Jenson Fund 5 – SEIS & EIS

This is the fifth tranche of the Jenson SEIS and EIS fund, raising up to £5 million. Jenson are SEIS pioneers: their first fund was launched soon after the Seed Enterprise Investment Scheme was introduced in 2012. The fund offers a mixture of new technology investments and follow on funding into companies previously invested in by Jenson SEIS and EIS funds. 

Highlights

  • Target return of 185p per 100p invested (not guaranteed)
  • Choice of SEIS or EIS investment
  • SEIS will focus on innovative and disruptive technology firms. EIS will predominantly invest in Jenson’s existing portfolio of companies
  • Portfolio of a minimum of 10 SEIS companies, or around five EIS companies
  • Relatively low failure rate to date (12 out of 82 companies) although past performance is not a guide to the future
  • Minimum investment £10,000

The manager

Jenson Funding Partners was founded in 2012. Its first SEIS fund launched in 2012, one of first in the market. Jenson later launched the EIS fund to provide follow on funding for the more successful portfolio firms. To date, Jenson has invested over £12 million in 82 companies. 

The offer

This is the fifth fund in the series. It is a hybrid offer, which allows investors the choice of SEIS or EIS investment, or a mix of both. 

SEIS investors will hold a portfolio of minimum 10 companies, EIS investors around five companies. 

Of the 82 companies that have received funding to date, 12 have failed. This attrition rate is low considering around 50% of UK start-ups generally fail within the first five years. Nevertheless, this portfolio is very high risk and investors should expect failures.

The SEIS part of the fund will focus on innovative and disruptive technology firms. The EIS has a focus on providing follow-on funding for firms in the SEIS portfolio, combined with new investee companies.

Jenson’s ability to invest in the SEIS portfolio companies via its EIS is important. Most young businesses require additional funding, however under SEIS, if a firm receives maximum funding of £150,000 at outset, it is not possible to provide further follow on funding via SEIS. By nurturing the SEIS firms from outset, Jenson is able to build up a detailed understanding of the businesses and a good sense of the value of the firm. In Jenson’s view this is a stronger investment proposition than going out to market to find EIS investee companies from scratch. 

Follow on funding rates and failure rates for the first Jenson SEIS and EIS funds are shown below.

Jenson Fund Launch date Follow on funding Number of failures
Fund 1 SEIS 2013 6 companies out of 35 (17%) 10
Fund 2 SEIS 2014 4 companies out of 24 (16%) 2
Fund 3 SEIS/EIS 2015 3 companies out of 18 (16%) 0
Fund 4 SEIS/EIS 2016 Not available Not available
Source: Jenson. Past performance is not a guide to the future.

Jenson invests across multiple sectors with the majority of early stage companies having some technology related angle. 

Every potential investee company is subject to Jenson’s selection process and extensive due diligence, before being submitted to the investment committee. Of the companies that start the selection process, on average 4% receive funding. After the initial screening process, Jenson provides successful investee companies an independent finance director with no previous contact with the firm, to help them get to the investment committee. The investment committee includes Peter English, co-founder of Foresight Group and Colin Moore, a senior partner in Jenson Solutions.

Jenson seeks investee companies with a credible management, a viable product or service, and evidence of success, for instance sales, contracts, trials or letters of intent. They should be able to grow organically and require relatively small amounts of funding to achieve profitability. Jenson avoids one-man band businesses and looks for a minimum of two active members with a balanced share of equity.

Jenson provides a support package to investee firms, covering various aspects of financial, sales and marketing, tech and operational support, which is mandatory for the first three years. After that, firms can choose whether to use it or not. 

Target return

The target return is 185p per 100p invested, not guaranteed. As is the nature of early stage investing, the investee companies that succeed may deliver returns many times that of the initial investment. The flip side is that some of the companies are almost certain to fail. 

Exit strategy

In the SEIS offer, companies will require more rounds of financing, either from Jenson’s EIS offer or external bodies. Realistically, as many of the companies will be early stage, exits are largely expected from trade sales rather than from flotations. Exit is expected in five to seven years, although this is not guaranteed.

In November 2017, Jenson's Fund 1 SEIS had its first exit, Twizoo. This is a social content platform which has been bought by the travel search company Skyscanner. Skyscanner intends to make use of Twizoo’s social content integrations and technology to bolster hotel reviews and recommendations. Remember, past performance is not a guide to the future.

Example of a portfolio company 

Voneus is a technology business which provides super-fast broadband to rural areas and internet black-spots using proprietary technology developed in-house. Voneus - Jenson SEIS & EIS

Voneus aims to be the market leader in super-fast broadband for hard to reach areas within the next two years, targeting up to 1.3 million households who have no access to fibre broadband. 

One of the key attractions for Jenson was an experienced, sector specific, management team with a track record of growing and selling businesses. The concept introduced was highly disruptive technology in the VoIP space. There was also a solid market opportunity with UK wide broadband being a target for successive governments. Jenson has followed up its original SEIS funding with two further rounds of EIS funding. Jenson views the rural market as fragmented with payback periods for rival technologies as high in comparison to the Voneus solution. Voneus has changed significantly since Jenson first invested. From zero revenues and only employing founders, it is now revenue producing, employing over 20 people and has just raised venture debt finance (circa £5 million) which values Voneus at over £20 million. 

As at July 2017, Voneus had nearly one thousand customers, and has an intensive business development plan in place to hit 2,500 within two months. They now operate in 10 communities from Bedfordshire to Somerset, and are attracting interest from the Midlands and the North. 

Performance

The chart below shows the Net Asset Value of the first four SEIS funds and the corresponding EIS funds since launch, to 31 March each year. Three companies within EIS fund 3 have received follow on funding (internal and externally sourced) so the net asset value reflects the valuations done on these three companies to establish the price at which the funding should come in at. Two of the three companies, Hurree Limited and Robo VR Limited, saw their value increase by over 100% on the completion of the further fund raise to a combined total of £3.1 million. 

Source: Jenson. Past performance is not necessarily a guide to the future performance of the fund. The data above shows net asset value of the first four SEIS funds and their corresponding EIS funds, as at 31 March each year. It shows data since launch of each fund. The data was valued by Jenson in accordance with International Private Equity and Venture Capital Guidelines which require investments to be valued at their fair value and include a number of techniques for doing so depending on the circumstances. The Price of Recent Investment valuation technique is commonly used in a seed, start up or an early stage situation, where there are no current and no short-term future earnings or positive cash flows. For these enterprises, typically, it is difficult to gauge the probability and financial impact of the success or failure of development or research activities and to make reliable cash flow forecasts.

Risks

These are early-stage businesses, which makes this a very high-risk investment. By their nature these firms will be more prone to failure than later-stage, more mature businesses. 

Out of five to ten portfolio companies held, all of these could fail.

Another key risk is lack of funds for follow-on investing with the possibility of early investors being diluted. However, this can be mitigated to some extent by the EIS offer and prudent use of other external funding. 

Capital is at risk: investors should not invest money they cannot afford to lose. Investors should be aware these are long-term investments and are illiquid. Tax rules can change and the value of tax benefits will depend on circumstances.

Fees

There are no direct fees paid by investors: all fees are levied against the investee companies. 

There is an initial charge of 7.5%, charged to the underlying investee companies. In addition, Jenson receives an administration fee of £250 per month from each company.

Jenson requires portfolio companies to take up its support package (providing financial and operational support in areas such as sales, marketing, corporate governance, accounting and technical) for the first three years. This is designed to help them to grow and costs £750 per month. After the first three years, the support service package is no longer mandatory, but companies can choose to continue with it if they wish. 

Jenson will charge £3,500 for an initial due diligence report on potential investee companies. 

There is a performance fee of 25% of any profits, on an individual company basis, once investors have received their original gross amount invested back (from that company), either from dividends or capital return. Jenson may also charge exit fees to underlying companies.Please see the information memorandum for more details on fees.

Summary

There aren’t many funds offering a combination of both SEIS and EIS. The way Jenson’s EIS funds work alongside its SEIS funds provides potential benefits to investee companies, investors and Jenson alike. This is a high-risk offer, but could represent an exciting opportunity for those wanting to back early stage, high risk companies, often in the technology space. The track record so far is promising but limited: remember past performance is not a guide to the future and the SEIS has only been in existence since 2012. 


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 16.11.2017

The details

Type
Fund
Sector
Technology
Target return
1.85x investment
Funds raised / sought
£720,092 raised
Minimum investment
£10,000
Deadline
Discretionary

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