Arrive UK Emerging Markets Tech RLC Ventures Fund 3
The Arrive UK Emerging Markets Tech RLC Ventures Fund 3 aims to invest in early-stage technology companies it believes have the potential to become global businesses.
The fund looks for companies across a range of growth stages and in four key sectors: AI, enterprise, finance, and gaming. They should preferably have a proportion of their operations in an emerging market, which could give them a significant cost advantage over rivals.
The current offer is the third iteration of hybrid SEIS/EIS funds run by RLC Ventures, the investment adviser. RLC Ventures started investing in 2016 and has enjoyed some success. A recent exit saw early investors achieve realised returns of up to 38x on their initial investment – note past performance is not a guide to the future.
RLC Ventures is a relative newcomer to EIS; however, following some early success, it is gaining industry recognition and investor support.
- Focus on technology companies with operations in emerging markets
- Hybrid structure, choice of EIS/SEIS allocation
- Management team is required to invest personally
- Focus on four technology sectors: AI, enterprise, fintech and gaming
- Target return of £2.60 per £1 invested, not guaranteed
- Minimum investment £25,000
- Please note, to apply you will also need to become an "elective professional client" of SFC Capital Partners before your investment is accepted.
RLC Ventures, the investment adviser to the fund, is led by Reece Chowdhry, a former management consultant. Mr Chowdhry has been investing in startups for over 10 years and has a personal portfolio of 40 companies. He also mentors companies in the Mayor of London Business Start-up Entrepreneurs Programme.
Mr Chowdhry is assisted by a core investment team of five, including his father, Jeff Chowdhry, who was appointed to RLC Ventures as Chairman to add the institutional rigour and oversight needed to scale the business. Mr Chowdhry (senior) has considerable industry knowledge having held senior positions at BMO Global Asset Management (previously F&C). As Head of Emerging Markets at BMO he was responsible for managing over £5 billion in the emerging markets sector.
Alongside the investment team, RLC Ventures is supported by an independent advisory board of 12. Each adviser typically has a background in entrepreneurship or within a certain industry.
RLC Ventures requires its management team to invest 2.5% of total funds raised into every company, to align interests with those of investors. So far, the team has committed over £1 million.
The manager of the fund is SFC Capital Partners Ltd.
Watch a video interview with CEO Reece Chowdhry:
RLC Ventures has launched two previous EIS/SEIS funds. In total, it raised £3.5 million and invested in 14 companies. The second fund is still in the process of deploying capital.
RLC Ventures’ third fund, Arrive, will follow a similar investment strategy as previous iterations. It aims to build global businesses from the outset. Ideally, RLC Ventures will look for companies headquartered in the UK with established offshore operations in emerging markets (from Eastern Europe to South America). Often one of the most expensive aspects for a young business is technology development. By establishing this function in an emerging market, companies may be able to significantly reduce costs – providing they can maintain their operations across long distances and potentially different time zones.
While RLC Ventures prefers companies to adopt this strategy, it will make exceptions if a business can demonstrate comparable levels of capital efficiency and scalability.
It is anticipated most investment opportunities will be sourced through angel networks, introducers and RLC Ventures’ scout network. In a year, the team expects to see around 2,500 deals in total with an average of 50 deals a week getting through to the screening process. For those that make the cut, additional due diligence will take place with external consultants to provide an investment paper for the independent advisory committee. The committee must reach a majority decision before an investment can be accepted.
Post-investment, RLC Ventures looks to support founders on growth strategy, fundraising, recruitment and financial management. RLC Ventures maintains a strong relationship with its founders which provides new companies with an existing infrastructure to support them.
The fund targets a return of £2.60 per £1 invested, not guaranteed.
RLC Ventures will consider a company’s exit route before deciding to invest. It is the intention of the fund to realised exits within a holding period of 5–8 years; however, exit routes and timeframes cannot be guaranteed.
RLC Ventures aims to offer a portfolio of companies split between three growth stages: early revenue, revenue-generating, and scaling. It is expected that the majority of the portfolio will fall into the revenue-generating category (60%) with the remainder split equally between early revenue and scale-up opportunities.
Investee companies should fit into at least one of the following categories: AI, enterprise, finance and gaming.
RLC Ventures aims to provide investors with a portfolio of 10 to 15 companies, each receiving £20,000 to £1 million per funding round. The maximum allocation per company is 15%.
The companies outlined below are historic investments made by the EIS fund. Note these are previous EIS investee companies and may not form part of a new investor’s portfolio. They are outlined to give examples of the types of companies an investor might expect.
While working as an intern, Robert van Den Bergh (co-founder) wrote hundreds of handwritten letters for a marketing campaign. The result was surprising: his letters received significantly more responses compared to more conventional methods. Just a few years later, Mr van Den Bergh launched Scribeless, a digital handwriting business which helps companies improve customer engagement.
Using proprietary software, Scribeless can learn and recreate individual handwriting styles including small imperfections and personal nuances. Clients can choose from a selection of ready-made styles or create their own. Once a message is finalised, Scribeless uses its advanced printing technologies to accurately reproduce the content at scale.
RLC Ventures was introduced to the business through a member of its advisory board and invested due to the strength of the founding team, the size of the potential market and the scalability of the business. RLC Ventures was the lead investor in a £420k funding round, alongside co-investors SuperSeed Ventures and Ascension Ventures. In total RLC Ventures invested £162,500 at a pre-money valuation of £1.8 million.
Labworks began life as a ‘conversation design consultancy’ helping build chatbots as well as structuring conversational strategy for brands such as Unilever, RBS and the UK government.
When Amazon’s Alexa launched at the end of 2016, the Labworks team created a simple “Would you rather?” game to help them understand Alexa’s features. Within six weeks the game became one of the most popular ‘skills’ on Alexa and led to Amazon including the team in its Developer Rewards Programme.
Labworks has now created eight games, which have been played by over 6 million people. The popularity of the games has led to significant revenue generation for the business and industry recognition. On the back of this success, RLC Ventures invested £330k in December 2019 at a pre-money valuation of £2.25 million. The funding will be used to help build the team and develop the company’s portfolio. Labworks will also look to diversify its business model by exploring a subscription-based fee structure.
Previous exits and failures
To date, RLC Ventures has achieved one exit – a company within RLC
Ventures’ gaming portfolio, although due to the terms of the acquisition the
company cannot be named. There have been no failures to date, but the
funds have only been active for a short period. Realistically, failures are
likely and Mr Chowdhry anticipates that at this stage of investing a failure rate of
50% could be expected. Please
note, past performance is not a guide to future.
Since its inception, RLC Ventures has launched three funds including this one. During this time, RLC Ventures has achieved one exit, which delivered returns of 38x on the investment for investors in Fund 1, and 3.8x for investors in Fund 2.
RLC Ventures’ first investment was a £60,000 stake in a peer-to-peer lending company with the residential property sector. The investment is now valued at £981,600, representing a 15.5x unrealised return. Please note, as this was the only investment made in the 2015/16 tax year it has not been included within the performance chart below as it is not representative of the typical investor experience.
The performance track record of RLC Ventures across its two previous funds is shown below. The chart shows the valuation as at 1 March 2020, had you invested £100 in each tax year.
Source: RLC Ventures, as at 1 March 2020. 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 could also apply. So, for the tax year 2017/18, the total return including initial tax relief (£33.52) would be £363.98 (the £36 tax relief is a blend of SEIS and EIS initial tax reliefs), 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.
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||0%*|
|Wealth Club initial saving||—|
|Net initial charge through Wealth Club||0%||Annual management charge||1.6%|
|Performance fee||20%||Investee company charges|
More detail on the charges
Timing of the offer
The fund anticipates taking between 12 to 18 months to fully deploy investor capital following the closing dates. However, it may take longer. As is typical with EIS and SEIS investments, it may not be possible to have all funds deployed before a deadline such as the end of the tax year.
In our view, the investment strategy adopted by the Arrive UK Emerging Markets Tech RLC Ventures Fund 3 is an interesting one. Like many venture capital firms, the fund seeks to invest in early-stage technology companies. Unlike others, the fund is specifically looking to invest in businesses where a proportion of the operations are based within an emerging market, and where these businesses might therefore have a significant cost advantage over rivals.
The question now is whether RLC Ventures can continue to execute its investment strategy as the business grows. Early backers of RLC Ventures have been well rewarded and Reece Chowdhry is committed to building this promising early track record although past performance is not a guide to the future. The RLC investment team benefits greatly from the appointment of Jeff Chowdhry as Chairman. Mr Chowdhry is an experienced operator and is well aligned to the success of his son’s business. What’s more, with over £1 million personally invested in RLC portfolio companies to date, and with a commitment to invest personally in each investee company, this father-and-son-led team is building an EIS offering experienced investors may find appealing.
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.
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