EIS Industry Report 2018/19

32 33 UNDER THE HOOD OF EIS TECH A LOOK AT THE STATS Out of the 54 EIS offers that are currently open in the market, 27 (50%) are either purely focused on tech, or devote a large portion of investment to this sector. Of those 27 offers: There have been five new tech-focused EIS offers launched in 2018, and four new tech offers launched in 2017. Average Mode Median Minimum Maximum MIN. SUBSCRIPTION OF OPEN EIS TECH A high barrier to entry The average minimum subscription of EIS tech offers is just shy of £18,000, which is similar to the average for all open EIS offers. However, 10 tech EIS offers have a minimum subscription of £25,000, and only 10 tech offers have a minimum subscription of £10,000 or less. This reveals that EIS tech investments require a large amount of upfront investment, and may only be suitable for HNWI (high-net-worth individual) investors. The highest minimum subscription for a tech EIS offer (Calculus Capital EIS Fund) is £50,000. There are three open tech offers that have a lower barrier to entry of £5,000 — OION EIS & SEIS Fund, Startup Funding Angel Club Fund, and The Anglo Scientific EIS Fund. In comparison, the mode for minimum subscription amongst all open EIS offers is £10,000 — £15,000 less than the tech offers. Therefore, the barrier to entry is somewhat higher on tech offers. A focus on performance Nearly all open EIS tech offers 96.3% charge an exit performance fee. They all charge this fee to the investor rather than the investee company. The average exit performance fee is just over 20%, meaning that any investment gains over a given performance hurdle, the investment manager will receive a 20% cut. This focus on performance further supports the point that EIS is moving away from being purely driven by the tax breaks. Looking more closely at performance hurdles for tech offers, the most common exit performance hurdle is 100%. This means that when the capital is returned to the investor, a performance fee will be applied to any additional growth generated. More than half of EIS tech managers set a performance hurdle of 100%. There is only one tech offer which has a very high hurdle rate of 140% (Innvotec Anglo Scientific EIS fund, a med tech-based offer). This offer does charge a 30% exit performance fee, which is significant. However, the investment may never reach 140%, and so the hurdle would not be triggered. The offer’s AMC is not particularly extortionate either at 1.5%. Offers with a higher hurdle rate will be more attractive to investors, as it pushes the investment manager to achieve greater growth. Of course, higher hurdle rates do tend to match up with higher exit performance fees. Tech offers are raising significant capital The average EIS tech offer has raised almost £27m, with one offer raising over £178m. The average target raise of tech offers is approximately £8m. Investors should be mindful of how long it may take to deploy the capital if a lot of money has been raised, and whether the investment manager has access to top quality deal flow. Average 105.3% Mode 100% Median 100% Min 0% Max 140% EXIT PERFORMANCE HURDLE TECH Average 20.6% Mode 20% Median 20% Min 0% Max 30% EXIT PERFORMANCE FEE TECH (INVESTOR) £17,963 £25,000 £15,000 £5,000 £50,000 CURRENT RAISE (OPEN EIS TECH) 2 Biotech 9 General Enterprise 16 Pure tech 50% of open EIS offers are focused on tech Market Update / Under the Hood of EIS Tech Average Mode Min Median Maximum £178.2m £6.2m £350,000 £10m £26.6m