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What is an EIS fund?
An EIS fund is a managed investment vehicle that raises finance from individuals for the purpose of investing in select EIS-eligible ventures. 'EIS' stands for Enterprise Investment Scheme, an HMRC-run scheme that helps younger, higher-risk businesses raise finance by offering investors generous tax reliefs.
EIS funds offer a simple way of building investors a portfolio of early-stage businesses, or startups. With most EIS funds, the decision about which opportunities are chosen to make up your portfolio is made for you by the fund manager.
In the case of SyndicateRoom’s fund, Access EIS, this decision is made using a sophisticated algorithm. This removes bias from the decision-making process and allows you to gain exposure to a greater number of sectors and opportunities than if you invested in a more traditional EIS fund.
What tax reliefs can I expect?
The Enterprise Investment Scheme is one of the most generous tax relief incentives available to investors in the UK. The tax reliefs afforded through EIS are:
- Individual Income Tax relief of 30% on up to £1m invested per tax year (or £2m per tax year as long as at least £1m of this is invested in knowledge-intensive businesses, for example, life science businesses)
- No Capital Gains on the sale of shares held for at least three years
- Loss relief on your at-risk investment multiplied by your tax rate
- No Inheritance Tax paid on shares bought through EIS and held for two years
Active vs passive funds
When looking to invest in an EIS fund, one of the first things to consider is whether you want to put your money into an active or a passive fund. When you invest in an active fund, your money goes to a fund manager who picks investments based on their own research, intuition and expertise. With a passive fund, a set of rules define an index which then determines what the fund invests in.
Our own fund, Access EIS, is a good example of a passive fund. We track startup market-level performance data and use it to identify and model the behaviour of the UK’s top angel investors. We then co-invest alongside these angels, benefiting from their expertise, their deal access and their due diligence. This process automatically builds each of our investors a portfolio of more than 50 companies over their 12 month deployment period.
What should you consider when choosing an EIS fund?
EIS funds come in many forms, and while there are many potential benefits to each, it’s worth doing some research to understand which one works best for you. Here are a few questions you should consider.
How much sector diversification does the portfolio have?
Most funds specialise in a single sector or area, which can be both a benefit and a drawback.
Funds that focus on one sector tend to have a management team that's particularly experienced in that field and is therefore likely to be well equipped to assess those types of opportunities.
On the other hand, by investing all the money you've set aside for EIS opportunities into a single sector, more of your capital is exposed if that sector is affected negatively by a change in the market; think, for example, of how a shift in oil prices can affect a vast number of investments within the energy sector. By building a portfolio of uncorrelated investments across multiple sectors, you reduce your exposure to risk from any one source.
How many companies will the fund invest in?
Most EIS funds invest in five to eight companies per fund, although there are some that invest in many more. Access EIS invests in up to 50 per person per year, in order to maximise the potential for returns while minimising risk.
How much will you be paying in fees?
This is something to bear in mind as EIS funds can charge significant fees. Most funds will charge fees in line with traditional VC models (2% management for five years plus 20% carry), but this does differ from fund to fund.
Are you prepared to wait 5+ years for a return?
EIS funds are generally an illiquid investment: once you’ve invested, you will be unable to get cash out easily and are unlikely to see any form of return for at least three years (the minimum time you must keep your shares to retain the tax reliefs). Realistically, you are unlikely to see returns for five or more years.
SyndicateRoom's EIS funds
Access EIS is our primary fund and is currently open for investment. It works by tracking the performance data of over 1,000 active angel investors. It then selects and co-invests with some of the best-performing investors, or super angels, with the aim of replicating their collective success.
Access EIS aims to diversify your investment across at least 50 super-angel-backed startups to minimise risk and capture as many potential “blockbusters” as possible. Our analysis of the UK startup market demonstrated that 50 is the optimum size to maximise chances of replicating the annual growth of the market, while working with super angels ensures access to some of the best deals. You can find the full details of our model in our white paper.
Previous funds: Growth Fund and Fund Twenty8
SyndicateRoom also operates Growth Fund and Fund Twenty8, although these funds are no longer accepting new investment.
Fund Twenty8's focus is on diversification. By using a specialised algorithm, the fund follows the investment decisions of some of the country's savviest private investors to automatically build investors a portfolio of no fewer than 28 EIS-qualifying businesses across different sectors. Growth Fund complements Fund Twenty8 by targeting six or more later-stage companies from SyndicateRoom's portfolio. Since we've worked with these businesses in the past, we are able to draw on our established relationships to cherry-pick which businesses to back.
EIS fund performance
As our funds are relatively new (Access EIS first started deploying in February 2020, Fund Twenty8 first closed in 2017, Growth Fund in 2018), it will still be some time before we can show how these funds have performed. What we can disclose is the final portfolio for the first iteration of Fund Twenty8, which finished deploying this year. As of February 2019, the portfolio's paper value had grown to 115%. Its final portfolio is a testament to the fund’s mission: to deliver investors a large and diversified portfolio of at least 28 investments.
- 233 investors took part
- Invested a total of £4.55m
- Diversified over 32 investments
- Across 10 sectors
Why do people choose Access EIS?
-The diversification across a large portfolio mitigates risk. -Co-investing with super angels brings many benefits, from removing the due diligence burden from the investor, to ensuring access to the best deals and access to considerable startup investment experience. -Access EIS simplifies the process of claiming tax relief by providing all information required by HMRC in one click from the user dashboard.
How does Access EIS compare to other EIS funds?
Use the table below to compare a selection of EIS funds that are currently open for investment.
|Fund Name||Minimum Subscription||Sector Focus||Target Portofolio Size||Stage Focus|
|Access EIS||£5,000||Sector Agnostic||50 or more companies||Early-stage|
|Blackfinch Ventures EIS Portfolios||£10,000||Technology||10 or more companies||Early-stage|
|Calculus EIS||£50,000||Sector Agnostic||6 - 10 companies||Growth-stage|
|Deepbridge Life Sciences EIS||£10,000||Biotech, Medtech, and Pharma||8 companies||Early-stage|
|Deepbridge Technology Growth EIS||£10,000||Technology||6 companies||Growth-stage|
|Downing Ventures EIS||£15,000||Technology||10 - 15 companies||Early-stage|
|Draper Esprit EIS||£25,000||Sector Agnostic||8 - 12 companies||Early-stage|
|Force Over Mass SEIS EIS Fund||£25,000||Technology||15 - 20 companies||Early-stage|
|Foresight Williams Technology EIS Fund||£20,000||Technology||10 companies||Early-stage|
|Fuel Ventures EIS Fund||£10,000||Sector Agnostic||5 - 6 companies||Early-stage|
|Guinness AIM EIS||£20,000||Sector Agnostic||10 or more companies||AIM-listed companies|
|Guinness EIS||£20,000||Sector Agnostic||6 or more companies||Early-stage|
|MMC Ventures EIS Fund||£25,000||Technology||10 companies||Early-stage & Growth-stage|
|Mercia EIS Fund||£25,000||Technology||15 companies||Early-stage|
|o2h therapeutics EIS Fund||£25,000||Biotech, Medtech, and Pharma||5 - 10 companies||Early-stage|
|Par Syndicate EIS Fund||£20,000||Technology||6 - 8 companies||Early-stage|
|Parkwalk Opportunities EIS Fund||£25,000||Technology||5 or more companies||Early-stage|
|Seneca EIS Portfolio Service||£25,000||Technology||5 or more companies||Early-stage|
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The information on this page does not constitute financial advice and is provided on an information basis only, based on research using the following sources: