How we assess single company EIS
All the single company EIS deals on our website have been carefully assessed and evaluated either by Wealth Club or by reputable and established counterparties. Wealth Club has a team of experienced corporate finance executives: qualified accountants with years of experience in highly regarded accountancy practices and in-house, within private equity-backed businesses.
Wealth Club single company deals
These deals are often available exclusively to our members.
They are either originated by us or introduced to us from our qualified network, which includes many of the top accountancy firms and corporate finance boutiques.
We see 15–20 offers a month on average. Of these, after a preliminary review, three at most are usually presented to our regular Investment Committee meeting, which decides which deals should progress to the next stage.
For those deals, we negotiate valuation and key commercial terms. We carry out a review, covering many strands, such as management, commercial and financial, to present the deal to investors.
We reserve the right to step aside from a deal at any time if our review uncovers issues which have a material impact on our view of the management and/or the company’s growth prospects or value.
If we wouldn’t be comfortable investing ourselves, we pull out of the deal (this has happened on occasion). As a result, we only introduce to our investors a minority of the deals we see. The service is not personal advice and you should always make your own informed investment decision after carefully reading the company's Information Memorandum.
Co-investment and third-party deals
On occasion, we introduce our investors to co-investment opportunities with a cornerstone investor or deals where a corporate finance boutique is leading the commercial negotiations and funding round.
To date, we have co-invested on deals with global corporations including Bayer Pharmaceutical, Mitsubishi and Saint-Gobain as well as financial institutions such as Development Bank of Wales, Active Private Equity and Gresham House. We have also worked with highly regarded corporate finance boutiques, including West Hill Corporate Finance and Marechale.
This could be an attractive way for Wealth Club investors to participate in deals on the same terms as large funds and corporations.
What do we look for in our deals?
We don’t focus on any particular sector. We are selective and aim to only introduce high-quality, high-potential companies to our investors, although as with all early-stage companies, these are high-risk investments. The companies for which we raise money must all have some important characteristics.
1. The management
We look for experienced people, preferably who have previously achieved success in a relevant venture and have invested significant amounts of their own – or their family’s – money into the business. They must be fully committed, have clear vision and a clearly articulated business plan.
2. The business
We look for businesses offering a credible solution to a real problem that we believe capable of significant scale and rapid growth. We prefer revenue-generating companies, with a differentiated market approach and defensible market position.
3. The market
The market needs to be large enough and growing – the business must have a well defined, proven method to access it and clear exit options.
4. The financials
We look for businesses with potential for good margins and cash generation and a clear path to profitability.
5. Investment appeal
We look for businesses that can be built in manageable chunks and don’t need to dominate the world to be successful. The valuation must be reasonable and the target returns should reflect the level of risk.
What information do we give investors?
The findings of our review are distilled in the research reports we usually make available alongside our deal review, the company’s own Information Memorandum and key governing documents.
Our aim is to give our experienced investors all the information they need to weigh up the risks and decide whether or not to invest.
Track record and case studies
Since October 2016, we have raised a total of £47 million for 29 EIS-qualifying single companies. To date, none of them has failed, although it is inevitable some will at some time. A couple are ahead of plan, some are progressing according to plan, whilst others have had to face challenges, as can be expected from early-stage businesses.
Encouragingly, we have had several follow-on rounds at a significantly higher share price than earlier rounds. These have been supported by both new and existing investors – note, past performance is not a guide to the future.
Below are examples of past deals that have proven popular with investors.
Acamar Films EIS (Wealth Club exclusive deal)
Acamar Films is the independent production company behind Bing, the top-rated BBC CBeebies children’s TV series. The first episode aired on CBeebies in June 2014 and soon became a hit, now broadcast in 120 territories. Today Bing is the most popular pre-school show on BBC iPlayer, its YouTube network surpassed 1 billion views in November 2019 and it was selected as a title for World Book Day 2020 with a print run of 200,000.
Wealth Club members have invested £7.2 million in four EIS rounds. Investors in the first offer (June 2018) invested at a £30 million valuation. The latest round (July 2019) was at a £50 million valuation. Please note, past performance is not a guide to the future and returns are not guaranteed: capital is at risk.
Aparito EIS (co-investment with Development Bank of Wales)
Aparito is a digital health company created by Dr Elin Haf Davis, a former Senior Research Nurse at Great Ormond Street Hospital. The idea is to use technology to reduce clinical trials failures due to poor data. A wearable sensor records patient data 24/7. A mobile device links to the clinical research study. Better data means improved trial success and, crucially, better patients’ quality of life.
Wealth Club members have invested just over £1 million in February 2019. In its most recent update (October 2019), Aparito confirmed it has hit its 2018/19 financial targets, has won a number of new contracts and its technology should soon be deployed in every continent across the world. Please note, past performance is not a guide to the future and returns are not guaranteed: capital is at risk.
The Ralph Veterinary Referral Centre plc EIS (Wealth Club exclusive deal)
The Ralph is an independent multidisciplinary small animal referral hospital in Marlow, Buckinghamshire, which offers Emergency and Critical Care services 24/7, 365 days per year alongside specialist clinical services. Patients are referred to The Ralph by veterinary professionals in the catchment area (not by pet owners themselves) in case of emergency or of a serious or persistent condition.
Wealth Club members have invested a total of £6.3 million in four EIS rounds. The first round of £3.3 million in April 2018 provided the funding for the hospital fit-out. As is common for ambitious projects of this scale, the opening was somewhat delayed and over budget. After a cash injection, the hospital started operating in February 2019. In the first eight months, The Ralph has cared for over 1,600 patients and generated £2.5 million of revenue, making it already one of the UK’s largest small animal referral hospitals in the UK. Please note, past performance is not a guide to the future and returns are not guaranteed: capital is at risk.
What returns do single companies target?
Target returns will vary depending on the company. Factors that may affect target returns are the stage the company is at, the market in which it operates and its business model.
That said, as part of our vetting process, we always look at the risk/reward profile of each offer and we tend to make available only offers with an attractive balance.
What is Wealth Club’s role post-investment?
Whilst we are not a fund manager, we try to stay close to the businesses we help raise capital so we can keep our investors updated.
We usually aim to ensure we have the following rights:
- Information rights – this allows us to request and collate the information we use to prepare our six-monthly investor updates, tracking actual performance against plan;
- Right to appoint a Non-Executive Director to represent the interest of minority investors, should we consider it necessary;
- Consent rights – this means the companies need investors’ consent to do things outside of their business plan, such as unbudgeted capital expenditure or raising debt.
Wealth Club does not take a seat on the board so cannot influence the business.
What are the risks?
The main risk, common to all EIS investments, is that you are investing in young and unproven companies. They are statistically more likely to fail than their larger counterparts, so you could lose some or all your capital.
This risk is even greater when you invest in a single company rather than a portfolio or fund: there is no diversification so if the company fails you have nothing to fall back on.
A common rule of thumb for venture investing in startups is that out of a 10-company portfolio, you should expect three or four to fail completely, three or four to return capital and one or two to do well, in some cases well enough to outweigh the losses on the other investments.
Typically the companies we offer our investors are at later stage and more developed than startups. Our review process should also help mitigate some of the risks.
That said, failures can and will happen – they are part and parcel of venture investing. In addition, they tend to occur early on, whilst success takes much longer. EIS investors may find this uncomfortable.
EIS tax relief provides a valuable cushion when things go wrong. Conversely, when things go right, returns are magnified.
That said, this type of investment is only for experienced investors, as part of a large and diversified investment portfolio. Don’t forget: besides the risk of failure, these are illiquid investments and you’re locking your money away for the long term (at least three years to retain the EIS tax relief, but usually longer).
Interested in raising funds through us?
Please email [email protected] alongside any material that describes your business and the opportunity for investors. Alternatively, please call 0117 929 0511