On Wednesday 26th July and Thursday 27th July SyndicateRoom and Penningtons Manches joined forces to organise two roundtable investor breakfasts. The aim was to promote discussion among investors and to give investors the opportunity to speak with the SyndicateRoom team in an open and informal environment. We discussed a number of different topics and talked about some of the challenges investors are facing in the early-stage investment industry.
Penningtons Manches very kindly hosted the breakfast at their offices in London. They provided some good insight into the importance of both companies and investors having the appropriate legal structures in place.
We were extremely grateful to all the attendees for their input into the meeting. We received a lot of useful feedback and will be looking at ways we can improve our services to benefit investors in the most effective way. We very much hope to run more of these smaller events, to give investors the opportunity to connect with each other and to help us to understand what our member base really wants from us.
It was truly excellent to hear so many interesting conversations taking place over the two days. To give you a flavour of the topics discussed, please find a few of the questions that were asked below.
What is the main reason for investors using SyndicateRoom’s platform over other platforms?
The most common response to this question, from investors in the room, was that investors believe in the strength of SyndicateRoom’s due diligence process. SyndicateRoom has become an attractive place to find good quality deals. The lead investors and SyndicateRoom’s team of analysts do a lot of the screening and selection of companies on behalf of investors, whittling these down to a select number of curated companies that are then presented to members.
What is SyndicateRoom’s secret for sourcing good deal flow?
Over the last four years, SyndicateRoom has developed strong relationships with angel investors, venture capital firms, corporate venture arms and family offices. This network sees SyndicateRoom as a trusted co-investment partner, with a strict selection process and a track record of funding over 70% of the companies we work with. Over time, our network has learnt to bring only good quality deals to SyndicateRoom as they understand our investment requirements.
Due to SyndicateRoom’s track record of high quality deal flow, companies and lead investors regularly reach out to SyndicateRoom to be listed alongside other equally impressive companies.
How has SyndicateRoom’s portfolio of companies performed so far?
Since 2013, we have helped raise more than £90m for over 110 companies. Only two of our companies have failed, one of which is looking to sell at 75% of their initial valuation, and all other companies in the portfolio are still trading. This is rare for the venture capital industry. In December 2016, we saw our first exit. Oval Technologies successfully sold to a US-based global contracts manufacturer called SMC.
As companies can only be revalued at liquidity events, i.e. follow-on funding rounds, trade sales or IPOs, most of the company valuations have stayed flat. Those that are performing well and producing enough revenue to sustain themselves, without the need to fundraise, are required by regulation to keep the same company valuation, even if their revenues/profits have grown.
How can investors track their investments more closely?
SyndicateRoom is rolling out an investor dashboard, which will enable investors to view all their investments and keep track of the most recent company news.
Why are SyndicateRoom’s fees lower than other investment platforms?
We aim to make our fees as competitive and as transparent as possible. We have a slightly different fee model to other platforms. We believe in leaving as much of the funds raised as possible in the hands of the entrepreneurs. As a result, we would rather charge companies a lower initial fundraising fee of 4%, and then a smaller, more manageable ongoing monthly fee of £125 for the management of the nominee and the shareholder register. SyndicateRoom relies on the success of the companies we help to fund. If the companies we select do well, then investors will continue to come back to our platform to find great deals.
Why doesn’t SyndicateRoom take carry or a performance fee on companies funded via the platform?
SyndicateRoom has a brokerage business model, rather than an investment management model. We ensure companies are in the right position and structure for investors at the point of investment, but as we do not provide investment advice, the profit is for the investors to keep. Lead investors have a closer ongoing relationship with the underlying company in which they are investing. They have a significant stake in the business and therefore act as the driving force to achieve a successful exit.
Should the lead investors take carry or a performance fee?
There is a lot of work and risk involved for a lead investor at the beginning of a funding round: the lead investors will structure the deal, negotiating the valuation and the terms on behalf of the rest of the investors. They also fund the first 25% or more of the funding round and they help the company through to exit. As such, we are currently looking into whether lead investors should start to receive carry from the remaining investors, for the due diligence work they do.
What stages of a company’s lifecycle can SyndicateRoom help with funding?
SyndicateRoom can help with fundraises of £150,000 and up. We have worked on a fundraise of £5m and were recently approached to help with a £15m fundraise. As we are a member of the London Stock Exchange, we can also help companies trying to raise money at IPO, as well as with AIM placings.
We are moving up the fundraising scale and broadening our offering to investors with the aim of ensuring that our members can get access to any kind of deal, where in the past only institutional investors would be able to get involved.
Why did SyndicateRoom choose for Fund Twenty8 to be set up as an HMRC-approved EIS fund, instead of an un-approved EIS fund, VCT or VC fund?
An approved EIS fund reduces the administrative burden for investors, while allowing eligible investors to benefit from all available EIS tax reliefs. Instead of receiving a separate EIS3 certificate for each company as and when the fund invests, investors will receive a single EIS5 certificate at the end of the year, outlining each of the underlying holdings. An EIS5 certificate effectively represents multiple EIS3 certificates, but with less admin.
We chose not to use a VCT structure as the demand from investors for an EIS offering was stronger, since a VC fund would not allow investors to mitigate their risk using tax reliefs. An approved EIS fund also allows for more flexibility, as the investor can claim tax relief in the year that the fund closes or carry back to the previous tax year.