Mercia EIS Funds aim to triple invested capital within five to seven years, including tax reliefs, by investing in a well-diversified, multi-sector technology fund. In order to achieve this, we expect one third of companies to fail and one third to achieve over 3x, including one or more 'Emerging Stars'. If you take a look at our past performance, you can see that this is encouraging.
The chart above illustrates a simplistic example in which a client invests £150,000 in EIS qualifying companies, which purchases £10,000 worth of shares in 15 technology companies, creating a diverse early-stage technology fund. The potential timescale of deployment of funds is illustrated below. Over a period of five to seven years, in a venture capital portfolio such as this, we expect to see both failures and some significant successes in what we define as “Emerging Stars.”
The precise portfolio return is impossible to model, but in the model above we illustrate how three companies with significant growth (up to £100,000) would support the tripling of the overall portfolio. For your reference, we have three companies which are being held at over 5x within four years. In addition, the greyed out areas illustrate the contributions to return from income tax reliefs (£45,000) and loss relief from the five companies that have failed from the fund (£15,750). We target the return of triple the invested capital, or £450,000 in this example. The return of cash from the fund will be incremental, and distributions will be made as shares in each company are sold.
We aim to deploy the majority of funds within one calendar year, we have historically achieve full deployment within 7 months, and the graph illustrates a 9 month deployment period. After each investment is made, a tax certificate will be sent to you, allowing you to claim your tax reliefs. These tax certificates are usually available approximately 50 days after each investment.
As well as managing third party funds, Mercia operates its own funds under the Enterprise Investment Scheme (EIS), known as the Mercia EIS Funds. Mercia EIS Funds invest into innovative UK businesses to help accelerate their growth and development. There may be an opportunity to invest into Seed EIS (SEIS), please contact us for more information.
As well as seeking capital growth, these funds also benefit from the tax advantages available under EIS:
- 30% Income Tax relief
- CGT free exit
- CGT deferral relief
- Inheritance Tax exemption
If you want to know more about EIS Funds you can access information using this link.
Please see the case studies for further information on how these tax reliefs can be applied.