Startup Funding Club Angel EIS Fund

Startup Funding Club (SFC) is a very active startup investor – the most active Angel & Seed investor in the UK and the fifth most active in the world, according to a 2020 report from PitchBook Data.

Originally set up as an angel syndicate in 2012, it is well known for its SEIS fund. 

To date, SFC has invested in over 250  companies – 100 companies were added to its portfolio in the last 18 months alone. 

The EIS fund looks to make follow-on investments into what SFC considers to be the most promising seed companies it has already backed, which are transitioning from their “startup” to “growth” phase. This follow-on strategy should help mitigate some risks for investors. By this point, most portfolio companies should have demonstrated commercial traction and growth and SFC should know them well, having had a board seat in each for some time. However, investors should note these are still young companies and high-risk investments. There are no guarantees.

SEIS & EIS funds from previous years have now started to return cash to investors. An exit (originally from the SEIS fund), in August 2019, returned 3.2x the initial investment cost before tax relief. In March 2021, SFC made its second partial exit of Cognism, a company held in both the SEIS and EIS funds, for a 2.07x return in cash based on the initial investment cost (EIS fund) . Past performance is not a guide to the future – see performance below.

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

Highlights

  • Europe's most active Angel & Seed investor, according to Pitchbook 
  • Evergreen fund investing in early-stage disruptors
  • Target return of £2.50 per £1 invested (not guaranteed)
  • Targets a portfolio of 7-10  follow-on investments from Startup Funding Club’s more promising SEIS companies
  • Invests across a range of sectors, including digital technology, life sciences and consumer goods
  • Minimum investment £10,000
  • You can apply online – please note, you will also need to become an “elective professional client” of Startup Funding Club before your investment is accepted

The manager

SFC is an investment manager and angel investment club focused 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. 

One notable early success, which helped SFC get where it is today, is Onfido, an AI-based identity verification business. Impressed by the management team, SFC invested before the business even had a product; indeed, Onfido was incubated at SFC’s offices. 

The investment was SEIS qualifying but was made prior to the SEIS fund being set up. Onfido was identified as one of the fastest-growing business in the UK in 2019 and 2020 by The Sunday Times Sage Tech Track 100. Onfido has raised capital from investors such as Softbank, Salesforce Ventures and Microsoft. In a secondary sale in 2020, SFC’s initial investors had the option to exit their investment for a 100x return on capital, not including SEIS relief. Note, past performance is not a guide to the future. In 2020 Onfido raised a further $100 million from TPG, an early backer of Airbnb and Uber, and is now reportedly considering a US listing following strong growth in the US. 

In 2013, soon after investing in Onfido, SFC launched its SEIS fund, one of the UK’s first. Since then, SFC has gone on to become a prolific seed investor. A recent report from PitchBook Data named SFC as the most active Angel & Seed investor in Europe and the third most active in the world, alongside names such as SOSV and 500 Startups. 

The EIS fund was launched in 2017 to provide follow-on funding to the most promising seed companies.

The SFC angel network is a group of over 500 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. To date, SFC has facilitated investments in over 250 early-stage companies across a broad range of sectors and won numerous industry awards for angel and seed investing. In addition to the angel network, SFC has forged ties with some of the country’s leading universities and startup accelerators to broaden its deal flow.

The SFC team is headed by Stephen Page, CEO. Stephen’s background is in the software industry, having founded and exited a number of software businesses. Stephen is supported by Joseph Zipfel (featured in the video) as Chief Investment Officer. Joseph’s background is in investment banking and corporate finance. The wider team and board of directors of SFC have backgrounds in investment banking, software, corporate finance, and entrepreneurship. In total the team consists of 15 individuals, 13 of whom are involved with investment decisions.

Startup Funding Club Ltd is the investment adviser to the fund, which is managed by SFC Capital Partners LLP, of which Startup Funding Club Ltd is an appointed representative.

Watch our latest video interview with chief investment officer Joseph Zipfel:

Investment strategy

A combination of world-leading universities and Fortune 500 companies, specialist tech capabilities, great infrastructure, a pre-eminent financial centre, and supportive policies for SMEs make the UK a great place for startups. 

The Fund aims to tap into this area of growth and invest in a portfolio of early-stage companies with innovative products and disruptive technologies which have the potential to generate successful exits at a significant (tax-free) multiple of the cash invested. The team targets a return of 2.5x, not guaranteed.

SFC’s SEIS fund looks to invest early, acquire a material stake in a business, gain a board seat, and offer the guidance and support needed to put in place good governance structures. The EIS fund looks to back the most promising of those startups and invest once the early startup work has been completed and the business has validated its model and achieved significant growth since their pre-seed rounds.  By taking a board seat, SFC has deep insight into the performance of each business, before making an EIS follow-on investment. What’s more, since SFC is an existing seed investor, it will most likely be a first port of call for businesses seeking follow-on funding. This should create a rich pipeline of opportunities for the SFC EIS fund.

On occasion, the EIS fund may invest in companies that have not received backing from the SEIS fund. This is the case for 15 of the 145 investee companies backed by SFC at EIS stage. 

Target return

The Startup Funding Club EIS Fund targets a return of £2.50 per £1 invested after four to seven years before EIS tax relief. Returns and timeframes are not guaranteed. 

Exit strategy

SFC aims to exit investee companies within four to seven years, not guaranteed. So far, it has completed two full exits via a trade sale (MyFutureNow and Bean), one partial exit via a share buyback (Bloom Magic) and a partial exit through a secondary buyout (Cognism). In addition, SFC may also consider an IPO if appropriate. Please note, exit options and timeframes are not guaranteed and past performance is not a guide to the future. 

Portfolio

Investors in the fund can expect exposure to a portfolio of around 7-10 companies (although tranches could be larger), operating across various sectors, including digital technology, life sciences and consumer goods. SFC seeks to fully invest subscriptions over a six-month period following a closing date, not guaranteed. 

Below are portfolio company examples from previous iterations of the EIS fund. They are outlined to give a flavour of the types of companies you might expect but may not be part of a new investor's portfolio. EIS funds tend to be managed on a discretionary basis so each individual portfolio is likely to be different.

Maiku – Startup Funding ClubMayku – recent investment 

For small businesses creating or manufacturing physical products, the barrier to entry can be high due to the price and limited selection of manufacturing tools. To address this, Mayku designs simplified and affordable versions of common tools, allowing anyone to create their own personal factory.  

Its first product, FormBox, is a desktop-friendly vacuum former that can be used to create high-quality, custom moulds. About the size of an open laptop, it can be powered by a vacuum cleaner and gives users access to industrial-grade technology at a fraction of the cost. 

The company launched FormBox through a Kickstarter campaign in 2016 aiming for 100 pre-orders. Within a month it had over 1,300 orders and secured $588,775 in pledges. To date, Mayku has attracted more than 8,000 clients and achieved a revenue run rate of £2 million in 2021. Past performance is not a guide to the future. 

SFC first invested in Mayku through its EIS fund in 2018. It has since provided two follow-on rounds, most recently in April 2021, bringing its total investment to £356,000.

Cognism – Startup Funding Club EIS and SEISCognism 

Cognism is one of the UK’s fastest-growing technology companies. It has developed software that uses Artificial Intelligence to help sales and business development professionals find prospects. 

SFC took part in the first funding round in 2017 through its SEIS fund and followed on in 2018 through its 2017/18 EIS Fund. At the time of SFC’s first investment, Cognism was still pre-revenue; in 2021 it announced it had reached over $11  million in annual recurring revenue.  

In early 2021, Cognism completed a $12.5 million institutional funding round led by AXA Venture Partners alongside Swisscom Ventures, Investiere and VentureFounders.

To date, SFC has completed two partial exits from its holding in Cognism, the latest as a  result of the $12.5 million funding round. SFC has sold roughly 50%  of its EIS holding to date, generating a 2.07x return in cash with a remaining holding value of 6.21x the original investment cost for the EIS fund. Past performance is not a guide to the future.


MyFutureNow – Startup Funsing Club EIS and SEISMyFutureNow (example of previous exit)

MyFutureNow developed technology to help investors trace and consolidate old pensions quickly and easily. 

SFC invested in the company in April 2016, recognising the technology was solving a real market need and the company was led by an experienced and credible management team. 

In August 2019, SFC exited its investment from Finovation Limited, trading as MyFutureNow (MFN), which was acquired by UK pension giant Legal & General (L&G). 

The transaction returned 3.2x the initial investment cost (before tax relief). Past performance is not a guide to the future.

WinningMinds (example of previous failure)

WinningMinds developed an HR-technology platform that used AI and voice recognition to analyse team dynamics.

The company had a credible team and secured paid pilots with several B2B clients. However, these failed to convert into profitable contracts. The company tried to improve its appeal to larger corporates by creating an enterprise product. This required further development and significant additional funding, which the company was unable to secure. Consequently, the business was forced to enter into liquidation in 2020. 

SFC invested approximately £170,000 through its SEIS and EIS funds. This investment has been written down to nil.  

Performance 

The Startup Funding Club EIS Fund launched in the 2016/17 tax year and has invested in 145 companies to date. So far, the fund has achieved two partial exits  and has started to return some capital to investors. 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 30 June 2021, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.

Source: SFC, as at 30 June 2021. Figures are net of all fees. Past performance is no guide to future performance. These figures do not include any realised returns which would be available through loss relief. In the above examples, 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.

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. 

Exit could take longer than the three-year minimum hold period. Equally, an early exit could affect EIS tax relief.

Charges

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 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

Timing of the offer

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

Our view

SFC has forged strong ties with leading universities and accelerator programmes and combined with its own angel network, the investment team has access to a strong pipeline of deals. In recent years, this deal flow has seen SFC grow to become a leading startup investor in Europe (by number of investments made) and it is ranked the third most active in the world. This is relevant to investors considering this EIS fund for three reasons.

Firstly, the EIS fund primarily invests in companies from SFC’s portfolio of SEIS investments. Prior to making a follow-on investment, much is already known about the investee company and due diligence is enhanced. In theory, a potential drawback with follow-on investing is a limited number of deals to choose from. This does not seem to be the case with this offer. As one of the world’s most active startup investors. SFC benefits from a large pool of seed investments in which to identify promising opportunities. 

Secondly, SFC’s high level of investment activity means investors should receive, in EIS terms, a diverse portfolio of between 7-10 companies, although this is not guaranteed.  

Thirdly, SFC is one of Europe’s most active start-up investors and this may attract entrepreneurs seeking funding, enhancing SFC’s deal flow.

For experienced investors keen to add to their existing EIS portfolio, the SFC EIS offering seems to be maturing into a compelling offer, in our view. In addition, existing SFC SEIS investors may find this follow-on focused EIS fund worth a look.

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
-
Minimum investment
£10,000
Deadline
Discretionary
Last updated: 15 July 2021

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