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 recent report from PitchBook Data.

Originally set up as an angel syndicate in 2012, it is well known for its SEIS fund, one of the strongest SEIS offers available, in our view. 

To date, SFC has invested in over 190 companies – 30 companies were added to its portfolio in 2020 with more expected before the end of year. 

The EIS fund looks to make follow-on investments into the most promising seed companies already backed by SFC, 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 – thus due diligence should be much enhanced. 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 6.4x the net investment cost. In March 2020, SFC made a partial exit of Cognism, a company held in both the SEIS and EIS funds, for an 11x uplift on its initial investment cost. 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.

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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 minimum of 10 follow-on investments from Startup Funding Club’s most promising SEIS investments
  • 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. 

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 200 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 14 individuals, 12 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 is ready to move to growth stage. 

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 the first port of call for businesses seeking follow-on funding. This should create a rich pipeline of opportunities for the SFC EIS fund.

Target return

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

Exit strategy

SFC aims to exit investee companies within five to eight years, not guaranteed. So far, it has completed one exit via a trade sale (MyFutureNow) as well as 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 at least 10 companies, 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. 

Transcend Packaging – Stratup Funsing Club EIS and SEISTranscend Packaging – recent investment 

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 product range includes paper drinking straws which benefited from the recent backlash against single-use plastic ones. Indeed, Transcend Packaging was one of two firms to win a contract in 2018 to supply these to UK and Ireland McDonalds’ outlets. This announcement led several other major brands to engage with the company which now supplies a number of large accounts throughout Europe. 

Transcend has had a positive 2020 despite the challenges raised by the pandemic. It continues to see strong growth, encouraged by favourable regulations banning single-use plastic straws in the UK and Europe. The company has also started to expand its product range to include paper cups and cutlery, as well as converting several production lines to supply over 15 million protective face shields for the NHS. 

SFC first invested through its 2017/18 SEIS Fund when the company was pre-revenue. It has since provided two rounds of follow-on funding through the EIS, the latest round raised more than £10 million in 2020 and was led by IW Capital and SFC. According to SFC, its holding in the company is currently worth a significant multiple of the original investment cost. Past performance is not a guide to the future.

Cognism – Startup Funding Club EIS and SEISCognism 

Cognism is a London-based software company which uses Artificial Intelligence to help sales and business development professionals find prospects with its “Revenue AI” software. Cognism is one of the UK’s fastest-growing technology companies, having recently raised a $10 million investment led by US-based venture fund PeakSpan and grown its recurring revenue fourfold in 2019. In March 2020, the business raised a further $12 million from AXA Venture Partners. 

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 2020 it announced it had reached over $10 million in annual recurring revenue. 

Both investments are currently valued at a significant multiple of the original cost, according to SFC. As part of the latest institutional funding round in March 2020, SFC was offered a partial exit opportunity as one of the institutions looked to further boost its shareholding in the business. SFC elected to sell c.20% of its initial shareholding for an 11.1x multiple on the original cost, corresponding to a net IRR of 181% – 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 6.4x the initial net investment cost, which corresponds to an IRR of 86%. Past performance is not a guide to the future.

VN Carbon Capture (example of previous failure)

As is to be expected with early-stage investing, companies can and do fail.

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

The company was formed to pursue the commercialisation of a discovery by researchers at the University of Newcastle allowing a cost-effective capture and recycling of CO2 using nickel nanoparticles which could translate into significant commercial potential. The investment was made on the back of 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 and did not get commercial traction despite receiving interest from the scientific community, the press and industrial companies. The company dissolved in 2017. 

Performance 

The Startup Funding Club EIS fund launched in the 2016/17 tax year and has a limited track record. 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 31 December 2020, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.

Source: SFC, as at 31 December 2020. 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. So, for the tax year 2017/18, the total return including initial tax relief would be £169.56, remember tax rules can change and tax benefits depend on circumstances.

As a reference, we also show below the performance of the Startup Funding Club SEIS Fund, which was established earlier than this EIS fund and has, therefore, a longer track record. Please note: these are two different funds. As ever, past performance is not a guide to the future. The chart below shows the valuation as at 31 December 2020, had you invested £100 in each tax year.

Source: SFC, as at 31 December 2020. 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 50% could also apply. So, for the tax year 2015/16, the total return including initial tax relief would be £263.65, 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. 

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, 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

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 two reasons.

Firstly, the EIS fund invests solely in SFC’s SEIS investments. A follow-on investment strategy of this kind could have many advantages for investors. 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 at least 10 companies, although this is not guaranteed.  

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 an attractive prospect.

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: 19 January 2021

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