Startup Funding Club Angel Fund EIS

“Meet the manager” video – watch below

SFC Capital (formerly Startup Funding Club) is one of the most active seed investors in Europe.

Originally set up as an angel syndicate in 2012, it’s best known for its SEIS fund and has invested in nearly 500 companies to date. The EIS fund focuses on what SFC considers to be its most promising seed companies as they transition from the “startup” to “growth” phase.

This follow-on strategy could help mitigate some risks. Portfolio companies should have demonstrated commercial traction and SFC should know them well, having had a board seat for some time. However, these are still young companies and high-risk investments, there are no guarantees.

EIS funds from previous years have now started to return cash to investors. Greendeck and Cognism (more detail below) are the two most notable examples – with exits or partial exits generating returns of 4.7x and 13.1x respectively. Cognism was also an investment in the Startup Funding Club SEIS Fund. Past performance is not a guide to the future.

  • Target return of 3x over four to seven years – not guaranteed 
  • Targets a portfolio of 10-15 companies with deployment over 12 months – not guaranteed
  • 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
  • Deadline: 28 June 2024 for next close

Important: The information on this website is for experienced investors. It is not a 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: you could lose all the money you invest.

The manager

SFC Capital (“SFC”) is an angel investment club focused on early-stage businesses. It identifies companies for investment and provides them with ongoing support and expertise. 

SFC launched one of the UK’s first SEIS funds in 2013. Since then, it has become a prolific seed investor, facilitating investments in nearly 500 early-stage companies across a broad range of sectors. A 2023 report from PitchBook Data named SFC the fifth most active Angel & Seed investor in Europe, behind investors such as the Irish and French government investment arms. 

The SFC angel network is a group of over 500 active angel investors from various backgrounds, many with direct experience in building and investing in successful young companies. They co-invest alongside the fund and bring additional experience to the portfolio. SFC has also forged ties with some of the country’s leading universities and startup accelerators to broaden its deal flow.

The SFC team is headed up by Stephen Page, CEO. Stephen has founded and exited several software businesses and is supported by Chief Investment Officer Joseph Zipfel whose 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 16 individuals, most of whom are actively involved with investment decisions.

SFC Capital Ltd is the investment adviser to the fund, which is managed by SFC Capital Partners Ltd, of which SFC Capital Ltd is an appointed representative. Before your subscription is invested, the cash will be held by the custodian, Bennett Brooks & Co Limited. Shares will be held by the nominee, SFC Nominees Limited.

New: Meet the manager – Ed Prior, SFC Capital

 

Investment strategy

SFC’s EIS fund seeks to take advantage of the manager’s position as the UK’s most prolific SEIS investor, by backing the most promising businesses within the manager’s earlier stage portfolio.

The SEIS fund looks for innovative products and disruptive technologies, with companies typically less than two years old. It will look to take a material stake in a business, gain a board seat, and offer guidance and support. The EIS fund will invest once the early startup work has been completed, the business has validated its model and achieved significant growth. 

By taking a board seat when investing through the SEIS fund, SFC develops 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 preferred destination for businesses seeking follow-on funding. This should create a rich pipeline of opportunities for the EIS fund, although the fund may, on occasion, invest in companies that have not received backing from the SEIS fund. 

The manager targets a return of 3x, not guaranteed.

Portfolio

Investors can expect a portfolio of 10-15 companies across various sectors, including digital technology, life sciences and consumer goods. SFC seeks to fully invest subscriptions over a 12-month period following a closing date, not guaranteed. 

Below are examples of companies included in previous iterations of the EIS 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. EIS funds tend to be managed on a discretionary basis so each individual portfolio is likely to be different.

Medwise-AI-SFC-EIS.jpgMedwise.ai – Recent investment

A GP will need to look up a clinical question every other patient visit, it’s estimated. But accessing clinical information through traditional references such as textbooks can be time-consuming and, while search engines like Google are much quicker, sifting through the thousands, even millions of results to find reliable sources can be challenging.

Dr Keith Tsui, a medical doctor and former management consultant, experienced these problems first-hand and founded Medwise in 2019 with ex-Facebook employee and experienced natural language processing engineer Luis Ulloa. Medwise has built an AI powered reference product that allows healthcare professionals to quickly search for clinical information, drawing exclusively on trusted sources. 

By providing direct links to relevant knowledge sources the company hopes to speed up access to information, freeing up clinicians’ time to focus on patients. The company believes this can save up to 2.6 minutes per consultation.

SFC first invested through its SEIS fund in January 2021, and has made two subsequent investments – most recently in April 2024 – as well as investing on behalf of the British Business Bank.

Petalite-SFC_EIS-SEIS.jpgPetalite

One of consumers’ main concerns when considering an electric vehicle (EV) is the lack of charging infrastructure. Although the government is on track to build 300,000 public charging points by 2030, it's estimated almost eight times as many will be needed. To make things worse, many existing chargers may last only a few years due to unreliable component design. In other words, the current infrastructure is neither extensive nor reliable.

Petalite’s has developed new charging technology designed to solve common issues around reliability, return on investment and infrastructure life. Unlike standard chargers, Petalite's technology does not require high-voltage aluminium capacitors – an expensive and unreliable component of current EV chargers – and can last up to 30 years. This means that it can achieve uptime of 99.9%, and with a 300,000-hour estimated lifetime, three times the life of some other EV chargers.

SFC Capital first backed Petalite in 2015 through its SEIS fund. It subsequently invested through its EIS fund in 2018 and 2020. Those early investments look promising: the 2018 and 2020 EIS investments are currently held at an unrealised return of 46.7x and 23.7x respectively (April 2024). Past performance is not a guide to the future. 

Cognism – Startup Funding Club EIS and SEISCognism – example of previous exit

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

The business was founded in 2015 by CEO James Isilay and CTO Stjepan Buljat. 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 had recurring revenues of £4,500. In 2022, it announced annual recurring revenues were over $20 million. It also appeared in the Deloitte Fast 50 2022, a list of the UK’s fastest-growing private technology companies. 

In January 2022 Cognism announced it had raised $87.5 million in a deal led by American investment group Viking Global Investors. The deal valued the business at more than £200 million and presented SFC with an opportunity to sell a little over 30% of its EIS investment at 13.1x cost. Past performance is not a guide to the future.

Airslip – example of previous failure 

SFC first invested in Airslip in March 2021 through its SEIS fund. Initially a payment technology company, it quickly pivoted towards software allowing financial institutions to assess SME credit risk in real time. The new strategy was validated by several commercial pilots and SFC decided to take part in the company’s EIS round in March 2022 alongside a syndicate of angel investors from the industry. 

However, the 2022 Fintech industry downturn hit Airslip’s customers hard and the commercial pilots were discontinued rather than converting to full commercial contracts as originally expected. This, combined with an adverse funding environment for Fintech in general, meant the company reached the end of its cash runway and had to close.

Lessons learned prompted adjustments to the EIS fund's strategy, including extending the cash runway requirement to 24 months.

Performance 

The Startup Funding Club Angel Fund EIS launched in the 2016/17 tax year and has invested in 107 investee companies to date. The early funds are now showing encouraging progress and have started to return capital to investors, having achieved two full (Vortex IoT and Greendeck) and one partial (Cognism) exit. Note: past performance is not a guide to the future. 

The chart below shows the average performance of the total subscribed into the funds in each full tax year from 2012/13 (or from when the current strategy was adopted if later) to 2023/24. The chart is based on the latest valuations provided by the manager, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.

Performance per £100 invested in each tax year

Source: SFC, as at April 2024. Past performance is not a guide to future performance. The chart shows realised returns (where share proceeds have been returned to investors as cash) and unrealised returns (where cash has not yet been returned and the value of the investments is based on the manager’s own valuation methodology). There is no ready market for unlisted shares. The figures shown are net of all fees and do not include any income tax relief or loss relief.

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 and should only form part of a balanced portfolio. As must be expected with early-stage investments, some or even all of the companies in the portfolio could fail: the fewer the companies included in the portfolio, the higher the risk of loss if things don’t go to plan. You should not invest money you cannot afford to lose.

There is no ready market for unlisted EIS shares: they are illiquid and hard to sell and value. There will need to be an exit for you to receive a realised return on your investment. Exits are likely to take considerably longer than the three-year minimum EIS holding period; equally, an exit within three years could impact tax relief.

To claim tax relief, you will need EIS3 certificates, normally issued once shares have been allotted. This can take several months: please check the deployment timescales carefully. Tax reliefs depend on the portfolio companies maintaining their EIS-qualifying status. Remember, tax rules can change and benefits depend on circumstances.

Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

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
Dealing charge
Performance fee 25%
Investee company charges
Initial charge 6%
Annual charges 1%
The fees and charges above are stated exclusive of VAT, which applies in some cases, as determined by the manager. Please check the VAT position carefully in the provider documents. 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

Our view

SFC is one of Europe's most active start-up investors and operates a prolific SEIS fund. This, coupled with ties with leading universities and accelerator programmes, together with a large angel network, gives the SFC investment team access to a strong pipeline of deals and supports the investment appeal of the EIS fund. 

As many of the EIS investments will be follow-on, SFC should have a deeper understanding of the companies, potentially enhancing its due diligence and benefiting investors. And as its SEIS portfolio represents a large pool of seed investments from which to identify promising opportunities, investors should receive a relatively diverse (in EIS terms) portfolio of between 10-15 companies, although this is not guaranteed.

SFC’s reputation and track record may attract new entrepreneurs seeking funding, further enhancing SFC’s deal flow.

For experienced investors keen to add to their existing EIS portfolio, the SFC EIS fund could be worth considering. In addition, existing SFC SEIS investors may find this follow-on-focused EIS fund worth a look.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. 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
3x
Funds raised / sought
-
Minimum investment
£10,000
Deadline
28 Jun 2024
Last updated: 20 May 2024

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