Technology investment specialist Mercia Fund Management is launching a new fund offering tax-efficient investment in the UK’s fast-growing digital economy.
The Mercia Digital Fund will utilise the hybrid structure of Mercia’s previous three tax efficient funds, combining the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), to invest in a diversified portfolio of innovative digital companies with high growth potential.
Mercia’s highly experienced investment team have strong relationships in the technology sector, including long-term partnerships with eight universities and can access opportunities not generally available to private investors.
The Mercia Digital Fund will target a compound annual growth rate of up to 50% (excluding tax advantages) and investors can expect to realise their portfolios between three and seven years. The fund launches on 11th August and the minimum investment is £25,000 if investing via a financial intermediary or if taking regulated advice.
The tax advantages available through EIS and SEIS investments include initial tax relief of either 30% or 50%, loss relief and zero Capital Gains Tax on returns once qualifying shares have been held for three years.
Mark Payton, Managing Director of Mercia Fund Management, said: “We believe there are a number of compelling reasons for launching a fund of this type in the current climate.
“First and foremost, digital is the UK’s fastest-growing sector and is already the third biggest contributor to the nation’s economy.
“The sector boasts three times higher employment growth than the wider economy, with 25% greater revenue growth than traditional firms, and a Gross Value Added (GVA) per employee of £83,000, the output within digital is nearly twice the UK average for all sectors.
“Figures from 2010 to November 2013 show investment returns in digital technology dwarfed other sectors, with 17 UK tech flotations with an average return of 101.7%, compared with 1.8% across 256 listings on the London Stock Exchange.
“We think this combination of factors makes for an especially attractive proposition, particularly in light of the additional tax advantages available under EIS & SEIS which help to significantly offset the associated capital risk whilst enhancing prospective investment returns.”
Key sub-sectors within digital that the Fund will target include:
Fintech – financial technology – in which global investment has more than trebled during the past five years
The Internet of Things (IoT) – focused around the interconnection of everyday devices through the internet, allowing automated data interaction
E-commerce, which represents Europe’s fastest-growing retail market
Gaming and gamification, in which game technology is used in non-game contexts.
Payton said: “The UK is undoubtedly among the world leaders in key digital industries such as fintech, e-commerce and the fast evolving gaming categories.
“Recent research has also shown we have the highest density of start-up companies in the world – and if these are to fulfil their promise they will need both capital and support.
“Given the ability of the EIS/SEIS structure to convert a traditionally high-risk/return strategy into a moderate-risk/high-return opportunity, we believe this is one instance where backing Britain could prove very rewarding indeed.”