Seneca EIS Portfolio Service

This EIS portfolio service invests in later-stage, established growth orientated businesses. Seneca targets companies which have already proven there is a market for their offering, generate revenue and are either profitable or with a visible line to profit. It is likely investors will have a spread of unquoted and AIM listed businesses. As an established growth capital provider, Seneca has been largely unaffected by recent changes to EIS qualifying rules.

Highlights

  • Targeting 4-6 investments for each investor
  • Already established businesses 
  • Strong history of deal flow and deployment in growth capital deals 
  • Deferred annual charges until investors receive back their net investment amount
  • 1.6 to 1.8 x target return excluding any tax reliefs – not guaranteed
  • Exit target within 5-6 years – not guaranteed


The manager

Seneca Partners was launched in 2010 by founding partners Ian Currie, Tim Murphy and Richard Manley. The purpose was to invest in small and medium-sized enterprises (SME) and help them grow. All four founders are SME specialists by background. They believed many SMEs in the north of England were unable to access the capital they needed to grow. 

Seneca’s five offices across the North of England tap into this need. It is an established SME specialist offering equity, debt and corporate finance and debt advisory services and manages £100 million of tax-efficient investments. 

The team comprises over 70 professionals with strong regional connections. This gives Seneca access to hundreds of investment opportunities each year from which it will seek to invest in around 25-30. Typically, there are at least 10 businesses in various stages of due diligence awaiting investment at any given point. This helps Seneca deploy investors’ funds in a timely manner. 

Investment strategy

The team is sector agnostic: it prefers to evaluate each business on the strength of its investment fundamentals with a particular focus on valuation and the ability of investee company management to deliver on the growth plan.

As at 5 April 2018, Seneca has completed 73 investment rounds into 41 Companies, 18 of which are AIM quoted. Overall £51 million has been invested in the Seneca EIS portfolio service. 

Currently, the portfolio invests in businesses across a wide range of sectors which Seneca believes can grow and flourish thanks to the injection of capital and experience of the Seneca team. 

Unlike other EIS managers, Seneca typically looks to invest £1 million or more in each deal, which requires investee companies to have reached a certain level in their lifecycle and maturity, rather than early stage and startups. 

As a further point of difference with other EIS offers, Seneca also invests in AIM-listed companies. These tend to be more substantial businesses using capital markets to fund growth and development. Seneca also sees AIM-listed investments as being more liquid and with visible daily pricing, although this means they might also be more volatile. It may also be easier to achieve an exit after the minimum three year EIS holding period. Seneca can use its strong relationships with the national broker firms and take part in institutional investments from its EIS Portfolio Service. Co-founder Ian Currie is key to this having raised capital for many AIM-listed businesses in the past.

Current portfolio examples

Seneca VCT Yu GroupYü Group plc (AIM-quoted)

Yü Group, which trades as Yü Energy, is a gas, electricity and water supplier to SMEs. 

Bobby Kalar, the entrepreneur founder, started the company in 2012 to ‘take on’ the “Big Six” utility suppliers which control 85% of that market. 

At the time, he ran his own care home business and experienced first-hand the frustrating combination of crippling prices and poor service SMEs tend to receive from utility suppliers. This gave him the idea for Yü Energy, which he funded through the sale of his care home business and personal savings.  

The idea is simple: help SMEs manage their energy with great service and transparency. Practically this means each customer has a personal account manager and the call centre works on a three-ring guarantee, with an average query-resolution time of 90 seconds. Yü Energy provides flexible contracts and payment terms, and the billing and account platform has been designed to be as simple as possible.

Seneca Partners invested c.£900,000 in March 2016 and the most recent valuation (16 August 2018) shows an unrealised return of around 5.7x the original investment (see above for annual performance figures for the EIS funds overall). 

Seneca believes the company is an attractive investment because it’s highly scalable, has a proven track record and high visibility of revenues. 

Revenue soared nearly threefold in 2017 compared to the previous year and adjusted pre-tax profit rose from £195,000 in 2016 to £3.1 million in 2017 as the group focused on mid-sized corporate customers like office buildings, football stadiums and shopping centres.

The group has good visibility for the year ahead with £50 million already contracted. 

The founder is still the major shareholder. Other significant shareholders, besides Seneca Partners, include Octopus Investments, Miton Group, Legal & General and Artemis. 

Seneca VCT SuperCarersSuperCarers Ltd (unquoted)

SuperCarers is an online matchmaking service for people in need of care (or their families) and vetted, reliable, local carers. 

It was founded by brothers Adam and Daniel Pike after witnessing the difficulties their mother encountered when trying to arrange care for their dementia-suffering grandmother. 

In 2012 Adam Pike was working on policy to improve care for the ageing population as a policy advisor in the Cabinet Office and Treasury, on secondment from Deloitte. Unsatisfied with the outcome, in late 2015 he launched SuperCarers with his brother, from their father’s small office. 

SuperCarers has created technology that cuts out the middleman, i.e. care agencies, thereby cutting costs and improving the experience for both care workers and customers. 

Demographic trends support demand for services of this kind:  4 million elderly people are estimated to need help by 2025. 

SuperCarers was originally backed by the founders of Innocent Smoothie via their JamJar Investment Fund and Sir Tom Hughes-Hallett, the former CEO of Marie Curie, now the Chairman of Chelsea and Westminster Hospital.   

Its advisory board includes Alan Rosenbach, until recently Director of Strategy of the Care Quality Commission (CQC); Paul Burstow, former Minister of State for Community and Social Care; Jan Burns MBE, Chair of the National Dignity Council; and Andrea Pope-Smith, Ex-Director of Adult Social Services at two Councils.

SuperCarers has grown consistently since its launch and has a clear path to profitability.  

Seneca Partners invested £1.25 million in March 2018, in a funding round led by Mobeus VCTs.

Target return

£1.60–£1.80 per £1 invested, not guaranteed.

Performance

The portfolio has produced a number of profitable exits for investors ranging from 1.1x to 10x amounts invested. There have been two write-offs but the performance of the remaining investments in the portfolio has compensated for this.

Please note: past performance is not a guide to the future. Capital is at risk. The current Seneca EIS portfolio service was preceded by the Seneca Growth Capital EIS Fund. Annual performance of the two funds is shown below.

  Financial year ending 31 March
  2014 2015 2016 2017 2018 5-year average
Annual growth rate 3.3% 28.5% 0.1% 10.2% 2.5% 8.9%
Source: Seneca Partners, March 2018.
NAV (Net Asset Value) calculations include quoted companies at year-end closing share prices, cash from realisations, private companies valued in line with the share price of the investee company’s most recent fundraise (unless otherwise impaired) and represent gross performance before Seneca‘s stated fees. The Annual Management Charge and Performance Fee are contingent and only due on the realisation of investments, after return of capital to investors. Due to the lower number of exits relative to the number of investments, limited fees are due up to 31 March 2018. For illustrative purposes only, if all investments were to be realised at their prevailing values as at 31 March 2018 and the fees apportioned over the investment period with reference to the funds under management at each March year end, the combined average (unaudited) NAV growth rate for the 5 year period to 31 March 2018 would be approximately 7.4%.

Exit strategy

Seneca targets an exit from each individual investment within 5-6 years – not guaranteed. The AIM-listed companies’ shares could be sold in the market. Exit strategies for the unquoted companies include trade sales, buyouts or restructuring. Seneca could benefit from the support of its own Corporate Finance team when exiting private businesses 

As the Portfolio Service is discretionary, Seneca will seek to exit at the optimum time, maximizing returns to investors whenever possible, although returns and timeframes are not guaranteed. 

Risks

The usual risks with unquoted and AIM listed companies apply to this EIS offer. For instance, EIS investments are illiquid and capital is at risk. Investors should not invest money they cannot afford to lose. Seneca’s focus on more mature, revenue generating and profitable companies may mitigate – but not remove – the risk of failure. 

The value of tax relief depends on circumstances and tax rules could change. 

Fees

The initial charge is 2.5% plus VAT. The annual management fee is 2% plus VAT. Seneca only receives the annual management fee if investors get their net subscription back in full. 

Once investors have received their net investment back in full and after the deduction of the annual management fee, Seneca receives 20% of any excess as a performance fee. Seneca may receive a monitoring fee from underlying companies although this is relatively modest – equivalent to an average of 1.9% of funds raised. 

In addition to Seneca’s fees, there is a one-off custodian fee of £55 plus VAT (£330 is held out from initial subscription to cover 5 years Custodian costs). 

Entry and exit dealing costs of 0.35% each are paid by Seneca from the initial 2.5% initial fee.

Please see the provider’s document, including the key information document, for more information on fees.

Our view

Many growth-based EIS portfolios focus on investing in high-tech businesses. It is refreshing to see one that looks to support more traditional and mature, yet still potentially fast-growing businesses. Seneca has a wide and established footprint in the Northern regions of the UK, which could offer a geographically diverse exposure. 

The charging structure encourages Seneca to secure favourable exits.  

Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based 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. April 2018

The details

Type
Fund
Sector
Various
Target return
£1.60–£1.80 per £1 invested
Funds raised / sought
-
Minimum investment
£25,000
Deadline
Discretionary

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