EIS Industry Report 2018/19

62 63 INDUSTRY DEBATE THE CURRENT LANDSCAPE Moderator: John Schaffer, Intelligent Partnership What’s your process for filtering potential EIS investments, considering there are so many companies seeking funding? DC: Our extensive networks ensure privileged deal flow. We then target the most credible EIS-qualifying firms, looking to support disruptive businesses that can transform their market. We follow a rigorous process including initial quantitative analysis, work with company management, and analysis of the competitive landscape, plus the financial and operating model. AA: Deepbridge has very clearly defined investment criteria from which we do not waiver. Therefore, the initial filtering of opportunities is straight- forward, timely, and transparent. Subsequently, the Deepbridge Investment Committee undertakes an in-depth process of due diligence on prospective investees through which additional expert insight is provided by the industry luminaries of the Deepbridge Supervisory Investment Committee. LC: We place particular focus on management teams as we like to form long-term strategic partnerships with impressive entrepreneurs who can execute and deliver. We also look for evidence of a compelling lead in what will soon be a large market, along with a credible route to capture it. MD: As a sector specialist investment manager, we are not distracted by opportunities from all over the UK and beyond across every industry. Neither do we need to spend time trying to understand the real dynamics of a wide range of sectors before we can begin to assess a particular investment. We already know exactly what we are looking for, which means we have more time available to help grow our investments. PM: We’re looking for disruptive, early-stage technology business in only four sectors, primarily businesses in the UK’s regions which are keenly valued than those in the South East. We filter enquiries based on the fit with those sectors, track record of the management team, market opportunity and the company’s future funding requirements. JD: We have spent a number of years working closely with introducers to ensure that we only receive ATTENDEES DAVID CRAVEN BLACKFINCH ANDREW ALDRIDGE DEEPBRIDGE LAURENCE CALLCUT DOWNING MATT DICKENS INGENIOUS PAUL MATTICK MERCIA JOHN DAVIES SENECA BELINDA THOMAS TRIPLE POINT relevant opportunities. Where further consideration is appropriate, we undertake a detailed due diligence process covering legal, operational, strategic and financial areas. We also review business fundamentals, quality of management team and potential exit horizon. BT: Having invested in EIS since 2007, we have the benefit of an established and wide network of relationships with accelerators, angel investors, and industry practitioners along with our own advisory committee. We have an initial screening process to review financial and social measures, with successful companies then being put through an in-depth due diligence and risk management process. How has your approach changed to EIS investment since the introduction of the risk-to-capital condition? DC: Our ability to adapt is key. Legislative changes create opportunities as Blackfinch is connected to the knowledge-intensive companies the Government supports. Blackfinch Ventures targets disruptive firms with smart technology, and products that address real-world needs. We focus on high-quality deals, with investee companies supported at every stage, targeting significant returns. AA: As the tech and life sciences experts, the Deepbridge approach has not had to change at all. Having reviewed all of our EIS companies, we believe that each meets the risk-to-capital condition and also qualify as knowledge- intensive companies. We continue to deploy funds, into high-quality opportunities, on a monthly basis. LC: Our strategy for Ventures EIS has always been investment-led, not tax-led. The risk-to-capital condition hasn’t made much of an impact on what we do. It has however reinforced the value of EIS as a way to back early-stage companies which can have outstanding prospects. There is risk of course but this vehicle is ideally suited to that. MD: We previously offered a number of EIS investments with a range of risk and return profiles, through to 100% risk. Following the Patient Capital Review, we will simply be focusing on our 100% risk strategies. PM: No. It has not changed at all, as we have always invested in the spirit of EIS. JD: Our EIS Portfolio Service has always been focused on genuine growth capital funding. We are, therefore, in the fortunate position that the risk-to-capital condition has had little effect on our investment strategy. We will continue to invest in established businesses that meet this condition. BT: We have evolved our process in light of it, but kept our key mantra of carrying out extensive due diligence and fully understanding the businesses we invest in. We have put together an advisory committee of successful entrepreneurs to give additional guidance to the in-house Venture team and who can give first- hand experience to our investee companies. Has your target investor market changed now that low risk EIS investments are no longer permitted? Is EIS now only for HNWIs? DC: Blackfinch supports a broad range of clients and the tax benefits mean EIS remains a compelling solution for many. Investors can now take a fresh approach to risk with a greater potential for gain. Blackfinch Ventures targets significant returns. Customers have recognised the upside potential and how Blackfinch manages risk. AA: ‘Low-risk’ EIS investments were a misnomer anyway – by the very fact that EIS investments are unquoted and illiquid, they should always be treated as being high-risk. Our stance has always been that investors in EIS-eligible companies, who receive compensatory tax reliefs, should always be participating in higher-risk growth investment. LC: Some investors now find the EIS risk profile too high. Others however are accustomed to using EIS to gain access to investment opportunities they would not “Low-risk’ EIS investments were a misnomer anyway – by the very fact that EIS investments are unquoted and illiquid, they should always be treated as being high-risk.” — ANDREW ALDRIDGE, DEEPBRIDGE “The risk-to-capital condition hasn’t made much of an impact. However, it has reinforced the appropriateness of EIS to back early-stage companies with outstanding prospects.” — LAURENCE CALLCUT, DOWNING Market Research / Industry Debate