Plan To Grow 2020 is a weeklong series of online roundtables on the EIS and BR markets, featuring a range of expert speakers and featuring topics tailored specifically for financial planners, regulated advisers, paraplanners and accountants.
It concludes on Friday 18th September – but if you missed any of it, never fear. You can find full-length recordings of each of the 5 hour-long sessions below, plus text-based summaries if you’re short on time.
Topic: Fees & Performance
Featuring: Andrew Noble (Par Equity), David Foreman (Praetura Ventures), Scott Weavers Wright (Haatch Ventures), Jasper Smith (Vala Capital), Matthew Woodbridge (St James Place)
Please note: summarised, not a verbatim transcript. Timecodes are included after each question if you would like to skip directly to that question in the video above.
Question 1: 6:00 – Please tell us about your fee model and why you picked that particular model.And what, if there is such a thing, does a ‘normal’ fund manager fee structure look like?
Andrew Noble, Par Equity — Our philosophy on fees is that they should be bourne both by the investors and the portfolio companies
Scott Weavers-Wright, Haatch — We go with simple scales and charge a flat 10% to investors
Question 2: 11:30 – When you’re comparing and contrasting EIS and SEIS investments, how do you find EIS and SEIS fee structures? Are they clear to investors where money is being taken from?
Matthew Woodbridge, IFA — disclosure of fees is very mixed across the industry, which makes it difficult from an advisor’s perspective to compare two funds
Question 3: 14:10 — if an advisor came to you and said, “we’re paying X here, but then we’re paying X plus a bit more with you”, and asked you to justify that, how would you respond?
Jasper Smith, Vala Capital – my fees are fair and completely transparent – they are a flat, one-off 6%. We charge the company, we work on behalf of the investor and then we work with that company to try and get the best outcome. It;s a super simple model
Question 4: 16:25 – In terms of what Praetura Ventures do, do you charge zero upfront fees to investors or does the fund itself absorb the costs?
John Prescott, Praetura Ventures – We’re a combination, just like Andrew.
Question 5: 18:25 – In terms of pushing fees down, is there anything you can be doing as fee managers to achieve this?
Andrew Noble, Par Equity– Difficulty arises here due to scale, and EIS and SEIS investments are at the bottom end of the market – we can’t employ the 2 and 20 model given that we’re a company that manages a large number of smaller funds
Question 6: 21:40 – If you were a fund manager and you were putting together your own fund, what fee structure would you be looking to employ?
Matthew Woodbridge, IFA – Transparency would be key to my ethos and I would introduce a hurdle rate for my performance fee
Question 7: 23: 28 – Have you missed out on deals because of your charging structure?
Scott – 100%. When we started Haatch the entrepreneurs we were dealing with were just seeking to make profit as quickly as possible. This resulted in us dropping charging portfolio companies and adopting our current structure.
Question 8: 25:00 – Jasper, as someone who invests yourself, have you had the same experience there?
Jasper Smith, Vala Capital – There are always going to be a few deals you lose out on by charging the portfolio company, but it comes down to the overall package and guidance you offer to the portfolio company.
Question 9: 29:55 – John, what is Praetura’s attitude towards the hurdle rates Matthew mentioned earlier?
John Prescott, Praetura Ventures – We have a performance fee of 20% and we do have a hurdle rate too – we need to return 120% of gross capital before we start charging a performance fee.
Question 10: 32:02 – Some hurdle rates are done on a per company basis and others on a fund basis – which do you use?
John Prescott, Praetura Ventures– We’re fund based. We’re looking at total capital invested plus 20% uplift before we start [INAUDIBLE]
Question 11: 32:39 – [To the rest of the panel] What are your feelings on hurdle rates? Do you use them?
Scott Weavers-Wright, Haatch – At Haatch we don’t.
Andrew Noble, Par Equity– We use a hurdle rate in a very similar way to John
Jasper Smith, Vala Capital – We take our profit once an investor has had all of their capital back – we don’t put a hurdle rate in the primary fund.
Question 12: 36:03 – Scott, you mentioned earlier you were looking for a 10x return. Why this figure?
Scott Weavers-Wright, Haatch – The figure is based on history – on the past performance of companies with which I have been involved.
Question 13: 38:45 – Jasper, when you’re working with portfolio companies, how do you manage a company towards the exit you’re looking for in the time scale the investor is after?
Jasper Smith, Vala Capital– There’s no simple answer. You’re balancing a number of factors, chief among which are an investors desire for a return and the state of the company.
Question 14: 41:00 [Follow up questions asked to Jasper] – From the first day you invest, do you have a theory about how and when the exit is going to come about?
Jasper Smith, Vala Capital – You would never go into a deal without having a pretty decent idea of how you’re going to get out of it. Exit planning comes before pretty much everything else.
Question 15: 43:15 – Matthew, do you see enough exits in the market when you’re talking to investors? Profit back to investors?
Matthew Woodbridge, IFA – No is the short answer to your question. There is a lot of work to be done, although there have been improvements.
Question 16: 45:10 – Andrew, what is your view on the best way to represent performance back to investors and clients?
Andrew Noble, Par Equity – We show a cohort performance on a tax sheet or calendar year basis.
Question 17: 36:50 – John, how do you manage exits?
John Prescott, Praetura Ventures – It’s a difficult balancing act trying to establish how long to hold on for when fundamentally your success is based on how often and when you can return capital to investors.
Question 18: 50:30 – Matthew, do you feel, from the other IFAs you’ve spoken to, that in recent times you have been getting more information on EIS performance back from funds?
Matthew Woodbridge, IFA – Yes, and this is music to my ears.
Question 19: 52: 14 – Secondary markets are not far off non-existent in the EIS world at the moment, are they something you’re looking and trying to factor into your planning?
Scott Weavers-Wright, Haatch – 100%. We can’t operate as a business without doing that.
Andrew Noble, Par Equity – It’s something that’s growing. If you look at the number of companies that are staying private for longer, investors need that liquidity.
Topic: EIS Post-COVID
Featuring: Kevin Hollinrake MP, Paul Munn (Par Equity), Andy Davidson (Nova Growth Capital), Jasper Smth (Vala Capital)
Please note: summarised, not a verbatim transcript. Timecodes are included after each question if you would like to skip directly to that question in the video above.
Question 1: 6:30 – There have been winners and losers as a result of COVID – how do we help those that are struggling in these times access finance?
Kevin Hollinrake, MP – You can’t help all businesses – some have been affected too heavily by COVID. Some that are struggling, however, can be helped by, among other things, grants and loans, for which we can/should extend bounceback deadlines. For EIS and SEIS businesses, tax incentives should be improved. And the more open the economy, the better.
Jasper Smith, Vala Capital – EIS is a fundamental tool to unleash the power of the British investor and engage that in the SME community.
Alistair Marsden, Nova Growth Capital – S/EIS is all about job creation. If we can draw attention to this at a time when there is going to be a glut of job losses, people will understand the capacity the tax incentives have to positively impact the economy.
Question 2: 15:20 – Paul, you deal with IFAs and investors, are they coming back to the market or are they nervous?
Paul Munn, Par Equity – It’s been a split: direct investors have been even more engaged but IFAs and wealth managers have been more focused on their portfolio losses and income outlook in the future. Overall it’s been a quiet summer, but there are signs of improvement.
Question 3: 20:20 – What comfort can you give an advisor who is talking to clients about a risky area of the market anyway? Is there good news that can be given to clients?
Jasper Smith, Vala Capital – if you look at the areas most funds focus on – technology, innovation, etc. – those sectors have performed pretty well.
Question 4: 23:00 – Kevin, what are the businesses you engage with saying about the level of non-financial support they are getting from funds?
Kevin Hollinrake, MP – That S/EIS investments through a fund or a high net worth individual bring with them a high level of business expertise and guidance is seen as a key reason for seeking this kind of investment
Question 6: 24:55 – Alistair, give an idea of companies that have done well on your portfolios over the past 6 months.
Alistair Marsden, Nova Growth Capital – High-growth, knowledge intensive, tech-led businesses that are based around problems that are worth solving have fared well.
Question 7: 28:20 – [To Alistair] If you can’t raise the money you’re seeking to raise in one instance, do companies miss out or do you follow the money to where the winners are emerging from?
Alistair Marsden, Nova Growth Capital – Our structure allows us to deploy money in a way that supports our existing portfolio and follow that money, but it also allows us to slow down investment into some companies
Question 8: 30:12 – Paul, which sorts of companies have been the success stories in your portfolio?
Paul Munn, Par Equity – Healthcare investments have performed well – we have one in vital signs monitoring, which is a good example and have been raising money hand over fist. We also have a company that does at-table ordering systems for the hospitality industry that has also performed well.
Question 9: 34:10 – Jasper, have you made any changes to your investment philosophy?
Jasper Smith, Vala Capital – Our philosophy hasn’t changed – it’s great people, good ideas and the ability to implement.
Question 10: 37:20 – S/EIS investment is highly concentrated in London and the South East, how do we spread investment across the UK?
Kevin Hollinrake, MP – This requires regionally-based solutions and, fundamentally, it requires private as well as public sector investment.
Question 11: 42:30 – Paul, are you at all influenced by a company’s provenance? Or do you base investment decisions entirely on how good the company and its founders are?
Paul Munn, Par Equity – We’re clearly focused on businesses in the north of the UK. This is because we operate a high-touch model and offer hands-on support.
Question 12: 44:55 – Jasper, do you look at investments outside London and the South East?
Jasper Smith, Vala Capital – Yes – we look at deals all across the UK. We’re entrepreneur-led and we look for outstanding entrepreneurs and it doesn’t matter where they are.
Question 13: 47:10 – Alistair, will you be looking at more social impact investments going forward? Or is it simply return-based?
Alistair Marsden, Nova Growth Capital – We invest in companies that are addressing problems that can be solved in sizable markets. We do have a number of companies in our portfolio that are having a societal impact, but ultimately return on investment is the main factor in our decision-making.
Question 14: 50:38 – In terms of SME acquisitions – selling SMEs to larger organisations – are you as fund managers approaching targets?
Jasper Smith, Vala Capital – We haven’t sold anything, but there has been some interest and, recently, that interest has been growing. It seems to me that no one quite knows how to act at the moment and there is uncertainty– do you knuckle down, or do you try to grow through acquisitions?
Question 15: 52:30 – Paul, are companies in your portfolio getting approaches from PE groups?
Paul Munn, Par Equity – Yes, we’ve had 3 or 4 approaches in the last few months. Some of these have been very serious and we are currently pursuing them.
Question 16: 54:00 – If you were chancellor, what measures would you be looking to introduce for SMEs?
Kevin Hollinrake, MP – Enhanced incentives for EIS and SEIS is a simple solution we should just introduce now.
Topic: Research & Due Diligence
Featuring: Ewoud Karelse (Tilney), Richard Moore (Calculus Capital), Andy Davidson (Nova Growth Capital), Simon Tutton (Deepbridge Capital)
Please note: summarised, not a verbatim transcript. Timecodes are included after each question if you would like to skip directly to that question in the video above.
Question 1: 7:40 – Why is it so important to undertake due diligence and research?
Ewoud Karelse, Tilney – You want to do right by your clients and give them the best experience possible with a product that is an ideal fit for them.
Question 2: 10:45 – What, in your eyes, is the difference between due diligence and research?
Ewoud Karelse, Tilney – Lines are definitely blurred in this area, but due diligence comes under the remit of the fund management firm as a whole and research comes under the activities of an individual fund manager, who should, ideally, have similar businesses in his portfolio.
Question 3: Simon – you’ve been a financial planner and you’re now a fund manager, so when you’re getting questions from clients at the moment asking about the fund, does it remind you of your time as a financial planner? How does it differ from being on one side and the other in terms of due diligence questions?
Simon Tutton, Deepbridge Capital – It’s about understanding – if you want to make a recommendation as an advisor, you have to understand what you’re recommending and be able to explain it to a client and manage their expectations well.
Question 4: 15:03 – [To Richard] How do you view due diligence and research?
Richard Moore, Calculus Capital – It’s very important. There is a match-making service done by the advisor to ensure they’ve understood the client and their objectives and also understood the market and what’s on offer.
Question 5: 16:50 – Andy, as a fund manager, tell us about the due diligence process for you looking at companies you’re going to put clients’ money into.
Andy Davidson, Nova Growth Capital – It’s important to bear in mind that the investor is not investing in the fund manager, they are investing in the underlying assets. The manager at all times needs to be thinking “how do I buy in this market”
Question 6: 20:50 – Ewoud, if you’re trying to bring a diversified portfolio to a client, how do you go about delivering?
Ewoud Karelse, Tilney – It’s difficult sometimes for financial planners to distinguish between products because fund managers have gone all imaginative when they are naming their sectors. But at Tilney we start a client with four funds in the first year and we try to give diversity in terms of sector and life stage
Question 7: 24:45 – [To Richard] – What help do you give advisors in terms of doing due diligence and research? What questions do you get from them?
Richard Moore, Calculus Capital – We have a relations team that are the front end of that relationship and answer the DDQ questions and explain strategy.
Question 8: 27:08 – Simon, Deepridge has an interest in MedTech and BioTech, which are complex areas, so how do you make your investments in this area understandable to IFAs and clients?
Simon Tutton, Deepbridge Capital – Through telling them about our backgrounds and experience, we seek to demonstrate to clients that we are well-qualified to act in this market and add value.
Question 9: 30:00 – [Follow up to Simon] Given the COVID situation, there is a lot of focus on that sector at the moment and there will be a lot of companies coming to you seeking investment. How do you filter through these?
Simon Tutton, Deepbridge Capital –We have a first-level filter where we assess a business plan or a technology and judge whether it will if it with our model. From there we speak to the company and have them present to us about what they are doing and who they are.
Question 10: 32:18 – [To Andy] As a fund manager, how easy is it for you to make visible to advisors what it is they’re investing into? Can you tell them exactly which companies their money is going into and give them progress reports?
Andy Davidson, Nova Growth Capital – We can give them quite a lot of visibility, but at the same time not quite enough. We have an investor portal through which we can show clients which companies are in our portfolio and, within that, those that are in our mentorship and accelerator funnel. It would be easier and better if we, as an industry, developed a standard portfolio mix for different types of clients. We seek to make sure the advisor understands the bigger picture, where we fit into it, and where an appropriate level of exposure to that picture their client has is.
Question 11: 38:45 – Ewoud, as a financial advisor, do you think Andy’s proposition [that It would be easier and better if we, as an industry, developed a standard portfolio mix for different types of clients] could work in the wider market?
Ewoud Karelse, Tilney – Yes, I think having a standard criteria as a starting point and building a matrix out from there is a great idea.
Question 12: 42:13 – Richard, in terms of investee companies you work with, what do you do for advisors to let them see what they are investing into? How much interaction do they get with that company when they invest and as things progress?
Richard Moore, Calculus Capital – We can’t tell people specifically which companies their money is going into, that’s why we explain the strategy of the fund and the types of companies into which we are going to invest. Once investments are made, we provide regular updates and bring in chief executives of investee companies to present to investors in person at set events, but we don’t expose the CEOs to investors too much as they might be a drain on their time, which would potentially adversely impact the performance and value of that company.
Question 13: 45:25 – Ewoud, how much do you use external researchers? Do you find them useful?
Ewoud Karelse, Tilney – Yes, I get as much independent and third party research as possible. They are very helpful.
Question 14: 47:20 – From a fund managers perspective, how useful do you find external researchers?
Simon Tutton, Deepbridge Capital –They are a starting point for most advisors, used as somewhat of a filter.
Question 15: – 49: 02 – Andy, how can advisors have confidence over the valuations of companies and funds and what questions should advisors be asking managers?
Andy – At our end of the market, it’s not initial valuations that are going to determine investment, it’s the substance of the company, how it will develop and how it fits in with our portfolio.
Question 16: RIchard, when you’re investing in companies at the moment, are you seeing valuations come down due to COVID and Brexit and how do you deal with that? And also, are you seeing companies being bought at the moment to allow exits to occur?
Richard – Valuation expectations of companies have sustained and, if anything, increased over the summer, especially if they are in virtual experience or MedTech industries. Activity has continued in the exit market, but not at the same rate, but last week we closed a sale deal.
Topic: What’s Next for Business Relief?
Featuring: Bill Dodwell (Office for Tax Simplification), Andrew Aldridge (Deepbridge Capital), Neil Cole (UBS), Dr Brian Moretta (Hardman & Co)
Starting point [following introductions]: 08:07 – Bill [Dodwell from the Office for Tax Simplification] – you’re going to run through a presentation now, so I’ll pass over to you.
Bill Dodwell, Office for Tax Simplification:
08:16 – *Dodwell begins by addressing the average rates of inheritance tax and their average effective rates.*
09:32 – *Dodwell moves on to look at the asset value and types of assets of average estates on death*
10:24 – *Dodwell then talks about the reliefs associated with inheritance tax, some of which he describes as “huge” *
11:10 – *The next set of slides pertain to The Office of Tax Simplification’s recommendations for capital gains policy change*
- 11:22 – Administrative changes
- 12:40 – Policy changes
- 12:45 – Replace annual gifts exemption
- 15:01 – Simplifying the rules of liability for the payment of tax on lifetime gifts
- 15:23 – Reform policy on capital gains uplift
- 16:35 – Recommendations for business property relief
- 18:05 – Suggested reforms for reliefs around agricultural property
Question 1: 19:14 – [To Bill] – It seems like the main aim here is to simplify things as much as anything else.
Bill Dodwell, Office for Tax Simplification – Yes, I think so. We want taxpayers to understand the system better.
Question 2: 20:08 – Would your recommendations, overall, be taking more or less tax?
Bill Dodwell, Office for Tax Simplification – It’s not entirely possible to give a clear answer. There are numbers in our report, but they do not take into account behavioural considerations, i.e. what people do after a change has been made.
Question 3: 12:15 – Going through the slides, one thing that stands out is your recommendation for the treatment of LLPs – making sure they are treated appropriately for trading purposes – I guess that could have a knock on effect for strategies that BR providers have as well. Brian, do you think that would have an effect on some of the providers out there?
Dr Brian Moretta, Hardman & Co – Probably not a huge one.
Question 4: 23:12 – Going back to Bill’s point about AIM shares, I guess the abolition of these would bring about a knock on effect.
Dr Brian Moretta, Hardman & Co –Yes, the abolition of AIM shares will have a dramatic effect. In the short terms some share prices would be hit by that, but that would level out in the long term.
Question 5: 25:54 – [To Neil] – I’m going back a step or two here and trying to relate why business property relief and BR relief is IHT exempt and how it works form a financial planners point of view. Please give us a 101.
Neil Cole, UBS – There are a huge number of products in the market place aimed at qualifying for business relief and giving investors experimentation from IHT at a much earlier stage than more conventional forms of estate planning. This is different from those as it is an investment-based solution for maximising the value of their estate for whomever they are leaving it to.
Question 6: 29:05 – In terms of the trade, Andrew, what other trades are there out there over and above renewables at the moment?
Andrew Aldridge, Deepbridge Capital – Renewables are the number one, especially for us in our portfolio, but you also have leasing and straight lending opportunities.
Question 7: 30:00 – Why those particular sectors? Is it because investments are relatively low-risk?
Andrew Aldridge, Deepbridge Capital – Yes, predominantly. And in renewable energy there are a lot of subsidies.
Question 8: 31:40 – [To Brian] Can you give us an idea of the common features of a BR investment?
Dr Brian Moretta, Hardman & Co – It depends on whether you invest into an AIM portfolio or a non-AIM portfolio. *Moretta then explains the common features of AIM portfolio investments and non-AIM portfolio investments*
Question 9: 34:08 – [To Neil] These types of [IHT relief-based] investments seem very popular at the moment, is this driven by our becoming more aware of our own mortality given the COVID situation?
Neil Cole, UBS – That is certainly a factor, but there are several elements at play – one being that these products have now established a strong track record.
Question 10: 35:40 – Is this popularity leading to their being more providers in the market? And does this make it more difficult for financial advisors to make recommendations to clients?
Dr Brian Moretta, Hardman & Co – Yes, there are more providers, and it varies widely between them whether they make it easier or more difficult to make recommendations as disclosure is “variable”.
Question 11: 38:00 – [Follow up to Brian] As an independent IFA, how would I get a general overview of who is doing what in the market?
Dr Brian Moretta, Hardman & Co – It depends on which area of the BR market you are looking into. There are, for instance, differences between how to view AIM and non-AIM investments. *These differences are then outlined*
Question 12 :41:10 – [To Andrew] Brian has raised concerns over disclosure, governance and valuations, as a fund provider, what are your thoughts on these areas?
Andrew Aldridge, Deepbridge Capital – I absolutely agree with Brian’s concerns around these areas, which fall under visibility. We are looking to improve our transparency – it is, for us, possible to be entirely transparent.
Question 13: 43:00 – Brian, do you have concerns over valuations in these types of products?
Dr Brian Moretta, Hardman & Co – I have one or two specific concerns, but not deep concerns in a general sense.
Question 14: 45:05 – Neil, are you comfortable with most of the processes you see around valuations?
Neil Cole, UBS – I can’t generalise and say that I’m comfortable with the whole market. When we do our due diligence we look at each manager in a lot of detail .
Question 15: 46:08 – [To Neil] Do you think that fees are commensurate with the amount of returns that come through, and does this apply across providers?
Neil Cole, UBS – They are certainly consistent and there is a norm, but I do feel that fees are on the high side
Question 16: 47:55 – In terms of these fees, what exactly is it that clients are paying for?
Andrew Aldridge, Deepbridge Capital – It is primarily oversight, due diligence, etc. that is performed in the client’s interest.
Question 17: 51:25 – Do you think COVID is going to impact investments we’re seeing at the moment?
Dr Brian Moretta, Hardman & Co – Most services so far have performed, more or less, as they promised – over the last 6 months, broadly, we have seen capital preservation, although returns have been impacted. In energy, for instance, forecasts came down quite sharply in the spring.
Question 18: 53:57 – Do you think lending services are generally more liquid than physical trades? And therefore is there less liquidity risk if BR were to be scrapped or devalued?
Dr Brian Moretta, Hardman & Co – On an ongoing basis, there is not a huge amount of difference from an IFA’s perspective. In lending, if BR were to be abolished, if you want to achieve instant liquidity, you are going to take a big hit because there is no secondary market.
Question 19: 55:55 – [To all panelists other than Bill] In 20 seconds or so, if you were chancellor for the day, what would you be recommending around IHT? Give us one policy please.
Andrew Aldridge, Deepbridge Capital – *Provides recommendation*
Neil Cole, UBS – *Provides recommendation*
Dr Brian Moretta, Hardman & Co – *Provides recommendation*
Topic: Financial Planning Using EIS
Featuring: Francesca Rayneau (Calculus Capital), John Prescott (Praetura Ventures), Fred Soneya (Haatch Ventures), Stephen Jones (Clear Solutions)
Question 1: 5:30 – Stephen, why should financial planners use EIS in a financial planning context? And please remind us of the tax reliefs
Stephen Jones, Clear Solutions – if you’ve got a client who has the appropriate income tax allowance, they can get 30% off any investment they make into and EIS. Investors want return, and all gain out of an EIS is completely tax-free. As a planner, I talk about EIS amongst other tax-advantaged solutions because it is there – it’s available as an option, and it is a fantastic opportunity with advantages beyond just tax advantages.
Question 2: 8:20 – what type of clients, generally, do you see as suitable for this kind of investment?
Stephen Jones, Clear Solutions – The easy answer is clients with spare capital. Within that, particularly, there are clients who have high levels of income tax liability, such as those who have sold businesses.
Question 3: 10:37 – Francesca, what kind of scenarios have you seen advisors use S/EIS in?
Francesca Rayneau, Calculus Capital – The main draw is for investors to invest in exciting businesses in growth space, but the tax reliefs are also very attractive. With that said, the main scenario we see at Calculus is investors who want to defer IHT. We also see clients who, for whatever reason, have a large capital gain and they want to defer paying tax on that gain
Question 4: 12:16 – Fred, how do you find advisors in the conversations you’ve had with them?
Fred Soneya, Haatch Ventures – the majority of our investors and what we’re seeing from advisors is that investors are investing for “the real reasons” – investing in exciting, high-growth businesses – and seeing tax relief as the cherry on top.
Question 5: 14:16 – John, when you build your portfolios, how much do you take into account considerations of where [which sectors] EIS money should be focused? And how do you build your portfolios around that?
John Prescott, Praetura Ventures – From an investment point of view, there is a huge amount of focus on those considerations. Our primary focus is investing in areas with big growth potential.
Question 6: 15:50 – [Follow-up to John] How much account do you take of diversifying your own portfolio in terms of the sectors you go into, business location, etc.?
John Prescott, Praetura Ventures – We are hugely pro diversification. We seek to have a good level of diversity both in terms of sector and growth stage as this creates a blend in our risk profile.
Question 7: 17:05 – You’re looking for very big returns – 10x returns – on the investments in your portfolio, How do you go about finding those?
Fred Soneya, Haatch Ventures – We see lots of companies – upwards of 100 at a detailed stage, and we then make four or five investments.
Question 8 19:05 – Stepthen, when your recommending EISs to clients, do you have a set number of providers and fund managers that you go to? Are they in different sectors?
Stephen Jones, Clear Solutions – Generally we want a minimum of 4 or 5 funds, and that is prevalent across the marketplace. But you want to understand where the diversification within that is provided – both in terms of sectors and growth stage.
Question 9: 23:57 – Francesca, in terms of when things go wrong and investments aren’t going the way you want them to, how do you support those companies and relay what’s happening to investors?
Francesca Rayneau, Calculus Capital – It needs to be made clear from the outset that with this kind of investing there are going to be failures. We also re value the portfolios twice a year and as soon as we can see a company isn’t performing as we hope we decrease our valuation accordingly, so the client can see.
Question 10: 27:25 – Fred, how do you support and mentor the entrepreneurs you work with?
Fred Soneya, Haatch Ventures – We only invest in the digital market and we only make investments where we believe we can add value. We use our own network and our investor network to leverage expertise to add this value.
Question 11: 30:15 – John, what work do you do with advisors to let them know how investments are going?
John Prescott, Praetura Ventures – One of our USPs is our level of communication. The starting point is making investors and advisors aware that this is a high-risk area and that there will be both successes and failures. On top of that, on a regular basis we make clear to investors why we invested in those particular positions and how the businesses are performing on an ongoing basis – in our case this is not just an ongoing valuation, but a detailed explanation of how these businesses are progressing.
Question 12: 33:35 – [follow up to John] When an advisor is making an investment into your fund, do they know the exact names of the companies into which their money is going? Or do they just know, for example, which sectors it’ll go to?
John Prescott, Praetura Ventures – We give out a document to investors and advisors that will contain eight positions that we’re looking to invest into, say, and it’ll detail sector, age, type of business, what we like about it, it’s potential limitations, etc. But we don’t include names because of NDA considerations.
Question 13: 35:05 – Stephen, how would you rate fund providers in terms of reporting back to you as a financial advisor?
Stephen Jones, Clear Solutions – Overall I’d say the market is quite poor, but it is rapidly improving as more emphasis is placed here and there are several examples of excellent communication.
Question 14: 38:20 [Follow up to Stephen] Do you have a preferred way of working with fund managers?
Stephen Jones, Clear Solutions – My preference is to know about and have information provided around the underlying investments.
Question 15: 40:20 – Francesca, do you feel that, as a type of investment, EIS is moving more towards the mainstream?
Francesca Rayneau, Calculus Capital – Yes I do, and it’s been moving that way for the past few years, and the main catalyst for this has been the squeeze on pensions.
Question 16: 42:25 – Fred, is there a lot of headroom in the market in terms of high net worths and angel investors who could utilise the scheme?
Fred Soneya, Haatch Ventures – We believe it’s huge – it’s the best-kept secret in the UK. All foreign investors I speak with are extremely jealous.
Question 17: 43:55 – John, has having to do things digitally/remotely made your communications with advisors more difficult?
John Prescott, Praetura Ventures – Arguably it’s made things easier – working from home has made getting in touch with one another easier. But it has made forming relationships more difficult.
Question 18: 45:17 – Stephen, as an advisor, has it made it easier or more difficult to get in touch with your clients?
Stephen Jones, Clear Solutions – The acquisition of new clients is more difficult because it’s harder to cultivate that initial relationship, but in terms of working more digitally with existing clients it’s been fantastic – our productivity has certainly improved.
Question 19: 47:40 – So would you say that COVID has accelerated the progression of things that were more slowly coming to the fore, like digital onboarding, etc.?
Fred Soneya, Haatch Ventures – Absolutely – everyone is better embracing online and tech, and that includes the B2B companies that we work with
Question 20: 49:16 – Francesca – 6 months on from the start of the pandemic in the UK, are investors starting to come back to the EIS market? Is confidence starting to return? If not, what messages can you convey to encourage greater confidence?
Francesca Rayneau, Calculus Capital – We are starting to see more applications now, but not to the same level as this time last year. One thing I would say to clients is that the growth sector is a very agile sector and it’s able to kick-start economic recovery through job and wealth creation.
Question 21: 51:02 – John, what messages are you conveying to IFAs and investors to encourage greater confidence right now?
John Prescott, Praetura Ventures – We say that these are long-term investments – 4-7 years – and we say that great businesses can, and quite often do, originate in difficult periods.
Question 22: 52:50 – Fred, are you seeing companies come through that are benefitting from what’s happening with COVID?
Fred Soneya, Haatch Ventures – Yes, consumers and enterprises are will to adopt new tech, and out of that comes huge opportunities.
Question 23: 54:30 – From a compliance perspective, is there anything over and above what you’d normally do for a pension or an ISA investment that you would need to do for an EIS investment?
Stephen Jones, Clear Solutions – This could be a whole webinar in itself, but I will say that we insist that they feature on some kind of technical research comparative analysis software system – we want some form of independent review
Question 24: 56:45 – Is there a website that lists successes and failures, exits and private sales, and also stats on a sector which can be used to present to clients?
*Mark shares his screen and shows the page on the EISA website that lists successes and failures, exits and private sales, and sector stats*