The following article was originally published in IFA Magazine on 23 January 2014:
Talon Golding, Investor Relations Manager at Mercia Fund Management, explains how the risks from leading-edge technology can be contained.
The UK and global technology sectors have outperformed many others consistently over recent years both on public markets and in private venture, and according to a recent report by KPMG, technology companies are consistently more confident about business outlook than firms in other industry sectors. In addition, the UK small cap sector has been outperforming major indices, a trend which looks set to continue with an economy with an optimistic outlook.
This growth is further fuelled by the availability of substantial tax advantages exclusively available for private investors primarily through EIS and SEIS reliefs which can mitigate a high degree of the associated capital risk to private investors, while increasing the investment into UK SMEs. As a result, the UK has become a breeding ground for dynamic technology businesses across a wide breadth of specialist sectors, which for the savvy investor, offers significant opportunities.
However, early stage technology investing carries heightened risks for investors without the relevant sector experience and for direct investors holding greater exposure to a limited number of investee companies.
Private investors without significant investment capital can access high growth and tax efficient technology opportunities through an EIS/SEIS fund. With greater portfolio diversification and specialist sector expertise through the fund management team, risk can be reduced. Mercia Growth Fund 3 is a technology fund with a focus across distinct sectors offering high growth potential, providing a balanced portfolio of businesses benefiting from both EIS and SEIS tax advantages.
In terms of working with invested companies, most technology businesses need active investors since founders tend to be technologists first and businesspeople second. Therefore, fund managers that build up teams around key technology sectors can accelerate the growth and trajectory of each portfolio company through guidance and support– something that a generalist investor cannot offer.
A pipeline of suitable investment opportunities is fundamental to the success of a technology investor; universities for example can offer an unrivalled source of deal flow but access is often the preserve of institutional investors or those with established relationships. Mercia Fund Management has long term relationships with eight universities enabling access not only to deal flow but to technology expertise, grant opportunities and synergistic technology where practical and applicable.
In terms of exit strategies for invested businesses, Mercia Fund Management backs established companies with strong revenue growth prospects, proven commercial traction and defensible market positions, with an aim to exit in 4-7 years from initial investment. Prior to an investment being made, identifying potential acquirers is essential to allow the fund manager to help shape the business strategy toward achieving a profitable exit.
For further details on Mercia Fund Management’s latest fund, Mercia Growth Fund 3, please contact: Talon Golding, Sales & Investor Relations Manager (firstname.lastname@example.org).
Posted by Michael Wilson, in IFA Magazine.