should the fund fail to do so, it will impact investor tax relief. 

Investment strategy

The fund has an impact-focused investment strategy based on three principles: 

  1. Sustainable economic growth 
  2. Reducing inequalities
  3. Health & wellbeing 

Investment opportunities aligned with these principles will be sourced using Mercia’s strengths as a regional investor in a range of sectors including life sciences, clean technology and software. 

Nearly 95% of Mercia’s existing EIS portfolio is based outside London, in areas that often lack sufficient investment capital and where Mercia believes it can access quality investment opportunities at competitive valuations. 

Specifically, Mercia looks for companies with modest capital requirements, clear opportunities to scale and multiple exit routes. Companies should have credible management teams with promising track records and some degree of commercial traction before investment. 

Most of Mercia’s deal flow is sourced from university partnerships, regional funds and its regional offices which work with local incubators. Mercia expects to see over 2,500 opportunities a year and invest in around 200 across all its funds. Within its wider structure, Mercia has the resource to provide balance sheet capital as well as private equity and debt funding. This means it could potentially support successful companies all the way from seed funding through to later-stage growth. Its investee companies will also have access to Mercia’s in-house support team which can help founders with talent management, corporate advisory, legal and research services.  

Target return

The fund targets a return of £3 per £1 invested over 5-7 years (not guaranteed). Please note, this target includes income tax relief as well as loss relief. It would be approximately equivalent to 2.5x before tax relief. 

Exit strategy

Likely exit routes are expected to be a stock market listing or a trade sale, however, alternative exit options may be available. The target hold period is five to seven years, please note, exit options and timeframes are not guaranteed. 

Portfolio

Since launching its first hybrid EIS/SEIS fund in 2012, Mercia has deployed capital into 100 companies. Typically, these fall into four categories: software & the internet, digital & digital entertainment, electronics, materials, manufacturing & engineering, and life sciences & biosciences. These sectors complement the specialist knowledge and operational insight within the investment team. 

Mercia believes 90% of its EIS portfolio would have qualified as knowledge-intensive, whilst 62% would have been considered “impact” investments according to the UN Sustainable Development Goals. 

The Mercia knowledge-intensive Impact EIS fund will target a portfolio of 8-12 companies.

Below are investment examples from previous iterations of Mercia’s main EIS 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 unless otherwise stated.

axis Spine Technologogies – Mercia Knowledge-intensive Impact EIS Fund.jpgAxis Spine Technologies

Axis Spine Technologies is a UK-based medical device company focused on helping surgeons improve spinal care with the next generation of Spinal Implant technology. 

The company has developed modular devices that are inserted in the spine with less force than conventional implants. They can reduce the risks of structural damage and complications. 

The business achieved FDA approval in May 2020, and the first surgery was completed in November 2020. The business is currently working with select thought leaders to demonstrate the benefits of the device following its launch and expects to raise additional funding in mid-2022. 

To date, Mercia EIS funds have invested £2.51 million into the business across multiple funding rounds between 2017-2021. The investments are held at 1.0 - 6.6x investment cost. Past performance is not a guide to the future. The business is expected, but not guaranteed, to be included within the Knowledge-intensive Impact EIS fund. 

Sense Biodetection – Mercia EIS FundSense Biodetection

A molecular diagnostics company, Sense Biodetection (“Sense”) has developed a new diagnostic class of instrument free, single-use tests.

Much of molecular testing is currently dominated by Polymerase Chain Reaction (“PCR”) tests. However, PCR machines are expensive, complex, and need to be operated by trained technicians in a laboratory setting. Comparatively, Sense’s first product, a point-of-care test, can deliver rapid results and be administered directly by clinicians.

Originally, Sense developed its product for influenza (a $300 million target market), however, following the Covid-19 outbreak, the company immediately refocused its efforts to developing a Covid-19 test and entered into a manufacturing agreement with a large US-based partner.

Mercia initially invested £100,000 (SEIS) into the company in 2016. It has since completed several subsequent funding rounds in which the Mercia EIS fund has participated, including a £12.3 million Series A funding round led by Cambridge Innovation Capital and Earlybird in late 2019. In 2021, the business raised a $50 million Series B funding round led by Koch Disruptive Technologies, a subsidiary of Koch Industries, to commercialise and accelerate the launch of its Covid-19 test.

Oxgene – Mercia EISOXGENE (example of previous exit)

Leader in synthetic biology, OXGENE™ provides DNA expertise and advanced platform technologies to laboratories discovering antibodies and pioneering cell and gene therapies.

Now a £multimillion revenue business, OXGENE (the trading name of Oxford Genetics Ltd) started on a shoestring in 2011, with borrowed lab bench space and second-hand equipment. 

“The vision of the business was to build DNA like we use Lego, in pre-made blocks that were pre-designed to fit and work together so that making new pieces of DNA could be done in fewer steps”, founder Dr Ryan Cawood explains.

The company has now ranked 19 in the Sunday Times Tech Track 100 and doubled sales three years running – hitting £6 million in revenue in 2020.

Mercia first invested in the business through its EIS fund in July 2013, and followed on several times, through five of its EIS funds in total. In March 2021, Oxgene was sold to WuXi AppTec, a global leader in the provision of R&D and manufacturing services to the pharmaceutical, biotech, and medical device sectors.  The sale has generated returns of between 13x and 20x investment cost for the five Mercia EIS funds. Past performance is not a guide to the future.

Health Centrified (example of previous failure)

Mercia invested £150,000 (SEIS) into Health Centrified to fund the development of its patient engagement platform. 

The platform allowed patients to receive appointment reminders, messages regarding their medication, and the ability to contact their care providers when needed. The team behind the business had prior experience in the sector, having developed a similar product targeted at mental health. 

While the business was early-stage, Mercia hoped to leverage the experience of the investment team and the founder’s industry contacts. A key factor of the business model was the ability to expand into the US and the company had been working closely with a US healthcare provider. However, following the introduction of travel restrictions that applied to the company’s Syrian born founder, the company lost its main customer and entered into administration.   

Performance

This is a new fund launch. It does not have a track record.

However, Mercia believes 90% of the investee companies backed by its EIS funds would have been knowledge-intensive, and 62% would have qualified as impact investments. 

Regarding Mercia’s historic EIS track record, since 2012 it has invested £55.8 million in 106 companies and achieved 16 profitable full or partial exits, returning £20.3 million to investors. Past performance is not a guide to the future; as can be expected, there have also been failures. 

The chart below shows the average performance of the total subscribed into the Mercia EIS fund each tax year, based on valuations as at 30 September 2021, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.

Mercia EIS fund – performance per £100 invested in each tax year

Source: Mercia Asset Management, as at September 2021.Note this is for the Mercia EIS fund, not the Knowledge-intensive Impact Fund. 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. 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. 

Exits could take considerably longer than three years: equally an early exit could result in a loss of tax relief.

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 2%*
Wealth Club initial saving
Net initial charge through Wealth Club 2%
Annual management charge 1.75%
Administration charge 0.25%
Performance fee 20%
Investee company charges
Initial charge 3-5%
Annual charge
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

This offer is now closed. 

Our view

Mercia is an experienced backer of early-stage technology companies. The business has £948 million in assets under management and is supported by a large team of 30 equity investment professionals and a regional network of eight offices throughout the UK. This provides Mercia with access to substantial deal flow and deals other managers based in London or the South East may miss. 

The acquisition of the Northern VCTs should add “firepower” to Mercia’s objective of providing entrepreneurs with a “complete capital solution”, in turn, this may increase the appeal of Mercia as a destination for ambitious businesses seeking growth capital, although this is not guaranteed. 

Mercia continues to build its track record of returning capital to investors with significantly profitable exits from Oxford Genetics, The Native Antigen Company and Clear Review, although past performance is no guide to the future. 

The new Mercia Knowledge-intensive Impact EIS Fund builds on the appeal of the Mercia EIS offering, in our view. The principles steering the fund to impactful investments also lean towards areas in which Mercia has demonstrated a strong track record, particularly within life sciences. The Knowledge-intensive structure also has the added advantage of greater clarity on the timing of income tax relief and a single tax certificate.

Overall, Mercia has a good reputation, the investment team is well resourced and the HMRC-approved knowledge-intensive structure adds weight to the offering, in our view. 

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
ESG (Environmental, Social, Governance)
Target return
-
Funds raised / sought
-
Minimum investment
-
Deadline
CLOSED
Last updated: 7 March 2022

News about EIS Investments. Read all