Nexus Investments’ Scale-Up Fund

The Nexus Group was established in 1994 by property entrepreneur and fund manager Harry Hyman. The group specialises in property investments in the healthcare industry and is best known as the fund manager of Primary Health Properties, a £2 billion FTSE 250 real estate investment trust. The group also has interests in corporate finance and specialist publishing. 

Nexus Investments Ventures Limited (NIVL) was launched in 2014 to target investments which could capitalise on Nexus’ background in healthcare and education. 

In its first four years, NIVL advised on and made investments into early-stage businesses. In 2018 it launched its EIS fund to scale up its investment activities. To date, NIVL has invested into 29 businesses, achieving three profitable exits and experiencing three failures: past performance is not a guide to the future. The EIS fund has invested into 11 companies.

Nexus Investments’ Scale-Up Fund targets businesses within four key sectors: healthcare, education, data and digital. Investee companies will be post-revenue and should ideally be developing market-making products. 

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

  • Focus on four key areas: education, health, data and digital
  • Scale-up, post-revenue companies sought
  • Manager has a strong track record in similar investments – past performance shown below, although this is not a guide to the future.
  • Target portfolio size of 8–10 companies (not guaranteed)
  • Funds are expected to be deployed within 24 months
  • Mixture of new and follow-on investments
  • Target exit timeline of 5 to 8 years (not guaranteed)
  • Minimum investment £25,000 – you can apply online

The manager

The Nexus Group was founded in 1994 by Harry Hyman. At the same time, Mr Hyman launched Primary Health Properties (“PHP), a real estate investment trust which invests and develops GP surgeries. Today, PHP is a FTSE 250 company with close to 500 surgeries and health centres across the UK and a market capitalisation of £2 billion. The company is managed by Nexus Group and Mr Hyman has been the MD of both companies since inception. 

With the success of Primary Health Properties, the Nexus Group expanded into new divisions, including corporate finance and private equity. It also launched a successful publishing business, Investor Publishing, which is responsible for the Health Investor and Education Investor magazine titles. These are an important tool for Nexus to attract deal flow in NIVL’s favoured sectors (health and education). In 2013, having made a number of equity investments over the years, Nexus made the jump to venture investing. Matthew O’Kane was hired to spearhead the new division, Nexus Investments Ventures Limited (“NIVL”), due to his background as a tax specialist in investment management. NIVL was incorporated in 2014.

Over the following four years, Mr O’Kane was responsible for building Nexus’ track record in early-stage investing. In total, £10 million has now been deployed across 29 companies on a deal-by-deal basis. Building on this experience, Nexus launched its first EIS fund in 2018. The fund will continue to be managed by Mr O’Kane, with Mr Hyman sitting on the Advisory Committee, alongside five independent external members, each an experienced senior city professional. For the day-to-day running of the fund, Mr O’Kane is supported by two investment associates who will largely be responsible for assisting in the due diligence process and portfolio management. 

Watch a video interview with Matthew O’Kane of Nexus Investments:

Recorded 23 September 2019

Investment strategy

Nexus has developed its investment strategy to focus on four key sectors: Data, Digital, Health and Education. Nexus seeks to invest in companies which operate in at least two of these areas. 

The group’s publishing business, Investor Publishing, and its publications, Health Investor and Education Investor, provide some rationale for sector selection. The publishing arm allows the investment team to monitor the latest developments and trends in the health and education sectors, whilst also providing the investment team – and the investee companies it backs – with access to a valuable network of industry contacts. 

The fund’s two other specialities, Data and Digital, are areas the investment team believes have significant growth potential and should complement its core sectors. Ideally, an investee company should span at least two or potentially three of these areas to ensure the business can maximise its growth. 

As a scale-up fund, the investment team will be targeting post-revenue businesses. From experience, Nexus has concluded that typically only founders have the required level of commitment to their companies at this stage in their development. It is difficult to replicate founders’ commitment with a hired management team. For this reason, the investment team will only consider businesses with ‘mission-driven’ founders.

To source its deals, Nexus uses its established industry network. It expects to receive over 300 proposals a year, just 10 of which are likely to receive investment. 

Post-investment, Nexus prefers a hands-on approach with its companies. Alongside a board or observer seat, it looks to use its sector expertise to open up new connections for the business. The investment team’s understanding of the industry should also prove valuable in advising on strategic decisions and providing market insights.

Target return

The fund targets a return of 2.5x, over a period of 5 to 8 years (not guaranteed).

Exit strategy

Nexus anticipates that individual portfolio exits will begin after 5 years, not guaranteed. The investment team uses a private equity approach to assess the optimal exit route for each company from point of investment.

As is typical, the fund will seek an exit through a trade sale, MBO or IPO. Whilst the fund launched in 2018 and has yet to achieve any exits, NIVL has experienced three partial exits, each achieved via a secondary sale to another investor.

Portfolio

Since 2013, Nexus has made investments into 29 EIS-qualifying companies, of which 11 through the EIS fund .

Portfolio companies will be broadly split between healthcare, education, data and digital. It is expected the majority of companies will overlap at least two of these areas. 

Investors of the fund should receive a portfolio of 8 to 10 companies. 

The companies outlined below are historic investments made by Nexus 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.  

Nexus EIS – MarcoPolo LearningMarcoPolo Learning

MarcoPolo Learning is an education technology content brand, based on the early learning curriculum. It was started by two fathers who realised current interactive educational tools available to young children were inadequate. The “MarcoPolo World School” has been designed by a team of PhD early childhood education specialists and children’s media experts. MarcoPolo is a US company with a base in the UK. It is now starting to focus on China. 

The company is now a top publisher of award-winning education games and videos, targeted at children aged 3 to 7. The curriculum gives them access to over 500 lessons and 3,000 learning activities all centred on STEAM (science, technology, engineering, arts, and maths) based education.

Most recently, the company partnered with Jumpstart, a national education organisation, to provide free education to underserved families during the Covid-19 pandemic. 

FundamentalVR – Nexus Investments' Scale-Up FundFundamentalVR

Listed by Time Magazine as one of the best inventions of 2018, FundamentalVR offers realistic immersive simulations to improve training for surgeons.

While similar products have been released in the past, one major limitation was the lack of physical interaction. Rather than just provide a visual training ground, FundamentalVR has designed its simulator to incorporate haptic feedback (similar to the tap or vibration you can feel using a smartphone). This allows users to experience the same physical sensations as actual surgery in a safe environment. 

Despite the complexity of the technology, FundamentalVR offers its simulators at around a tenth of the cost of similar products. The company then licenses its software, allowing hospitals to access its range of procedures through a simple subscription model. 

In early 2020, Fundamental VR launched a collaboration with Imperial College to develop an online training programme to train redeployed doctors and nurses to ventilate Covid-19 patients . 

Nexus invested as part of a £4.3 million funding round alongside the Mayo Clinic, Downing Ventures and Tern plc. 

Boclips – Nexus Investments' Scale-Up FundBoclips (example of previous exit)

Pitched as the ‘Netflix for education’ , Boclips provides teachers with a huge library of educational videos. It aggregates some of the biggest names in video production such as the BBC, Getty, and Associated Press all in one place. Each video is mapped using algorithms to topics taught throughout the school system. Currently, the platform has more than 2 million videos available.

The company’s founder, David Bainbridge, made his career in TV, having helped launch Channel 5 as well as the BBC iPlayer. His background was essential in encouraging big organisations to come together under the same platform. 

Nexus invested in the company in 2014, to support its seed round. The fund achieved a partial exit in 2020 by selling its stake to another investor, generating a return of 4.72x for EIS investors and 9.44x for SEIS investors. Past performance is not a guide to the future.

Style Pilot (example of previous failure)

As is to be expected, not all investments work out. An example is a firm called Style Pilot Limited. It was an online men’s fashion “curator”, like a virtual personal shopper which recommended items to buy online based on the user’s profile and style preferences. Nexus reflects, with hindsight, that this investment did not meet the criteria of founders being “mission-driven” and this was one of the key reasons for the failure. The firm went into liquidation in 2018. 

Performance

The Nexus Scale-Up Fund launched in 2018. The overall performance of the NIVL is shown below. The EIS fund is expected to make similar investments.

Source: Nexus Investments, as at 31 January 2020. Performance figures are supplied by Nexus and are net of all fees, based on Nexus’ valuation methodology. Past performance is no guide to future performance. In the above examples, initial tax relief of up to 30% could also apply. So, for the tax year 2017/18, the total return including initial tax relief would be £168.15 – 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.

The Nexus investment team is small and likely to be dependent on a couple of key people.

The proposed exit timeline is longer than most EIS funds – this may also be more realistic, but investors should not invest if they require access to their capital by the end of 2026 at the earliest. 

The fund aims to offer exposure to around eight portfolio companies; however, whilst the fund is still small the number of holdings may be fewer than this, which reduces diversification (as at July 2019 there were six portfolio companies).

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 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 5%
Wealth Club initial saving
Net initial charge through Wealth Club 5%
Annual management charge 2%
Performance fee 20%
Investee company charges
Initial charge Variable
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

The fund anticipates taking up to 24 months to fully deploy investor capital following the closing dates. However, it may take longer.

Our view

The fund invests in just four areas which adds an element of discipline to the investment process. This dedicated focus has been selected to leverage Nexus Group’s wider industry experience and benefit from broader market trends. The Nexus Group’s Investor Publishing business may provide the fund with enhanced deal flow (not guaranteed) as well as access to industry expertise and contacts which would otherwise be hard to replicate for a fund of this size. This association may prove valuable to both NIVL’s due diligence process and to its investee companies in the form of warm introductions. 

While the fund is relatively young, the investment strategy has been fine-tuned over a number of years and the business is overseen by one of the City’s leading fund managers. 

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
Data & Education
Target return
2.5x
Funds raised / sought
£2.6 million raised
Minimum investment
£25,000
Deadline
Discretionary
Last updated: 18 August 2020

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