Par EIS Fund

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The Par EIS fund invests in technology growth companies predominantly based in Scotland, Northern Ireland and the North of England. The fund was effectively created as an extension of the Par Syndicate, a group of 200 experienced business angels. Those angels, now known as the Par Investor Network, are key to the offer. They contribute new deal flow, help with due diligence, provide guidance and experience to investee companies and co-invest alongside the fund. 

Par Equity focuses on what it dubs the “equity gap”– the area beyond the reach of most business angels but not large enough for private equity to be interested.

It steers clear of technology companies it believes to have over-hyped valuations, favouring those with defensible intellectual property, a proven track record of sales and/or a positive response from early adopters or consumers. 

The track record so far has been encouraging. Since launching the EIS fund in 2012, Par Equity has achieved 9 exits from 44 EIS-qualifying investee companies, and an average 6.3x money / 56% IRR on exit – note 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.

Read important documents and apply

Highlights

  • Seeks to invest in innovative technology companies predominantly in Scotland, Northern Ireland and the North of England
  • Focus on value
  • Co-invests with Par Equity’s network of expert business angels 
  • Investors can expect 7–8 companies in their portfolio, but a minimum of 5, with a 6–8 year target holding period (not guaranteed)
  • Aims to invest in companies with £20-200k of monthly revenues
  • Minimum investment £20,000 – you can apply online

The manager

Based in Edinburgh, Par Equity LLP (“Par” or “Par Equity”) provides intellectual and financial capital to early-stage technology companies. It made its first investment in March 2009 and launched the EIS fund in 2012, originally formed to invest alongside the Par Investor Network.

Par Equity’s investment team consists of eight investment professionals (one chairman, five partners, one investment manager, and one portfolio manager). In order to make an investment decision, the five partners must unanimously agree. The partners invest alongside EIS investors and to date have personally invested 7.3% of Par Equity’s £48 million assets under management. This level of alignment with investors is reassuring, in our view.

Watch a video interview with Andrew Noble, partner at Par Equity:

Investment strategy

There are two aspects to the investment strategy which Par feels gives it an edge. The first is location, and the second is the involvement of the Par Investor Network. 

Par Equity will invest across the UK. However, it believes there is an arc of opportunity from Belfast through the North West of England into Scotland. In these areas, businesses operate from lower-cost properties, employ smart people for less and are less swayed by the hype that sometimes affects businesses in the South East. Scottish-based portfolio companies also benefit from the support of the Scottish Investment Bank and Scottish Enterprise. 

The geographic area targeted by Par Equity amounts to a huge swathe of the UK. The Par Investor Network plays a critical role in uncovering opportunities throughout the region. 

The Network is made up of around 200 business angels. Around half are entrepreneurs looking to invest proceeds from successful businesses and the other half are senior professionals (e.g. high-ranking lawyers and accountants).

They are well connected and have deep expertise in their respective fields, so are often approached by entrepreneurs operating in their sector, giving Par access to pre-screened businesses competitors might not see. The Network also offers intellectual capital and skills Par Equity may not have in-house. They can validate the technology and market opportunity.

Par Equity does not invest unless angels in its network are also investing. This helps provide an added layer of due diligence. 

Some members of the Network are also part of Par Equity’s Advisory Panel. They take an active role in investee businesses, providing ongoing support and expertise. Par Equity will typically appoint someone to the board, often an angel who has invested (this is the case for 70% of investee companies).

Target returns

The team is targeting 2x returns before tax relief over a 5-year period, not guaranteed. 

Exit strategy

Par Equity’s Advisory Panel look to provide hands on support to the management of investee companies to help them grow and achieve their potential. This engagement has helped to enhanced returns in the past for investors by securing profitable exits for investee companies, as with the example of PathXL, detailed below. 

Whilst it is hard to put a timeframe on exits due to the nature of the investee businesses held, the expected holding period is between six and eight years (not guaranteed) but could be longer. Following any sale of qualifying shares in a company, the sale proceeds will be paid out to Investors, so any distributions from the fund are likely to be paid over a period of time, not guaranteed.

Portfolio

Investors in the Par EIS fund can expect exposure to seven or eight underlying companies, with a minimum of five. Companies should be largely revenue generating, but pre-profit at the point of investment. Historically, 90–95% of the investments made by the EIS fund were generating monthly revenues of between £20k–£200k at the time of investing. Par Equity tends to participate in investment rounds of at least £0.5 million. 

No new investee company will account for more than 25% of an investor’s portfolio. 

The companies outlined below are historic investments made by the Par EIS fund in its previous iterations and give a flavour of the types of companies a new investor might expect. 

Swipii – Par EISSwipii (recent investment)

Swipii is an app-based consumer loyalty business. It offers local businesses the infrastructure needed to run their own rewards program, whilst the use of card tracking technology provides a seamless and pain-free experience for consumers. In November 2018, Swipii strengthened its management team with the appointment of two senior executives from Skyscanner. Par Equity, alongside the Scottish Investment Bank, invested £1.9m into the business in January 2019. 

Red61 – Par EISRed 61

Red 61 provides ticketing software and consultancy services to operators of large live events, such as festivals. Red 61 now power four of the largest art festivals in the world, including the largest, the Edinburgh Fringe. The Par EIS fund initially invested in November 2015 at a £1.5m valuation and followed on in December 2018 at a valuation of £3.7 million.

PathXL – Par EISPathXL (example of previous exit)

PathXL uses machine learning in digital pathology to improve the speed and efficacy of the cancer diagnosis process. In our view, the exit highlights the value the Par Investor Network members can add to investments within the EIS fund. In November 2012, 32 members of the Par Investor Network invested into the business alongside the Par EIS fund. One of them, with deep biotechnology and life science experience, took a seat on PathXL’s board. He was key to orchestrating the sale of the business to Philips Healthcare in 2016 for a 2.7x return on investors capital.

Shaw Water (example of previous failure)

As with any early-stage investment, not all will work out as planned. One failure was an investment in a company called Shaw Water, a technology that automatically tested water for impurities. It was an innovative product but didn’t work as planned. As a consequence, Par Equity is now much more cautious of novel products. Before investing they will look for strong evidence it is attractive to purchasers and use revenues, however small, as a proxy for working out if something does what it says on the tin. 

Performance 

Since Par Equity was founded in 2008, the business has made investments into 57 investee companies, and achieved 18 exits, with an average exit multiple of 3.3x, and an IRR of 27%. Since launching the EIS fund in 2012, Par Equity has achieved 9 exits from 44 EIS-qualifying investee companies, and an average 6.3x money / 56% IRR on exit – note past performance is not a guide to the future. This has allowed Par to return £56 million of capital to investors. 

The chart below shows the valuation as at 31 December 2019, had you invested £100 in each tax year.

Source Par Equity. 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 £118, remember tax rules can change and tax benefits depend on circumstances.

For investors who have invested for 5 years or more between tax years 2011/12 to 2014/15, Par Equity has delivered attractive total returns, without taking into consideration any additional EIS tax reliefs. Across the 2011/12–2014/15 tax years, for every £100 invested, on average investors will have received £76 of their initial investment back, and have a portfolio balance of £161, leaving a total return of £237 before any tax reliefs are considered. 

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 / SEIS 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.

The nature of businesses in the portfolio means the first round of funding is unlikely to be the last. Future rounds may dilute existing investments. Par Equity aims to allow existing investors to participate directly in follow-on funding outside the EIS fund. 

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 3%
Wealth Club initial saving
Net initial charge through Wealth Club 3%
Annual management charge 0.75%
Administration charge
Dealing charge
Performance fee 20%
Investee company charges
Initial charge up to 5%
Annual charge up to 1.25%
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

Par anticipates taking up to 12 months to fully deploy investor capital. There are no deadlines with this EIS offer.

Our view 

Par Equity’s offer is considerably enhanced by the involvement of its Investor Network. The fund has the benefit of a small and close-knit investment team, yet can access a deep pool of 200 experienced investors to provide deal flow, help with due diligence, take board seats, and actively engage with and add value to investee companies. Par Equity co-invests with its angels and the investment team invests on the same terms, aligning interests with those of EIS fund investors.

Par has a focus on regions of the UK less well served by venture capital, which in Par’s view makes entry valuations more attractive. Par will only invest where there is proof of concept and where a business is showing early signs of revenue.

In our view, experienced investors looking to build or broaden their EIS portfolio could add the Par EIS fund on their shortlist.

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
Not specified
Funds raised / sought
-
Minimum investment
£20,000
Deadline
Discretionary
Last updated: 31 January 2020

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