How can you assess a Seed EIS investment manager?

By Lawrence Gosling 

How important and challenging is it for company founders to assess a Seed EIS investment manager?

Checking the track records of a Seed EIS investment manager for professional advisers, investors or companies looking for funding can be very difficult because of the lack of independent data.

Although there are a number of research groups analysing the managers, they all tend to look at different elements of the groups and no one tracks the actual investment returns.

So if a professional adviser or investor are doing their own research what should they be looking for?

Matthew Cushen, one of the founders of Worth Capital, acknowledges the challenge, particularly if the adviser is just looking for the number of companies the investment manager has successfully exited.

He says: “SEIS is much younger than EIS, which has been around for over 25 years and a number of groups can point to realised returns from the exit, either with or without including tax breaks. Seed EIS is less than a decade old, and by their nature, many of the businesses we invest in are younger and are sometimes pre-revenue.

“At Worth, we source investee companies through our Start-up Series where we offer successful companies up to £250,000 in the form of equity injection, and these companies are at all stages in their early life cycle. We tell investors in a portfolio of ten investee companies it’s likely that one or two won’t make it. But it would be wrong to judge us by the failures. I think we should be judged on how we work with those companies that make it, and in that cohort, we expect one or two will make it quite big for investors.

“If you’re a company looking for Seed EIS investment then you should look at what we can offer other than capital. In our case, myself and my business partner have long experiences in helping companies build their brands and market propositions. This is important because we meet a lot of companies with good ideas, who are generating revenue and may even be profitable, but this not necessarily the same as a business that can grow significantly, making it appealing to another company or larger VC investor to invest in.”

One of the partners of Nova, based in Liverpool, Andy Davidson, is in agreement with Mr Cushen. His firm specialises in technology-driven businesses and his firm operates an active mentoring programme that helps companies build their structure from the bottom-up, depending on where they identify areas that need support.

He says: “Many of us at Nova comes from a software or technology background and we have built and sold businesses in the sector so we understand first hand the challenges. Often we come across businesses which are not a lot more than an idea — we have one currently in the health sector related to cleanliness — but we can help develop and scope out that idea so it becomes a real business.”

They are both in agreement that advisers, investors and company founders should all do as much due diligence on the Seed EIS investment manager as the managers do on the investee companies. They discuss the issues in this short video:

 

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