Mercia EIS Funds

Aiming for a FriendlyScore in the EIS portfolio

Following a fundraising in March 2018, FriendlyScore became the company in the EIS portfolio with the biggest uplift in valuation, with a multiple of up to 7x the cost of investment for investors in MGF3, MDF and MGF4, who invested in 2015.

FriendlyScore is a credit scoring platform for credit service providers. The platform utilises data from multiple sources to build the profile of an individual. The breadth of these data sources is beyond what is used by traditional credit agencies, with sources including LinkedIn and email. The technology used to analyse these data sets is based on natural language processing, a sub-sector of artificial intelligence (AI) algorithms.

FriendlyScore has made positive progress in signing agreements for pilot implementations of its technology with a number of large financial services businesses in multiple countries. Most notably, its innovative solution was introduced to Carphone Warehouse in the UK and agreements were also established with two Indian financial services providers. The upcoming activity pipeline also looks strong with several significant opportunities across multiple countries.

At present, the biggest challenge for the company is to persuade customers that have signed agreements to pilot the solution and implement it to a meaningful extent in their businesses. There has been limited progress in this area so there is a risk of these pilot projects not turning into production deployments at a later stage, when they could potentially generate meaningful revenues for the company. This also means that revenues to date, which are in large part generated from credit scores being generated through the system, have been low. The low uptake of usage of the system in these pilot projects is partly due to the fact that the company has been resource-constrained and has been focusing a large part of its efforts on signing new contracts rather than ensuring effective rollout with customers once the agreements have been signed. Following the completion of the funding round, the company will be recruiting additional staff with the aim of addressing this issue.

With regards to future prospects, if the company can crack the issue of converting pilot projects into production deployments then they could do very well. The acquisition appetite and valuations in the software sector are also high so the potential for success is huge.

The Mercia EIS Fund aims to capture three or more companies per fund in the 5x-10x range, which will support the overall fund return of tripling invested capital in five to seven years. FriendlyScore is valued at 7x the cost and is currently one of the companies that supports the performance of a number of funds, with strong prospects for future growth and an exit at a very high multiple.