The Mercia EIS Fund is an Alternative Investment Fund, which will provide a portfolio of early-stage technology investments. The target return is 3x invested capital after fees. Returns will be focused on capital gains, and investors are unlikely to receive any dividends.

Why invest

Positives

• Strategy: Exposure to a portfolio of technology companies across four sectors in which Mercia has specialist knowledge.

Issues

• Track record: The track record is improving rapidly and is approaching critical mass, and the 2.9x multiple on exits is excellent.

The investment manager

Positives

• Team: A large, widely experienced team, with a clear strategy and sector specialisms, and a range of pools of capital for follow-on funding.

Issues

• None: We cannot think of significant issues with the manager.

Nuts & bolts

• Closings: The fund is expected to have three tranche closings per year, in 1Q, 2Q and 4Q.
• Diversification: The manager expects to provide 12 EIS investments in the fund, spread across its four technology sectors, with up to 3 SEIS investments (subject to capacity).
• Valuation: Follows IPEVC guidelines, but is effectively a mixture of last transaction and writedown, if appropriate.

Fees

• Fees: All fees are charged directly to investors.
• Performance fee: This is charged on a portfolio basis, at 20% for returns over £1.

Risks

• Target returns: The target return of tripling capital after fees suggests a
  high-risk investment strategy.
• Companies: Supplying risk capital to early-stage technology companies. There will be a spread of company returns as the successful ones will do very well, but those who fail may do so completely.