It is worth looking closely at the sources of deal flow a technology EIS manager has, in particular any relationships they have with universities, as these can offer an unrivalled pipeline of innovative investment opportunities, where access is often the preserve of institutional investors. Good university relationships can offer further benefits to a manager in the form of technology expertise, grant opportunities and synergistic technology.
Ultimately, of course, success depends on exit, too. A good manager will be thinking about the back door, even while entering the front – identifying potential acquirers helps the fund manager shape the business strategy toward achieving a profitable exit, usually within four to seven years of the initial investment.
In short, the opportunities in technology are exciting and the SEIS/EIS structure considerably reduces client risk. But a specialist portfolio manager with strong sector expertise and access to good sources of deal flow should considerably enhance the likelihood of investment success.
Dr Mark Payton is managing director and chief investment officer of Mercia Fund Management
SCHEME DEFINITIONS
• Enterprise Investment Scheme
EIS is a scheme to help smaller companies raise funding by offering tax relief to investors who buy new shares
• Seed Enterprise Investment Scheme
SEIS complements EIS and provides tax relief to investors who purchase shares in new, early-stage businesses
