Seneca EIS Portfolio Fund
The Seneca EIS Portfolio Fund invests in both private and AIM-quoted growth-orientated businesses. It targets businesses the manager believes to be fundamentally sound, well managed and with good growth potential.
Since launching its EIS service in 2012 (now the EIS Portfolio Fund), the Seneca EIS investment team has invested over £60 million across more than 50 investee companies, and returned £33.3 million to investors, with a remaining portfolio balance of £46.3 million - past performance is not a guide to the future.
Seneca will seek to invest in a blend of more established and earlier stage companies. It requires investee companies to have reached a certain level in their lifecycle and maturity, and rules out very early-stage businesses. It is likely investors will receive a spread of unlisted and AIM-quoted businesses, although there is no explicit target allocation. Of the 103 investments made to date, 41 were into publicly traded companies (May 2021).
The EIS fund will deploy investors capital into four to six investee companies.
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- Targeting 4-6 investments per investor portfolio
- Already established businesses
- Strong history of deal flow and deployment in growth capital deals
- Exposure to EIS qualifying AIM-quoted businesses, not guaranteed
- Deferred annual charges until investors receive back their net investment amount
- 1.6 to 1.8x target return excluding any tax reliefs – not guaranteed
- Target exit within 5-6 years – not guaranteed
- Minimum investment £25,000
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.
Today, Seneca Partners offers equity, debt and corporate finance and debt advisory services and manages approximately £110 million of tax-efficient investments. Seneca Partners is also a founding member of a similarly branded network of companies which includes Seneca Bridging, with assets under management of over £25 million, and Seneca Property Investments, which has assets under management of over £75 million.
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.
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 investment fundamentals with a focus on valuation and the ability of investee company management to deliver on the growth plan.
Seneca will seek to invest in a blend of more established and earlier stage companies. It requires investee companies to have reached a certain level in their lifecycle and maturity, and rules out very early-stage businesses. As with all EIS-qualifying investee companies, these are high risk.
Unlike many EIS offers, Seneca invests in companies that are AIM-quoted at the point of investment. These tend to be more substantial businesses, arguably with more sophisticated management teams that are using capital markets to fund growth and development. Seneca 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 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 fund has a target return of £1.60–£1.80 per £1 invested, before any tax reliefs. This is not guaranteed.
Seneca targets an exit from each investment within 5-6 years – not guaranteed. The AIM-quoted companies’ shares could be exited on the AIM 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 fund is managed on a discretionary basis, Seneca will seek to exit at the optimum time, maximising returns to investors whenever possible, although returns and timeframes are not guaranteed.
Since launching its EIS service (now the Seneca EIS Portfolio Fund) in 2012, Seneca has made 103 investments into 52 investee companies (£63.4 million in total, of which £26.9 million was AIM). Of these 52, Seneca has exited 22 companies, 12 profitably. 12 exits were AIM-quoted, 9 AIM exits were profitable. Past performance is not a guide to the future.
The Seneca EIS Portfolio Fund will aim to deploy investors capital into a portfolio of at least four, and up to six, EIS-qualifying companies. The manager expects each portfolio to contain both unquoted and AIM-quoted companies, although this is dependent on deal flow.
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.
Every day Wejo collects and analyses data from 66 million journeys across a network of 10.7 million vehicles. This data is then sold under licence to businesses such as insurance companies, local authorities, and breakdown services.
As well as data analysis, the company believes it can help to reduce congestion and pollution as well as forecasting traffic and incident hotspots. Its clients include General Motors, Hyundai, and Daimler AG.
Seneca Partners first invested £1.3 million into the business in 2016 via its EIS fund, the fund provided a further £2.5 million across two further funding rounds in 2017 and 2018.
The company has since received significant funding from other backers including Hella, DIP Capital, and the British Government. In 2019, General Motors invested €91 million into the business for a 35% stake, valuing the company at €244 million.
In May 2021, Wejo announced plans to list publicly in the US via a reverse merger with Virtuosso Acquisition Corporation, a Special Purpose Acquisition Company. The transaction implies an enterprise value of $1.1 billion and the transaction is expected to complete in late 2021. Past performance is not a guide to the future.
SkinBioTherapeutics Plc (AIM-quoted)
SkinBioTherapeutics is a life science company focused on skin health.
The company’s core proprietary technology, SkinBiotix®, is based on over a decade of research by Dr Catherine O’Neill (CSO) and Professor Andrew McBain at the University of Manchester.
The technology uses extracts of probiotic bacteria to protect the skin from infection, increase the rate of healing, and improve the ‘integrity’ of the skin barrier to prevent the passage of toxins. SkinBioTherapeutics is looking to target three specific areas: cosmetics, infection control, and eczema (a combined annual global market of over $100 billion).
In 2019 the company signed an agreement with Croda Plc, a world leader in active skincare ingredients, to begin commercialisation within the cosmetic industry. Additionally, the company is working on a clinical trial (in collaboration with Winclove Probiotics B.V.) to develop a probiotic blend with the aim of treating sensitive skin conditions, such as psoriasis
Seneca first invested in the company when it floated on AIM in 2017. It has since provided an additional £1.5 million in follow-on funding at 16p per share. As at 01 June 2021, the share price was 69p per share. Past performance is not a guide to the future.
Mission Labs (example of previous exit)
Seneca was first introduced to Mission Labs in 2017 and, having tracked early growth from the sidelines, 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.
The business was exited in March 2021 as part of an acquisition by Gamma Communications plc. The deal was estimated to be worth up to £46 million and generated a 4.4x gross return for the EIS. 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.
Since its inception, the EIS portfolio service (now the Seneca EIS Portfolio Fund) has invested over £60 million into 52 investee companies and achieved 18 full exits, and 4 partial exits, returning £33.3 million to investors. Of the full exits, nine were positive, two were negative, and seven were write-offs . The service has a remaining portfolio balance of £46.3 million.
For investors investing in tax years 2012/13 – 2015/16, on average, for every £100 invested, investors would have received £69.64 back in realised returns and have a portfolio balance remaining of £52.98.
A key driver of the returns has been the exposure to AIM-quoted companies. Seneca has invested £26.9 million into 22 AIM-quoted companies, and generated realised returns of £24.3 million, with a remaining portfolio balance of £18.6 million. Please note, past performance is not a guide to the future.
The chart below shows the average performance of the total subscribed into the fund each tax year, based on valuations as at 23 April 2021, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.
Source: Seneca Partners, as at 23 April 2021. 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. 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.
Exits could take longer than the three-year EIS minimum holding period.
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.
|Full initial charge||5%|
|Wealth Club initial saving||—|
|Net initial charge through Wealth Club||5%||Annual management charge||2%|
|Performance fee||20-30%||Investee company charges|
More detail on the charges
Timing of the offer
Subscriptions to the fund will be held in cash by the custodian and build a sum for the fund to invest. The fund will hold periodic “soft closes” throughout the year, at which point it will begin deploying investors capital. Seneca anticipates taking between six to nine months to fully deploy capital, although this process may take up to 12 months in certain circumstances. 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.
Seneca Partners investment strategy is sector agnostic, although it is expected to have a bias towards technology, ecommerce and life science focused businesses. The team favours more established, yet still potentially fast-growing EIS-qualifying businesses, and will look to avoid investee companies it believes to be very early stage. This may appeal to investors who prefer a later-stage (though still high-risk) investment approach.
In addition, unlike many other EIS funds, 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. The AIM quoted exposure has historically been a key driver of realised returns for investors. Please note, past performance is no guide to the future.
The charging structure may appeal to investors. Seneca withholds its annual management charge until investors receive their net subscription back in full, which creates an additional alignment of interest.
Seneca has a wide and established presence in the North, which could offer a geographically diverse exposure to complement a wider EIS portfolio.
See five-year performance of shares mentioned above
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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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