Startup Funding Club EIS Fund

As a nation, we are pretty good at startups. The UK creates more “unicorns” than any other European country. A unicorn is a startup now valued at more than one billion dollars. Examples include Zoopla, ASOS, and Just Eat.

Often, these unicorns are successful because they change the way consumers buy and use things. They provide better services, at lower cost, to grab market share or to develop completely new offerings. 

Startup Funding Club targets bright young British businesses which possess innovative and disruptive technologies to deliver tomorrow’s products and services. The fund will invest in businesses transitioning between their “startup” to “growth” phases. By this point most of the companies should have demonstrated commercial traction and growth, however, these are still young companies and are high-risk investments.

Highlights

  • Evergreen fund investing in early stage disruptors
  • Co-investment opportunities with a large network of business angels
  • Target return of £2.5 per £1 invested (not guaranteed)
  • Targets a portfolio of 10-15 companies in a range of sectors, including digital technology, life sciences and consumer goods
  • Investee companies must have advance assurance
  • Minimum investment £10,000

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.

Read important documents and apply

The manager

Startup Funding Club (“SFC”) is an angel investor club focusing on very early-stage businesses. It identifies the opportunities for investment and provides ongoing support and expertise to the portfolio companies in which it invests. Since its inception, SFC has been involved in over 160 SEIS and EIS investments through its Angel Network and SEIS/EIS Funds. It is one of the most active seed investors in the UK.

The SFC angel network is a group of over 500 high-profile and active angel investors from various backgrounds, many of whom have direct experience in building, and investing in, a successful young company. They invest alongside SFC investors and bring additional funding and experience to the portfolio. Angel investors co-invest alongside the fund.

Once investments are made, SFC provides support and expertise to the companies to nurture them and help them grow. The Startup Funding Club EIS Fund will aim to invest in the best performers from SFC's existing portfolio looking for 'follow-on' capital.

The manager of the fund is SFC Capital Partners Limited.

Watch a video interview with investment manager Joseph Zipfel:

Recorded 29 January 2019

Portfolio Examples

Transcend Packaging 

Transcend Packaging is based in Ebbw Vale, Wales, and makes sustainable paper-based packaging and new bio-resin coated paper that can be used as a substitute for plastic. 

Its products include paper drinking straws. Consequently, it has benefited from the recent backlash against single-use plastic ones. 

Indeed, Transcend Packaging is one of two firms to win a contract to supply these to UK and Ireland McDonalds outlets. 

SFC initially backed the project in March 2018 through its SEIS fund, investing just over £100,000 into the business. Since then, SFC has continued to support the company and invested a further £50,000 through EIS.

VN Carbon Capture (Gas) Ltd

As is to be expected with very young businesses, companies can and do fail.

One failure in SFC’s previous SEIS portfolio is VN Carbon Capture (Gas) Ltd, which received investment in March 2014.

The company was formed to pursue the commercialisation of a discovery by researchers at the University of Newcastle allowing cost-effective capture and recycling of CO2 using nickel nanoparticles which could translate into significant commercial potential. The investment was made following a promising feasibility study and funds were used to run further laboratory tests and simulations with a view to develop the research into industrial technology. Unfortunately, the research showed the technology was not economically viable in real life conditions and did not get commercial traction despite receiving interest from the scientific community, industrial companies and the press. The company dissolved in 2017.

SFC believes the lesson learnt is to focus on more advanced projects with evidence of the commercialisation potential and market validation. The failure showed a need to invest in “research-heavy” project only when the R&D work is fully funded. 

Charges and savings

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. 

Investor charges
Full initial charge
Wealth Club initial saving
Net initial charge through Wealth Club
Annual management charge
Administration charge
Performance fee 25%
Investee company charges
Initial charge 6%
Annual charges 1%
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

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.

In a portfolio of ten companies, one might do very well (although there are no guarantees), several could fail and the others might just tick along. 

Earlier-stage companies usually take longer to mature. Further funding rounds will be common so there is risk of dilution. Earlier-stage companies usually take longer to mature. 

Timing of the offer

The fund anticipates taking up to 6 months to fully deploy investor capital following the closing dates. However, it may take longer.

Potential allotment in 2019/20 – deadline 27 March 2020.

The fund has informed us it aims to allot subscriptions received before 27 March 2020 in the 2019/20 tax year. This means the investment could be eligible for carry back to 2018/19. Please note, this is not guaranteed.

Please note, in order to invest you will need to apply to become an elective professional client of Start Up Funding Club.

Our view

Startup Funding Club does what it says on the tin. It invests in UK startups. There are likely to be some winners and a fair few losers in the portfolio. We like the breadth and scope of this fund. For experienced investors keen to get exposure to the bright new businesses of tomorrow, and prepared to take the associated risks, we think this is one to consider.

Read important documents and apply

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
Technology
Target return
2.5x
Funds raised / sought
£1.2 million / £3.0 million
Minimum investment
£10,000
Deadline
27 Mar 2020
Last updated: 17 January 2020

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