b'EIS Investments Only, September 2020Past performance 4.0 3.7xValuation, (expressed as multiple of initial cost)3.53.3x3.02.52.3xMercia began investing EIS Funds in 2013 and has previously raised 18 tax-efficient funds. 2.0As demonstrated by the below model portfolio, each Mercia EIS Fund aims to triple invested1.7x 1.8x 1.8xcapital after seven years, by the creation of a well-diversified, multi-sector technology fund. 1.5 1.4x 1.4x 1.5x 1.3xThis is a venture capital style EIS, and valuation growth is expected to be highest in years 5-7. 1.0 1.0x 1.0x 1.0x0.5 0.6xTargeting venture capital returns, with downside protection 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 2012/13* tax benefits include income tax relief and loss relief where relevant net asset valueEmerging Star 15 (10x)** this figure is included within the net asset value multiple of cost, including tax benefits*100,000 distributed cash**Emerging Star 14 (7x) 70,000Emerging Star 3 (5x) 50,000 Early-stage technology investments can be highly volatile Exiting your investment Income tax Relief 45,000Company 1240,000 Despite the line graph showing some correlation betweenAny EIS or SEIS investment should be considered to be a Company 1130,000 the age of investment and annualised performance, thesemedium to long-term investment, and this asset-class is Company 930,000 investments are highly volatile. The past EIS performance atinherently high-risk and illiquid.Company 827,000 individual fund level, may vary considerably to the above. Company 720,000 Mercia models for a third of its EIS companies to fail, and Loss relief, for 1-3, 6 & 10 15,750 Performance can change quickly as the underlying companiesoperates a fail fast policy, which means that we will not Company 512,250 either fail or flourish. Each element of business is critical to theprovide follow-on funding to failing companies. This is good 15 companies @ 10,000 Company 410,000 success of a small company, therefore performance figuresindustry practice and means more capital is deployed into the 150,000 450,000 can change quickly.remaining successful companies.Fees impact the overall investment performanceThe companies that do succeed are modelled to deliver high-As with most EIS funds, our remuneration as Fund Manager ismultiple cash returns, but this process can take a long time, split across different types of fees. More detail can be found onwhich makes the exit process even more important. Notes regarding performance: our fees and charges in Schedule 2 (page 46).There are traditionally two mechanisms to exit a successful As an example, if an investor invested 150,000 in the fundinvestment: 1.The past performance of previous Mercia EIS funds, or related funds, is not a guide to future performance and may notand investments were made equally across 15 EIS qualifying1.A stock market listing (e.g. AIM) and subsequent share sale necessarily be repeated. 2.Where applicable, tax benefits include income tax relief and any loss relief. It does not take account of benefits fromcompanies, 45,000 of income tax relief would be available.after a lock-in period (often one year)the management of Capital Gains Tax, exemption from Inheritance Tax or Business Investment Relief.In addition, we would expect five of these companies to fail2.A trade sale (M&A), where payment may not be 100%3.Mercia aims to triple invested capital after seven years, this target is based on the net cost of investment, with 100%providing 15,750 of share loss relief to the investor. Assuming cash and may include shares in the acquirer investment in EIS-qualifying companies. Income tax relief and loss relief are factored in when quoting this target.that the rest of fund returns 389,250 back to the investor 4.The performance figures assume that the investor is a UK tax-payer, with enough tax liabilities to make full use of the(a total return of 450,000 including income tax relief andHowever, there may be options for alternative exits,tax benefits as described in note 2.loss relief), the total fees payable over the lifetime of the funddepending on how the company progresses.5.would be 83,670 which includes the performance fee of Valuations are not calculated for funds which have been invested for less than 12 months. Share prices calculated using International Private Equity and Venture Capital valuation guidelines, and are accurate as of 30 September 2020. 47,850 and all applicable VAT. These notes should be read in conjunction with the following performance data.This example is for illustrative purposes only. 12 13'