MMC Ventures EIS Fund
MMC Ventures is a well-established and highly impressive manager. This EIS portfolio will invest in 8 to 12 technology enabled businesses.
- Investing in technology enabled businesses
- Focus on four sectors
- Mix of new and follow on investments
- £25,000 minimum investment
MMC Ventures started in 2000 as a syndicated investment service for high net worth individuals. It was founded by Bruce Macfarlane, the current managing partner, and Alan Morgan. It launched its first EIS fund in 2005. Today MMC has over £160 million under management and has invested in over 50 companies.
Despite a generalist approach, companies sought have to be technology enabled and ideally disruptive. For instance, in the past MMC has invested in businesses such as Reevoo, a service used by the likes of British Gas, Honda and MoneySuperMarket that allows users to share their shopping experience online; and TyresOnTheDrive.com, which allows customers to input their car registration online, compare prices, and have an engineer fit new tyres at a time and location of their choice.
MMC focuses on four sectors: fintech, digital media, consumer internet (including ecommerce), and business software. New investors into MMC’s EIS portfolio will receive approximately half of their investment into companies targeting consumers (B2C) and half into businesses selling to other businesses (B2B).
MMC does not invest into startups. All companies must have sales and revenue, ideally annual sales of at least £1 million and up to £5 million in total sales. They will have often previously received “angel financing” or seed money. MMC then assesses how much financing is needed to reach cash break even in the UK.
When a new potential deal comes in it is screened by two associates in the investment team. If they think it is interesting they will meet the entrepreneurs behind the business. If this meeting is successful, there will be a further one with the entire MMC investment team followed by a site visit. The team then presents a paper to MMC’s investment committee. The investment committee comprises founders Alan Morgan and Bruce Macfarlane alongside Jon Coker (co-managing partner), and has to approve all deals. Once approved by the committee, terms are then put to the company. Virtually the entire MMC team will meet a company prior to any investment.
In total MMC looks to invest £4 million to £5 million per company. The sweet spot is £1.5 million to £3 million in first round funding, but MMC often co-invests alongside other institutional investors so the total deal size is closer to £5 million. In 2015 it attracted £56 million of investment via this route. This validates the price paid for the businesses according to MMC.
In the last year, MMC invested £21 million into four new deals and 11 follow on investments into existing portfolio companies. New investors are likely to have their money invested into 8 to 12 companies within the first 13 months – ideally into 10 companies, half new investments and half follow on ones.
Each company MMC invests in must have the potential to deliver a 5x return on money invested, although there is clearly no guarantee of this.
As part of the due diligence, MMC assesses potential buyers for the investee companies. So far two companies have been listed on AIM and another sold to an AIM-listed business. Private equity and trade buyers have also bought companies. There have been six exits, of which one partial, since inception. Eight companies have gone bust.
MMC states investors should assume a failure rate of about 25% as these are early stage, high growth opportunities. Looking at MMC’s history, this seems a fair assessment as eight companies out of approximately 50 invested in have failed.
There is an upfront fee of 1%. The annual management fee is 2.5% (+VAT) and is structured to reward long-term investors. The first two years’ fee is withheld at launch and paid quarterly to MMC. The following three years’ fee is accrued but only paid after an exit has been achieved. There is no annual management fee after the fifth year. A performance fee is charged on the whole portfolio, but only once investors have got back their original subscription. MMC receives 20% of any profit over the original investment. MMC also typically receives a one-off 2% deal arrangement fee and 1% per annum monitoring fee from underlying companies.
MMC Ventures is a very credible and experienced investment company. It focuses on four key high-growth areas and has invested in these sectors for a number of years. Unlike some other high-growth EIS managers, MMC has had more than one exit, with a mix of trade sales and AIM flotations. The fee structure is aligned with investors’ interests as from the third year the annual fee is accrued but only paid to MMC after the first exit. This EIS offer is worthy of consideration.
This review is not intended to be advice or a personal recommendation to buy the investment mentioned, nor is it a research recommendation. Wealth Club aims to highlight investments we believe have merit, but investors should form their own view on any proposed investment. 05.05.2016
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