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The whistle has been blown and they are off


Modwenna Rees-Mogg, Chair of The VCT & EIS Investor Forum, comments on the runners in this year’s fundraising race for the VCT & EIS industry


We have already seen some of the best names in the VCT & EIS Industry opening their fundraisings for the 2019/20 tax year, so the race is now on. Who will be the first to close their raise? Who will raise the most, and should the runners with the longer odds win the race?

Almost £300 million of new capital is already being sought by the likes of Octopus, Downing and Triple Point for their VCT funds, and £100 million or more for EIS funds from the best names in the markets such as Deepbridge Capital, Symvan Capital and Draper Esprit. We don’t have insight yet on how much capital has been committed to the open VCTs, but at the time of writing, Tax Efficient Review is reporting that £25 million has already gone into the EIS funds. On 19th September I attended ALLOCATE, a new event for earlier stage (and younger) fund managers, and it was reported that around 70 fund managers had applied to pitch to raise capital. Many of those pitching on the day have an EIS offering – interesting fund managers like Ascension Ventures and EMV Capital.

What do we know about what investment theses are out there? This is important because every fund uses the same basic tax breaks, be they VCT or EIS, so there is no distinction on those grounds. The reality is that there is something for everyone, from what may soon move out of the Wild West into the mainstream such as The Cannabis Fund who pitched at ALLOCATE, but is probably a required taste (no puns intended), through to those with a myriad of popular sector specialist strategies ranging from tech to media to data and beyond. Triple Point is differentiating with its Social Impact EIS fund – a nice touch. The big questions to think about in this context are whether the investment thesis is likely to deliver the returns being targeted and how this will be achieved. You may be surprised to find that fund managers with apparently similar investment theses will answer your questions in very different ways. (Note: go with the fund managers who can give statistical evidence of what they claim and avoid those funds which are generalist to the point of random).

Delving deeply into the fund managers’ teams is a worthwhile use of your time. Has there been a high turnover in the team over a protracted period or is the team truly cohesive? Don’t just look at the portfolio managers, take a look at the support functions too. After all, if a manager’s Investor Relations or marketing teams keep changing, it may make you think about how much value they put on the people enticing you into their fund and how they value the people who will have a relationship with you once you have invested.

As those investors who have been involved in the market for a long time will know, HMRC takes a deep look into what fund managers invest in and whether they are not only operating within the rules, but in the spirit of the schemes. The former is easier to measure and judge, the latter is more nuanced. When HMRC comes to the view that the spirit is being disregarded by too many people, the impact tends to be a consultation, followed by a further tightening of the rules, pushing investors already in the funds higher up the risk curve long before there is any sight of an exit. So one of the questions to ask some of the fund managers who are still trending towards the lower risk end of this high risk asset class, such as those ONLY backing companies that have demonstrable commercial traction and growing revenue (not start ups) is: Will your behaviour lead to another onslaught by HMRC which come back to haunt the whole market?

In the context of the VCT and EIS markets, investors’ concerns continue to be, in no particular order:

  • What are your fees really? (for a clue check out Companies House for the accounts filings of the fund manager, as well as looking in the small print of the prospectus/information memorandum).
  • What will my cash on cash return look like and how will you achieve this?
  • What are you doing about transparency? – aka, are you going to spring a nasty surprise on me with no notice?
  • (in the case of VCTs) Where is the cash going to come from to pay my dividends?
    And, of course
  • How “sexy” are your deals? – aka I need to be excited by your portfolio – that’s the whole point of being in this asset class because I can find high risk high return asset classes elsewhere.

If you would like to meet the best fund managers in the market face to face and get engaged in some really topical debates with them and your fellow financial advisers and some serious private investors, why not come along to this year’s VCT & EIS Investor Forum on 21st November in London? We can guarantee you an excellent and worthwhile day. You can find out more and book a ticket here.

Modwenna Rees-Mogg, CEO & Founder, AngelNews

Modwenna has worked in corporate finance, business angel investment and venture capital for more than 20 years. In 2003 she founded AngelNews, a leading information provider and commentator on the early-stage funding market in the UK.

She is a Non-Executive Director of Albion Technology & General VCT and of Asset Match and runs The Pluralists Club for senior executives developing and running portfolio careers (www.thepluralists.club). She founded and recently sold CrowdRating, a ratings agency to help crowd investors assess investment opportunities on crowdfunding platforms. She has published several books including: ‘Crowdfunding, How to raise money and make money in the crowd’ and ‘Dragons or Angels’, a handbook for people wanting to become or raise money from business angels.


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