Parkwalk EIS Knowledge Intensive Fund
This latest EIS fund from Parkwalk Advisors launched in January 2021 and aims to close on 1 April 2021. Wealth Club is the only non-advised broker to offer this.
The fund will be managed by the same team and follow the same investment strategy as its stablemate Parkwalk Opportunities EIS Fund.
However, because of the ‘KI approved fund’ structure, it could offer tax-planning advantages: investors may be able to obtain relief earlier and also have the option to carry back to the 2019/20 tax year (more details below).
In addition, the fund will target a portfolio of at least 10 companies, as opposed to five for the Parkwalk Opportunities EIS fund.
The EIS KI Fund will focus on the exciting – but high risk – UK university spinout asset class.
Parkwalk Advisors (“Parkwalk”), the manager, claims to be the UK’s most active investor in this area and has strong ties to the UK’s leading universities, managing funds in conjunction with the Technology Transfer departments of the University of Cambridge, the University of Oxford, Imperial College, and the University of Bristol.
Parkwalk additionally benefits from being part of IP Group plc, a FTSE 250-listed asset manager focused on intellectual property commercialisation. To date, Parkwalk has £335 million of assets under management – it has invested in over 130 companies and achieved 16 profitable exits with an average multiple of 4.47x, although past performance is not a guide to the future. In our view, Parkwalk is well placed in this specialist area.
Read important documents and apply
- KI Approved EIS fund: timing advantages for income tax and the opportunity to carry back to 2019/20 (tax rules can change and benefits depend on circumstances)
- University spinout portfolio with high growth potential
- Proven management team
- Strong ties to the UK’s leading universities
- Targets a minimum of ten portfolio companies spread across a range of maturities and technologies – not guaranteed
- Co-investment opportunities with institutional investors, including parent company IP Group
- Parkwalk has a strong track record of realised and unrealised returns, although past performance is not a guide to the future
- EIS5 tax certificate issued once fund is 90% invested. Expected within 12-18 months, not guaranteed.
- Target holding period of four to eight years
- Minimum investment £25,000; you can apply online
Parkwalk Advisors was founded in 2009 by Alastair Kilgour and Moray Wright, both experienced capital markets managers advising on takeovers, acquisitions and fundraising. In January 2017, Parkwalk was acquired by IP Group, a leading intellectual property commercialisation company with net assets of £1.16 billion (June 2020) and a market capitalisation of £980 million (December 2020). Later in 2017, IP Group acquired Touchstone Innovations, which was set up to invest in promising technology companies spun out of Imperial College and University College London.
The combined group should give Parkwalk a strong hand when accessing deal flow and negotiating terms, as well as providing a possible exit route for investors.
The investment committee consists of eight investment professionals including Moray Wright and Alastair Kilgour. The team has experience across banking, fund management, startups, venture capital, and drug development.
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. Now, funds focusing on investing in knowledge-intensive companies can apply for approval from HMRC.
Provided some 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.
Investors are expected to receive a single EIS5 certificate (as opposed to individual EIS3 certificates for each investee company, as is the case with non-approved funds). Certificates can be issued once the fund has invested 90% of its capital, which is required to do within 24 months of the close.
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.
Parkwalk’s niche is UK university spinouts. It invests in technology or intellectual property developed in a university by a team or an individual professor that the university then tries to commercialise. Universities are starting to cotton on to how valuable this can be.
Notable UK university spinouts include:
|ARM||Cambridge||Acquired by SoftBank in 2016 for $32bn|
|Vocal IQ||Cambridge||Acquired by Apple in 2015|
|Oxford Nanopore||Oxford||Raised £84.4m in 2020 at a £1.7bn valuation|
|Improbable||Cambridge||Raised $504m from Softbank in 2017|
|Darktrace||Cambridge||Raised £38m in 2018 at a £1.1bn valuation|
Parkwalk has investments in more than 130 companies spun out of twenty universities. In addition to the Opportunities EIS fund, Parkwalk manages funds in conjunction with the technology transfer departments of the University of Cambridge, the University of Oxford, Imperial College London and the University of Bristol. Parkwalk typically co-invests alongside large investors, including (in alphabetical order) Amadeus, Baillie Gifford, Cambridge Innovation Capital, Touchstone (Imperial) Innovations plc, Invesco Perpetual, IP Group plc and Oxford Sciences Innovation plc.
Parkwalk generally invests when the technology has been proven, but products have yet to be sold, and well before commercialisation.
A typical initial investment is £1 million to £1.5 million, which will buy a 15–20% stake in a business. Each investor is expected to have at least five companies in their portfolio, with a mix of different technology and different stages of maturity, although this is not guaranteed.
Investee companies will typically have deeply embedded IP and are given freedom to operate. Parkwalk will usually bring in experienced, relevant management to commercialise the product.
The focus will be on knowledge-intensive companies, but they don’t always have to be early stage. Parkwalk will also invest in later-stage companies, perhaps before an AIM listing.
Investors’ subscriptions are expected to be invested over a period of 12 to 18 months from the date of the fund close, although this is not guaranteed. Investors will receive their EIS5 certificates once the fund is 90% invested, but for income tax purposes the tax relief will be available as if the investments were made at the point the fund closes (1 April 2021). This means income tax relief can be set against the current tax year or carried back to the previous.
The fund's target return is unspecified, but every investee company has to have the potential to return five times the original investment. Clearly not all will do that. The performance fee is linked to a return of an investor’s original capital overall, not the performance of an individual deal.
The fund has a target life of between four and eight years (not guaranteed).
All the members of Parkwalk’s management team have backgrounds in capital markets or introducing companies to later-stage investors. As well as the more traditional exit options for EIS investment – such as an IPO or trade sale – Parkwalk’s relationship with its parent, IP Group, could provide additional exit opportunities and liquidity for investors, although this is not guaranteed.
The fund will aim to invest in a portfolio of at least ten early-stage EIS-qualifying technology companies.
Below are portfolio company examples from previous iterations of the Parkwalk Opportunities 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.
Congenica – a spinout from Wellcome Sanger Institute
Congenica was founded in 2014 by two researchers from the Wellcome Sanger Institute, a department of the University of Cambridge, and one of the foremost centres of genomics research and innovation in the world.
Congenica has developed a clinical genomics analytical platform called SapientiaTM, which enables the accurate, rapid and scalable clinical interpretation of complex genomic data. The platform can help clinicians and researchers diagnose rare diseases and develop prognoses and treatment options much faster.
In 2018, Congenica was selected by Genomics England as the exclusive Clinical Decision Support Platform for research use for the UK NHS Genomic Medicine Service, the first national healthcare system in the world to offer whole genome sequencing as part of routine care. This contract could allow Genomics England to diagnose ‘rare diseases’ in days rather than the average seven years it currently takes in the west.
In November 2020 Parkwalk participated in a recent $50 million Series C investment round, co-led by Legal & General and Tencent, the Chinese tech giant, to fund the further development of the company’s clinical genomic analysis software and data platform.
YASA – spinout from Oxford University
YASA develops revolutionary compact, lightweight and powerful electric motors and controllers. The products enable vehicle hybridisation and electrification, especially where there is limited powertrain space.
The company supplies custom and off-the-shelf e-motors and controllers to automotive customers from its Oxford headquarters. YASA is a Ferrari Strategic Technology Partner and has supplied a custom electric motor for Ferrari’s first hybrid vehicle, the SF90 Stradale. The same core motor is planned for the F171, to be launched in 2021. YASA is also entering the aviation market and has partnered with Rolls Royce to break the speed record for electric flight.
Parkwalk first invested in YASA through a £1.8 million Series A funding round in August 2012 at a £5.7 million pre-money valuation. Since then, Parkwalk has supported the business through further funding rounds, most recently in August 2019, at a pre-money valuation of £72.5 million. Past performance is not a guide to the future.
Animal Dynamics – spinout from Oxford University (example of previous exit)
Founded in 2015, Animal Dynamics designs systems – such as unmanned aerial vehicles (UAVs) and small-scale drones – inspired by the evolutionary biomechanics of animals.
For example, Skeeter, a micro-drone designed for covert surveillance and surveying tasks, is based on the body plan of a dragonfly. It uses flapping ‘wing’ propulsion to maximise efficiency and allows for gliding and tolerance to difficult weather conditions. Compared to other (UAVs), Skeeter can fly for longer distances on less power over a greater range of conditions.
In addition to Skeeter, the company has two other projects, Stork and Malolo. Stork, the most advanced prototype, is currently at the trial stage whereas Malolo is still under development.
Parkwalk first invested through the Oxford Innovation II Fund in 2015. It was also involved in subsequent funding rounds. The company was sold through a secondary sale in March 2019, generating a return of 6.9x for investors after three years. Past performance is not a guide to the future.
Tangetix Limited (example of previous failure)
As can be expected, not all investments work out. One example is Tangentix.
Tangentix had a patented technology enabling delivery of game downloads in a more timely and cost-effective manner. The company was based on mathematical research from the University of Bradford. Tangentix raised substantial funding over various funding rounds (2013 to 2018) from a group of institutional investors including Parkwalk, the Rising Stars Growth Fund (part of Mercia) and Finance Yorkshire. The company struggled to gain commercial traction with its compression technology, despite apparent savings to suppliers of games through download cost reduction.
In late 2018 the company appointed Chris Maples as CEO, who was previously VP of Spotify Europe. He and the board instigated a new strategy of aiming to become an independent platform for video games (a ‘Netflix’ or ‘Spotify’ equivalent). Unfortunately, the cash runway within the company was not long enough to allow the new product to be launched, and the other investors were unable to continue financing the company. The company therefore entered voluntary liquidation resulting in a loss to investors.
Please note, the below performance track record belongs to Parkwalk Opportunities EIS fund. The EIS Knowledge Intensive Fund, launched in January 2021, does not yet have a track record. Both funds share the same investment team and investment strategy.
To date, the Parkwalk EIS funds have achieved 35 exits, 16 of which have been profitable and 19 have been lower than the amount invested, including 13 returning nothing. The positive exits have helped drive a strong track record of returning cash to investors, although past performance is not a guide to the future.
For investors who have been invested for more than five years, investing in tax years 2010/11 – 2014/15, on average, for every £100 invested into Parkwalk EIS Opportunities fund, investors would have received £89 in realised returns, not including initial tax relief, and would have a portfolio balance of £64.2 remaining. The chart below shows the valuation as at 2 December 2020, had you invested £100 in each tax year. Past performance is not a guide to the future.
Source: Parkwalk, as at 2 December 2020. Performance figures are supplied by Parkwalk and are net of all fees, based on Parkwalk valuation methodology. Past performance is no guide to future performance. In the above figures, initial tax relief of up to 30% could also apply on sums invested after paying initial fees. So, for the tax year 2015/16, the total return including initial income tax relief would be £130 – 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 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.
The manager believes that if a company fails, the intellectual property it owns could still have some resale value, but there are no guarantees.
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.
Whilst income tax relief is linked to the closing date of the fund, capital gains tax deferral relief and inheritance tax relief are linked to the dates on which the fund invests in the underlying companies and not to the Closing Date.
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.
|Full initial charge||5%|
|Wealth Club initial saving||—|
|Net initial charge through Wealth Club||5%||Annual management charge||1.5%|
|Performance fee||20%||Investee company charges|
|Initial charge||—||Annual charge||—|
More detail on the charges
Timing of the offer
The fund will close on 1 April 2021. Since this is an approved KI EIS Fund, investor subscriptions should qualify for income tax relief within the 2020/21 tax year. Capital gains tax deferral relief and inheritance tax relief are linked to the dates on which the fund invests in the underlying companies and not to the Closing Date.
EIS5 certificates are expected to be issued once at least 90% of the capital has been deployed. Parkwalk aims to deploy funds raised within 12 to 18 months from the closing date of the fund.
Compared with the Parkwalk Opportunities EIS Fund, the EIS KI Fund provides investors with greater clarity on the timing of income tax relief, a single tax certificate, and greater diversification (it targets a minimum of 10 investee companies, twice as many as the Opportunities EIS fund).
Parkwalk invests in some of the most innovative technologies, from artificial intelligence for autonomous vehicles, to the world’s most efficient solar cells and electric motors being used by Ferrari – this is a fascinating sector of the economy. The EIS fund has a clear investment strategy in a defined area: university spinouts. The Parkwalk investment team has plenty of experience in this field, and Parkwalk’s standing in the industry could allow access to opportunities other managers would be hard-pressed to access. Previous Parkwalk funds have included some interesting high risk, early investments in cutting-edge technology businesses, and investors have historically been well rewarded, although past performance is not a guide to the future.
Parkwalk is set apart by its links to both the UK’s leading universities and large institutional investors, such as parent company IP Group Plc. These could provide investee companies with access to the pools of liquidity needed to commercialise their intellectual property, and potentially provide EIS investors with an additional route to exit although this is not guaranteed. Please note, due to the focus on intellectual property, these investments are very early stage, and this is a high-risk EIS fund offering.
In our view, as with the Opportunities EIS fund, this is a high-quality offer. The fund is enhanced by its HMRC Approved status. The fund provides exposure to an exciting and hard to reach sector of the economy. The prospect of investing in a portfolio of ten early-stage, cutting-edge technology businesses might appeal to those investors looking to complement a wider investment portfolio, where gaining exposure to university spinouts might be more challenging.
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.
- University spinouts
- Target return
- Not specified
- Funds raised / sought
- Minimum investment
- 1 Apr 2021 for 2020/21 allotment