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Mercia Fund Management Limited

Mercia Knowledge-Intensive Impact EIS Fund

07 Mar 2022 / Tax enhanced research

The Mercia Knowledge-Intensive Impact EIS is an Alternative Investment Fund, which will provide a portfolio of early-stage technology investments with a focus on healthcare and cleantech sectors. The target return is 3x invested capital after fees. Returns will be focused on capital gains, and investors are unlikely to receive any dividends. The fund is a Qualifying Knowledge-Intensive Fund, which improves the timings of and simplifies the tax reliefs for some investors.

Why invest

Positives

  • Strategy: Exposure to a portfolio of technology companies mostly across the healthcare and cleantech sectors.

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 will close on 4 April 2022. As an approved fund, tax relief will be as of 2021/22 tax year, with carry back to 2020/21.
  • Diversification: The manager expects to provide 8-12 EIS investments in the fund, spread across its impact sectors.
  • Valuation: The fund 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.
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