Unlike many other EIS fund managers, Mercia chooses to utilise closed-end funds, much like institutional venture capital funds – this is something which the Mercia team feel very strongly about. Dr Paul Mattick, Head of Sales and Private Investor Relations for Mercia explains why below.
While there may be the perception that closed-end EIS funds are limited due to the possibility of having no funds open, Mercia has addressed this very issue by ensuring that a new fund is open as soon as the previous one has closed. Closed-end funds have numerous advantages over evergreen structures, including speed of deployment and simplicity of reporting, both of which we know is of great importance to our private investors and something at which Mercia excels.
Having one fund open as soon as the last one closes means that investments can be taken throughout the year. Our Investment Team is always on the lookout for new opportunities, something which is relatively easy for us to do with our 70 strong investment team and support staff.
Within the world of EIS, rapid deployment is important to investors, as this enables a shorter wait between transferring the investment and receiving the tax reliefs. Therefore, this is a key focus for Mercia as we provide the option for investors to transfer funds shortly before the closing date of the fund. To reserve capacity and avoid disappointment we would always recommend that an application is submitted as early as possible. Then, from the point that the fund closes, we will start to deploy capital into a diverse portfolio of approximately 15 companies. Due to our institutional nature, we have exceptional deal flow, focused on four key technology sectors in which we have great commercial knowledge, mostly in the UK regions in geographies where valuations remain relatively modest compared to the hype often seen in London and the South East.
As you can see from the table below, Mercia operates two funds a year, and both funds aim to be fully invested in the tax year that the fund closes. MGF8 will have just a few months to deploy, however because of the size of our networks, we already have deals that we know we would like to fund at the start of 2018. In corresponding funds in previous years, 100% and 96% (of UGF and MGF6 respectively), were deployed during Q1.
|
Fund |
Fund close date |
EIS deployment time (days)* |
EIS tax cert timing (days) |
Deployment plus tax cert timing |
|
UGF |
26th Oct 2015 |
162 |
109 |
259 |
|
MGF5 |
15th June 2016 |
293 |
69 |
362 |
|
MGF6 |
7th Nov 2016 |
149 |
54 |
203 |
|
MGF7 |
12th June 2017 |
202* |
60* |
262* |
|
Average |
199 (7 months) |
73 (2 months) |
272 (9 months) |
|
|
MGF8 |
31st Dec 2017 |
95* |
60* |
155* |
* estimated
The duration between an investment being made and the tax certificate being distributed is an area that we work extremely hard upon, liaising with HMRC and our tax advisor to optimise this process. Within the industry, the current two-month turnaround that we are seeing is impressive, and it has been as low as a 38-day average (over five EIS3s).
The net effect of our ability to receive investment just before we close the fund, to rapidly deploy investments, and our impressive EIS3 turnaround, is that we consistently return tax certificates approximately nine months after we receive funds. This is exceptionally fast for a growth EIS and does compare well across our peer group as shown in the table below; it is also is on par with many asset-backed EIS funds, even though our fees are significantly less.
Mercia aims to triple invested capital in five to seven years, including tax reliefs; we have exceeded this target in MGF2. Due to our advanced operational levels, we are able to deliver tax certificates back to investors in as little as 38 days after investment.
|
Fund |
Deployment (months)* |
Diversification |
|
Mercia |
7 |
15-20 |
|
Draper |
12-18 |
8-12 |
|
Parkwalk |
12 |
5-8 |
|
Oxford Capital |
12-18 |
12-15 |
|
Calculus |
18 |
8-10 |
|
MMC |
15 |
10 |
*Other fund managers’ deployment speed is described in their Information Memorandum.
If you would like to find out more about Mercia’s approach to EIS investing, our information memorandum is available to download here. As noted above, we would be pleased to accept applications now (to reserve an allocation), with funds to follow in December; we aim to have the fund fully invested by 5 April 2018, and hope to have all tax certificates returned to you by the end of Q2.
Sounds ambitious? Mercia is, and we have consistently achieved these types of timescales and results, which is something we are very proud of. For more information, please get in touch by emailing: enquiries@merciatech.co.uk