Seneca AIM EIS Fund

The Seneca AIM EIS Fund was launched in September 2021 by experienced EIS manager Seneca Partners. 

As the name suggests, the fund will focus exclusively on AIM-quoted growth-orientated businesses. It targets companies the manager believes to be fundamentally sound, well managed and with good growth potential. Using the AIM market’s relative liquidity, compared to unquoted investments, Seneca seeks to invest in opportunities where it believes it can achieve an exit within 3-4 years (not guaranteed).

Despite this being Seneca’s first fund with a sole focus on AIM, the EIS investment team has been making AIM-quoted investments since 2012, when it launched its EIS Portfolio Service. 

Since then, Seneca has invested £67.8 million in 58 companies across both its EIS and AIM EIS funds. Nearly half of the capital (£29.7 million) was invested in 28 AIM-quoted companies. These have been a key driver of the overall performance, generating realised returns of £26.2 million (74% of Seneca’s total realised returns) and a remaining portfolio balance of £15.6 million. Past performance is not a guide to the future.

Since launching, the AIM EIS fund has invested £1.4 million in five AIM companies. The fund is available for non-advised investors only through Wealth Club.

Important: The information on this website is for experienced investors. It is not a 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: you could lose all the money you invest.

Read important documents and then apply

Highlights

  • Targeting 5-10 investments per investor portfolio 
  • Wholly focussed on AIM-quoted EIS-qualifying companies
  • Track record of making EIS-qualifying AIM investments and returning capital to investors – past performance is not a guide to the future
  • 1.5x target return before tax relief – not guaranteed 
  • Target exit within 3-4 years – not guaranteed
  • Minimum investment £20,000, and subsequent investments of £5,000 – you can apply online

The manager

Seneca Partners was founded in 2010 to invest in small and medium-sized enterprises (SMEs) and help them grow. The three founders, Ian Currie, Tim Murphy and Richard Manley, are SME investment specialists who believed many SMEs in the North of England were unable to access the capital they needed to grow. 

Today, Seneca Partners offers equity, debt and corporate finance as well as debt advisory services and manages approximately £200 million of assets. That includes £25 million held by Seneca Bridging Finance and £75 million in Seneca Property Investments.

The Seneca network of companies currently employs over 60 people and has strong regional connections, with four offices across the North of England.

From the hundreds of opportunities Seneca Partners sees each year, it will seek to invest in around 20-25 overall. Typically, there are at least 10 businesses at various stages of due diligence awaiting investment at any given point. This should help Seneca deploy investors’ funds in a timely manner – not guaranteed.

Seneca Partners is the Fund Manager. Cash is held in a client money account controlled by the Fund’s Custodian, Woodside Corporate Services Ltd, whilst shares are held by the Fund’s Nominee, WCS Nominees Ltd.

Watch a video interview with Matt Currie of Seneca Partners

NB: This interview discusses Seneca’s EIS Portfolio Fund rather than the AIM EIS fund.

 

Investment strategy

The investment team will seek to make EIS-qualifying investments into AIM-quoted companies. AIM-quoted companies are favoured by the team as they tend to be more substantial businesses, arguably with more sophisticated management teams, that are using capital markets to fund growth and development. In addition, AIM-quoted companies may be more liquid, which could increase the likelihood of the team achieving its central objective, an exit after 3-4 years.

The team will use its strong relationships with the national broker firms to take part in institutional investments. Co-founder Ian Currie is key to this approach, having previous experience of raising capital for many AIM-quoted businesses.

The team is sector agnostic, although companies within the technology solutions, e-commerce and life sciences sectors are likely to feature strongly. Seneca evaluates each business on the strength of its fundamentals, with a focus on valuation and the ability of investee company management to deliver on the growth plan.

The fund is reliant on suitable EIS-qualifying companies raising capital on AIM. The quality of the fund’s deal flow and subsequent selection of investments will be wholly dependent on the quality of deals coming to the AIM market, as well as Seneca’s ability to gain an allocation to those deals. 

Seneca believes EIS investors may receive preferential access to IPOs and placings, since EIS must hold their shares for at least three years to retain tax reliefs. That may mean they are looked on favourably by book runners when deciding upon investor allocations.

Target return

The fund has a target return of £1.50 per £1 invested, before any tax reliefs. Returns and timelines are not guaranteed.

Exit strategy

The fund aims to achieve exits – and return cash to investors – after 3-4 years, not guaranteed. Since its investments are all expected to be AIM listed this is likely to be through the sale of shares on the open market. However, in the event that an investee company is acquired Seneca may have no control over the exit date – potentially impacting tax reliefs if the shares have been held for less than three years. 

Portfolio

The Seneca AIM EIS Fund will aim to deploy investors capital into a portfolio of 5-10 AIM-quoted EIS-qualifying companies. Since its launch in September 2021, the fund has invested in five companies (February 2022). 

A few of those companies are outlined below to give a flavour of the types of companies you might expect in a portfolio. However, they are unlikely to be part of a new investor's portfolio.

DirectaPlus – Seneca AIM EIS.jpgDirecta Plus Plc

Directa Plus is one of the world’s largest producers and suppliers of graphene nanoplatelet-based products for use in consumer and industrial settings. Its G+ branded graphene blends are designed for inclusion in third-party commercial products – ranging from clothes to oil spill recovery solutions and even golf balls.

The company has a patented technology and manufacturing process. It operates from its own factory in Milan but is also able to establish production at client sites.

In 2020 the company reported sales of €6.4 million, a 144% increase year-on-year, with losses of €4.5 million. Sales growth was driven by very strong performance of the company’s Setcar subsidiary, which delivers oil spill recovery system ‘Grafyorber’. Sales related to environmental remediation now account for 68% of revenue – with the bulk of the rest from Textiles (boosted by the sales of COVID-19 masks). Longer term, Directa Plus hopes to explore new uses for its technology – including lithium sulphur batteries and consumer electricals. Past performance is not a guide to the future.

The Seneca AIM EIS Fund first invested in the business in December 2021.

Skillcast – Seneca AIM EIS.jpgSkillcast Group Plc

Skillcast designs and delivers compliance e-learning and digital training courses across the UK and EU. The company believes its end markets see high levels of non-discretionary spending, since compliance training is required rather than being optional. Increased remote and hybrid working is expected to shift training towards cloud-based platforms where Skillcast is strongest.

The company expects to report revenues of £8.3 million for 2021, a 13.7% increase year-on-year. This growth was thanks to increased recurring subscription revenues, which now account for 62% of the group total, while underlying profits are expected to be broadly in line with last year. Past performance is not a guide to the future.

Seneca AIM invested as part of Skillcast’s IPO in December 2021. 

Gear4Music – Seneca EISGear4music (Holdings) Plc – example of previous exit

As a newly formed fund, Seneca AIM EIS has not yet achieved any exits. However, one example of an AIM exits from the Seneca EIS Portfolio Fund is Gear4Music. 

Gear4Music is the UK's largest online retailer of musical instruments. Seneca provided a cornerstone growth capital investment to support the Gear4music IPO in June 2015, investing £1.25 million as part of a £9 million placing. The funds raised at IPO were used to support the further development of its bespoke e-commerce platform, invest in additional marketing initiatives, pay down debt and extend its range of products. 

During the next three years, the company experienced significant growth in the UK and Europe, with annual revenues increasing from £24 million to over £80 million, as well as growing its market capitalisation to more than £150 million – past performance is not a guide to the future. 

Seneca was able to fully exit the investment in 2018, shortly after reaching the EIS three-year minimum holding period, generating sale proceeds of £6.5 million, a 5.2x realised return. 

Nektan Plc – example of previous failure

As is to be expected, not all investments work out. Nektan is one such AIM-quoted example from the Seneca EIS Portfolio Fund. 

Nektan was an international gaming technology and services provider, specialising in mobile casino. It licensed its proprietary technology to leading operators, including BetVictor. 

Seneca invested £685,000 in December 2015, as part of a £1.36 million placing. Proceeds from the placing were to fund further expansion in the US tribal and commercial casino market through the Group's US joint venture, Respin, as well as supporting the Company's working capital requirements. 

In April 2020, Nektar Plc announced it was appointing an administrator after failing to raise the funds required to secure the future of the company. Its shares were suspended from trading on AIM. Seneca lost its full investment. 

Performance 

The Seneca AIM EIS fund does not have a 12-month performance track record. 

Since launching its first EIS service in 2012, the Seneca EIS investment team has invested £67.8 million, of which £29.7 million of this has been invested into AIM-quoted companies. These investments have resulted in realised returns of £26.2 million, with a remaining portfolio balance of £15.6 million. Please note, past performance is not a guide to the future.

Below we show the performance of AIM-quoted investments made through the Seneca EIS Portfolio Service.

The chart shows the average performance of the total the fund invested in AIM EIS-qualifying companies each tax year, based on valuations as at 31 January 2022, expressed on a £100 invested basis. It's important to note that the number of AIM EIS investments made through the Seneca EIS Portfolio ranges widely from one in some years to 12 in one year. By contrast, the AIM EIS fund targets a more consistent portfolio size of 5-10 companies – not guaranteed.

Source: Seneca, as at 31 January 2022. Performance figures are supplied by Seneca Partners and are gross of all fees. Costs will reduce returns: for the Seneca AIM EIS portfolio after 5 years the Reduction in Yield (RIY), i.e. the impact of total costs on returns when you cash in your investment, could be 1.58% to 5.09%. Past performance is not a guide to the future. In the above figures, 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 investments are high-risk and should only form part of a balanced portfolio. As must be expected with early-stage investments, some or even all of the companies in the portfolio could fail: the fewer the companies included in the portfolio, the higher the risk of loss if things don’t go to plan. You should not invest money you cannot afford to lose.

There is no ready market for unlisted EIS shares: they are illiquid and hard to sell and value. There will need to be an “exit” for you to receive a realised return on your investment. Exits are likely to take considerably longer than the three-year minimum EIS holding period; equally, an exit within three years could impact tax relief.

To claim tax relief, you will need EIS3 certificates, normally issued once shares have been allotted. This can take several months: please check the deployment timescales carefully. Tax reliefs depend on the portfolio companies maintaining their EIS-qualifying status. Remember, tax rules can change and benefits depend on circumstances.

Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

There is a limited choice in the universe of AIM stocks that meet EIS qualification rules. As the price of an AIM business is driven by the market, the manager doesn’t have the same scope to negotiate entry price compared to unquoted shares. AIM shares could suffer extreme volatility if the market falls sharply. The difference between the buying and selling price of AIM-quoted companies is often wider than those on the main market.

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
Administration charge £35 p.a.
Performance fee 20% + 4% Realisation fee
Investee company charges
Initial charge
Annual charges
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

Seneca anticipates taking up to 12 months to fully deploy investors capital. The deployment of capital will be dependent on Seneca receiving its required allocation when participating in an IPO or placing. 

Our view

Seneca has been making EIS investments since 2012 when it launched the Seneca EIS Portfolio Service. Since then, nearly half of the money raised by the Seneca EIS funds has been invested in AIM-quoted EIS-qualifying companies, which have been a key driver of historic realised returns. That track record is key to the appeal of Seneca’s standalone AIM EIS service.

The recently launched fund will seek to use the AIM market’s relative liquidity, compared with private companies, to deliver realised returns to investors over a 3-4 year period – not guaranteed. Consequently, the fund may appeal to investors looking to re-invest exit proceeds into new EIS-qualifying investments with corresponding income tax relief.

Seneca’s investment strategy is sector agnostic, although it is expected to have a bias towards technology, eCommerce and life sciences, sectors that are well represented on the AIM market. Investors should note that since the service is wholly focused on AIM, the quality of the investments made will be dependent on the pipeline of new EIS-qualifying fundraises coming to AIM. 

Instead of receiving an annual management fee, the investment team is incentivised to achieve exits via its realisation and performance fees.

Read important documents and then apply

See five-year performance of shares mentioned above

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. 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
1.5x
Funds raised / sought
-
Minimum investment
£20,000
Deadline
Discretionary
Last updated: 9 March 2022

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