Startup Funding Club Angel Fund EIS

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 over 400 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

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 into 400 early-stage companies across a broad range of sectors. A 2022 report from PitchBook Data named SFC the fourth 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.

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.

Halocycle – Recent investment

PVC is one of the most widely used plastics in the world. It’s cheap to produce, lightweight, strong, waterproof, resistant to chemicals and doesn't degrade in sunlight. However, the very properties that make it useful also make it persist in the environment.

Until now PVC could not be easily recycled. When it is recycled, you end up with an acidic byproduct which could ruin processing equipment. As a result, over 1 million tonnes of chlorine-containing plastics are sent to landfill every year in the UK alone.

Founded in 2020, Halocycle aims to address this. It is developing technology that uses microwave heating to break down chlorine-containing plastics, like PVC, into useful chemicals that can be used to make new plastics and cleaning products. 

SFC first invested through its SEIS fund back in February 2022, and followed on through the EIS fund in April 2023, as part of a £690,000 round that also included Green Angel Syndicate.

Swytch 

Electric bikes are becoming increasingly popular; the market is expected to be worth nearly £35 billion by 2028. However, current electric models can be prohibitively expensive, with some costing as much as a second-hand car.

Swytch has developed a battery and motor system that means any bike can now be converted into an electric bike. That helps to keep costs down and means the kit can be sold for between £500 and £1,000 each – significantly cheaper than fully electric alternatives. Swytch offers conversion kits that weigh as little as 700g and estimates that 99% of the world’s 1.1 billion bikes are convertible. Since it was founded in 2017, the company has sold over 60,000 conversion kits across more than 100 countries with an estimated total of over 10 million miles ridden on converted bikes. 

SFC first invested in Swytch in 2019, when the company qualified for SEIS, as part of an £800k round that valued the business at £1.85 million. SFC invested again in 2022 alongside Wealth Club in a round that valued the business at £29.4 million. Past performance is not a guide to the future.

Cognism – 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 87 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 two partial (Cognism and Bloom Magic) exits. 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 2021/22. 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

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.

Our view

SFC has forged ties with leading universities and accelerator programmes. Combined with its own angel network, this gives the investment team access to a strong pipeline of deals and has helped SFC become one of the most active start-up investors in Europe. This is relevant to investors considering the EIS fund for three reasons.

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

Secondly, SFC’s high level of investment activity means investors should receive, in EIS terms, a diverse portfolio of between 10-15 companies, although this is not guaranteed.

Thirdly, SFC’s reputation and track record may attract 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 of consideration. 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.