Seneca EIS Portfolio Service

This EIS portfolio service invests in later-stage, established growth-orientated businesses. 

Since inception in 2012, the Seneca EIS investment team has invested over £50 million of EIS funds, targeting businesses the manager believes to be fundamentally sound, well managed and with good growth potential. 

This means the portfolio is likely to include companies which have already proven there is a market for their offering, generate revenue and are either profitable or with a visible line to profit. It is likely investors will have a spread of unlisted and AIM-quoted businesses. 

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.


Highlights

  • Targeting 4-6 investments per investor portfolio
  • Already established businesses 
  • Strong history of deal flow and deployment in growth capital deals 
  • Deferred annual charges until investors receive back their net investment amount
  • 1.6 to 1.8 x target return excluding any tax reliefs – not guaranteed
  • Target exit within 4-5  years – not guaranteed
  • Minimum investment £25,000

The manager

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

Seneca’s four offices across the North of England tap into this need. 

Today, Seneca Partners offers equity, debt and corporate finance and debt advisory services and manages £116.6 million of tax-efficient investments, the wider Seneca Partners Group manages a total of £594.8 million (March 2020). 

Seneca Partners currently employs over 100 people and has strong regional connections. This gives Seneca access to hundreds of investment opportunities each year from which it will seek to invest in around 20-25. 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.

Watch our interview with John Davies of Seneca Partners about the EIS portfolio:

Investment strategy

The team is sector agnostic: it prefers to evaluate each business on the strength of its investment fundamentals with a particular focus on valuation and the ability of investee company management to deliver on the growth plan.

As at March 2020, the fund has a portfolio of 40 companies, 15 of which are AIM-quoted.

Unlike some other EIS managers, Seneca typically looks to invest £1 million or more in each deal, which requires investee companies to have reached a certain level in their lifecycle and maturity. This excludes early-stage businesses and startups. 

As a further point of difference with many EIS offers, Seneca also invests in AIM-quoted companies. These tend to be more substantial businesses, arguably with more sophisticated management teams who are using capital markets to fund growth and development. Seneca also sees AIM-quoted investments as potentially more liquid and with visible daily pricing, although this means they might also be more volatile. It may also be easier to achieve an exit after the minimum three-year EIS holding period. Seneca aims to use its strong relationships with the national broker firms and take part in institutional investments from its EIS Portfolio Service. Co-founder Ian Currie is key to this approach, having previous experience of raising capital for many AIM-quoted businesses.

Target return

The fund has a target return of £1.60–£1.80 per £1 invested, before any tax reliefs. This is not guaranteed.

Exit strategy

Seneca targets an exit from each investment within 4-5  years – not guaranteed. The AIM-quoted companies’ shares could be sold in the market. Exit strategies for the unquoted companies include trade sales, buyouts or restructuring. Seneca could benefit from the support of its own Corporate Finance team when exiting private businesses. 

As the Portfolio Service is discretionary, Seneca will seek to exit at the optimum time, maximising returns to investors whenever possible, although returns and timeframes are not guaranteed. 

The performance fee is structured to incentivise early exits: exits within four years attract a 30% performance fee, whilst later exits attract a performance fee of 20%.

Portfolio

Seneca currently manages £66.4 million in EIS investments, of which £39.5 million is invested into its EIS portfolio service. Since its launch, it has invested in 50 companies, including 20 AIM-quoted. The service has since fully exited five unquoted, and five AIM-quoted businesses: past performance is not a guide to the future. 

The Seneca EIS portfolio service will aim to deploy investors capital into a portfolio of at least four EIS-qualifying companies. The manager expects each portfolio to contain both unquoted and AIM-quoted companies, although this is dependent on deal flow. The manager will endeavour to fully invest capital fully over six to nine months, although this is not guaranteed.

Below are portfolio company examples from previous iterations of the 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. 

Polarean__Seneca_EIS_-min.jpgPolarean Imaging (AIM-quoted)

Healthcare technology company Polarean Imaging is a recent investment. The business has developed proprietary non-invasive technology which, used in conjunction with MRI scans, provides highly detailed information on lung structure and function not available from any other diagnostic or imaging method. 

The technology – hyperpolarized gas MRI – is a scientifically accepted research methodology in the study of Cystic Fibrosis, COPD, Asthma, Interstitial Lung Disease, and the therapies for addressing these diseases.

Polarean has successfully completed its Phase III non-inferiority clinical trial and announced the positive results in January 2020. Now with the trial complete, the final step is FDA approval. FDA submission is expected in Q3 2020 with approval expected within 12 months. This clinical pathway, once approved, allows for commercial sales into clinics, hospitals and care units to achieve significant value. 

The business is based in the UK with manufacturing operations in North Carolina and key research facilities at Duke University and the University of Virginia. 

Seneca invested £650,000 in April 2020 at 18p per share as part of a £2.1 million private placing to support the company’s ongoing clinical trials.   

Mission Labs – Seneca EISMission Labs (unquoted)

Seneca was first introduced to Mission Labs in 2017 and, having tracked early growth from the side lines, invested £1 million in March 2018. Mission Labs is effectively the corporate banner for a portfolio of innovative cloud-based services to help businesses manage the relationship with their customers more effectively, reducing hardware needs and costs, as well as increasing automation and use of artificial intelligence.

The business has shown impressive growth since the initial Seneca investment. At the time, the business was predominantly focused on its first service, CircleLoop, a cloud-based business phone system. The company has since expanded its portfolio – with the addition of SmartAgent, a Contact Centre agent application, and SmartPCI, a digital payments solution for enterprise contact centre operators – and increased revenue, which has now surpassed an annual run rate of £5 million. The team has also grown to c.60 employees, from 15 people at the time of the Seneca investment. Mission Labs now serves leading names from the world of retail, telecoms, technology and the public sector, from JD Sports to Tesla. 

Gear4Music – Seneca EISGear4music PLC (example of previous exit)

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. The funds raised on 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, Europe and Scandinavia: annual revenues increased from £24 million to over £80 million and market capitalisation surpassed £150 million. Through its strong broker relationships, Seneca was able to fully exit the investment in 2018 generating a 5.2x return for investors: past performance is not a guide to the future.

FJ Holdings (example of previous failure)

As is to be expected, not all investments work out. 

FJ Holdings manufactured and distributed flow control products within the UK's water and waste industries.

Established in 2003, the group had expanded into a number of businesses and sought investment to help re-organise its subsidiaries and fund capital expenditure. Over two years, turnover increased by £15 million but the business came under pressure due to the large amount of debt it had taken on to support its growth. 

At this point, Seneca worked together with specialist advisors FRP to help find a buyer. However, after the company announced a poor profit forecast in December 2016 any acquisition offers were withdrawn. The company entered into administration in February 2017.

Performance

Since its inception, the EIS portfolio service has invested in 50 companies and achieved 10 full exits, and three partial exits  – a strong long-term track record of realised returns. 

For investors investing in tax years 2013/14 – 2014/15, on average, for every £100 invested, investors would have received £79.51 back in realised returns and have a portfolio balance remaining of £45.52. 

The chart below shows the valuation as at 30 April 2020, had you invested £100 in each tax year. Past performance is not a guide to the future.

Please note: the service launched in tax year 2012/13. However, this is not shown in the chart since it contained only one investment totalling £30k.
Source: Seneca Partners, as at 30 April 2020. Performance figures are supplied by Seneca Partners and are net of all fees, based on Seneca Partner’s valuation methodology. Past performance is no guide to future performance. In the above figures, initial tax relief of up to 30% could also apply. So, for the tax year 2015/16, the total return including initial income tax relief would be £136.88 – 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.

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%
Administration charge £55
Performance fee 20-30%
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 between six to nine months to fully deploy investor capital, although this process may take up to 12 months in certain circumstance. As is typical with EIS investments, it may not be possible to have all funds deployed before a deadline such as the end of the tax year.

There are no deadlines with this EIS offer.

Our view

Seneca Partners investment strategy seeks to support more mature, yet still potentially fast-growing EIS-qualifying businesses. The service looks to invest a minimum of £1 million per investment round, which rules out many very early-stage business models. This may appeal to some investors who prefer a later-stage (though still high-risk) investment approach. In addition, unlike many other EIS services, Seneca seeks to invest a proportion of investors capital into AIM-quoted companies. This is a key differentiator, in our view. The market liquidity in AIM may provide the service with additional exit opportunities, although potentially increased volatility too. 

Investors may also find the charging structure appealing and an alignment of interests. Seneca withholds its annual management charge until investors receive their net subscription back in full – although note there is also a higher performance fee applied upon exit earlier than four years.

Seneca has a wide and established presence in the North, which could offer a geographically diverse exposure to complement a wider EIS portfolio.

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
1.6x
Funds raised / sought
-
Minimum investment
£25,000
Deadline
Discretionary
Last updated: 20 July 2020

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