British Design Fund 2 SEIS/EIS

Update (31 July 2020): Offer closed

Please note, this offer is now closed. Any applications already submitted will be processed on a first come, first served basis.

The UK has the second largest design sector in the world, and the largest in Europe. It produces some of the world’s leading inventors and product innovators. Despite this heritage, there appears to be a significant funding gap for early-stage business within this sector. The Creative Industries Federation highlighted the need for greater funding in a recent report: “Creative enterprises looking to transition out of their startup phase reported that there are few funding options available to them and many highlighted a gap in the provision of more modest amounts – £50,000 to £250,000 – to enable and sustain their growth.”

The British Design Fund (“BDF”) was launched to address this and looks to support entrepreneurs designing innovative physical products. 

BDF’s core team has a strong background within the product, retail, and manufacturing sectors. This experience will be used to help portfolio companies scale their businesses and enter new markets. Each investee company will receive a considerable amount of mentorship from the core team and BDF’s network of industry experts.

This is the second EIS/SEIS fund launched by BDF. It aims to invest between £100k and £150k in a minimum of five companies.

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.


Highlights

  • Invests in the UK product design and manufacturing sectors
  • The UK has the second largest design sector in the world
  • Investors are expected to hold a minimum of five portfolio companies 
  • Mixture of EIS and/or SEIS investments
  • Target return of £3 per £1 invested after six years – not guaranteed
  • £10,000 minimum investment


Co-invest alongside Luke Johnson

BDF has confirmed that Luke Johnson, the entrepreneur, investor and Sunday Times columnist, is investing in the fund and will be joining its Investment Panel. He is currently chairman of private equity house Risk Capital Partners LLP, chairman of Gail’s Artisan Bakery chain and on the board of Brompton Cycles. Mr Johnson commented:

I believe this is a real moment in time to invest in well-designed British products and the Fund is very clear about this focus. The Fund’s combination of purpose and a desire to enable the future success of businesses is very attractive.

LUKE JOHNSON, CHAIRMAN, RISK CAPITAL PARTNERS LLP

Experienced investors should form their own view.

The manager

BDF was founded in 2017 by a team of experienced design experts and entrepreneurs. The team is headed by Damon Bonser, a serial entrepreneur with over 15 years’ experience in building and running product design and manufacturing businesses. The fund’s chairman and co-founder, John Mathers, is the former CEO of the Design Council and has more than 40 years’ experience within the brand and design industry. 

Other founding directors include David Motum, an experienced publisher within the events and media sector; David Kremer, co-founder of Rubik’s Brand Limited; and Jonathan Silverman, an IP specialist. 

In July 2020 it was announced Luke Johnson, the entrepreneur, investor and Sunday Times columnist, will be investing in the fund and joining its investment panel.

The team expects to be able to use its experience to add considerable value to its investee companies; for instance, by providing advice on licensing or distribution agreements.

BDF acts as the fund mentor, Sapphire Capital is the fund manager.

Watch a video interview with Damon Bonser:

Recorded September 2019

Investment strategy

The BDF invests in and supports early-stage, well designed, product businesses. It works with entrepreneurs with scalable products who are ready to accelerate growth and build long-term shareholder value.

This iteration of the fund seeks to invest at least £100,000 in each investee company in return for c.15-30% equity, across at least five companies. Every company must have a physical product that solves a tangible problem or meets a compelling need. Founders must have excellent knowledge of their market and should be able to demonstrate clear market demand – this can take of the form of pre-orders, early sales or crowdfunding. 

BDF will only invest if the company has developed a prototype and secured some level of IP protection. Furthermore, the companies should be realistically capable, in BDF’s view, of trading within 12 months after investment. For this reason, the investment team will avoid businesses with large R&D requirements, such as medical devices, which typically need to go through multiple lengthy clinical trials before they can trade.

Post-investment support – Twenty20 Mentoring Limited

Each investee company will be required to enter into a mentoring agreement with Twenty20 Mentoring Limited. Via Twenty20 Mentoring, the BDF team members will provide a comprehensive range of mentoring services to support the growth of the investee companies. Investee companies will be charged an annual fee equivalent to 2-4% of the sum invested by BDF per annum for mentoring services. 

Key areas of support provided are:

  • Market entry
  • Sales strategy and execution
  • Design
  • IP protection
  • Manufacturing and product development
  • Brand development
  • Finance and stock control

Target return 

The fund targets a return of 3x after six years; this is not guaranteed.

Exit strategy

Exits may be achieved through a variety of routes, none of which are guaranteed. This includes trade sale, management buy-out or sale of shares to other shareholders. The target holding period is six years. 

Portfolio

To date, BDF has invested £0.3 million into four SEIS companies and £0.25 million into two EIS companies. 

The target for this fund is a portfolio of 10-15 companies, a minimum of five with £100,000 invested in each. While the fund will only invest in companies with physical products, it is relatively sector agnostic although it is unlikely to invest within the medical sector due to strict clinical regulations.

Below are portfolio company examples from previous iterations of the 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.

Kokoon – British Design Fund EISKokoon

Kokoon was founded by Tim Antos to solve a simple problem: to help people sleep. An insomnia sufferer himself, Mr Antos was recommended audio techniques after visiting a sleep clinic. Whilst the audio worked, it was difficult to find headphones that were comfortable enough to sleep with. Unsatisfied, Mr Antos designed Kokoon headphones specifically to promote good sleep hygiene and comfort.

Kokoon headphones are wireless, noise-cancelling and cushioned. Collectively, the company produced over 200 prototypes to get the ergonomic design correct. In recent years, the product has been developed to integrate sleep tracking software into the headband. This allows the headphones to track R.E.M. cycles and determine the best period to play audio to promote sleep or function as an alarm.

The company first raised funding through Kickstarter, reaching just under $2 million from around 8,500 backers. BDF invested £150,000 in December 2017 to help drive sales and marketing.

Lutra Marine – British Design Fund EISLutra Marine

Ports and harbours routinely require dredging to remove sediment deposits and maintain water depth. Not only is this vital to ensure safe navigation, but it is also becoming more necessary as vessels increase in size.

Conventional dredging techniques are often expensive and can damage the environment by disturbing sensitive sea beds and reducing water quality. By contrast, Lutra Marine has developed a patented dredging technique that can remove sediment and rock without disrupting local habitats. The equipment can be deployed from the shore or on vessels for versatility.

BDF invested a first tranche of funding in 2019 to support product development and demonstrations for potential contractors. The second tranche of funding is due in Q3 of 2020 and will be used to scale sales efforts within the UK and EU.

Previous exits and failures 

To date, the fund has not achieved any exits nor suffered any failures; this is partly due to the fact it is still a relatively young portfolio. These are high-risk investments and you should expect some failures. 

Performance

The first BDF fund launched in 2017. The chart below shows the performance (as at 31 March 2020) had you invested £100 in each tax year. Please note the only prior opportunity to invest with BDF was in Fund 1 in tax year 2017/18.

Source: BDF, as at 31 March 2020. Past performance is no guide to future performance. These figures do not include any realised returns (exits) as there have not been any. In the above examples, initial tax relief of up to 40% could also apply. So, for the tax year 2017/18, the total return including initial tax relief would be £140 – 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/SEIS 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/SEIS 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.

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 20%
Investee company charges
Initial charge 5%
Annual charges 2-4%
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

Please note, this offer is now closed.

Our view

The British Design Fund operates in a sector in which the UK is a world leader. The BDF believes that despite this, the sector is underfunded – this is especially true of early-stage businesses – thereby creating an attractive opportunity for investors. 

BDF was set up to exploit such an opportunity, but whether it can capitalise on it and deliver investor returns remains to be seen. The fund is enhanced by the arrival of Luke Johnson, in our view. The appointment of a high calibre investor and entrepreneur could prove beneficial in attracting the best opportunities within the sector.

The BDF launched its first fund in 2017/18 so it has a limited track record. However, the investment team has considerable industry expertise and significant experience to be able to provide post-investment assistance and mentoring. This is likely to be attractive to founders seeking a supportive venture capital investor. 

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
Consumer
Target return
-
Funds raised / sought
£2.0 million sought
Minimum investment
-
Deadline
CLOSED
Last updated: 31 July 2020

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