Jenson Seed EIS Fund - Clubfinance

34 Jenson Seed EIS FundInvestment Strategy 355. Investment Strategy5.1 Risk MitigationThe Fund will invest in a broad range ofsectors and will carry out in depth andthorough due diligence of prospectiveInvestee Companies including vigorousinterviews with the owners and extensiveanalysis of the companies’ business plans.By investing in a diverse portfolio of InvesteeCompanies with a focus on a wide rangeof sectors and geographical locations,the Fund will reduce its exposure to anyparticular sector or Investee Companywith no more than 25% of any Investor’sContribution being invested into a singleInvestee Company.In addition, once an Investment has beenmade, Jenson Solutions will provide InvesteeCompanies with a range of business supportservices including general management andstrategic advice, financial modelling and,where applicable, the provision of a part-timeexperienced finance director. The lack ofexpert advice is a key factor in the failure ofmany start-ups; while many entrepreneurs arehighly creative and driven individuals, manyhave limited experience of business andfinance. As such Jenson Solution’s supportduring the Investee Companies formativeyears is likely to reduce the risk of InvesteeCompanies not performing to levels predictedby their business plans or failing due to factorsthat would have otherwise been avoidablewith expert advice. Some of these additionalservices will be charged by Jenson Solutions tothe Investee Companies. At all times JensonSolutions will ensure that the fees chargedare for services that help take the InvesteeCompanies forward. In some circumstancesJenson Solutions may take equity in returnfor fees in order to assist Investee Companieswith their cash flows and to further align theinterest of Jenson Solutions and Investors.5.2 General InvestmentStrategy of FundThe Fund Manager has always followeda diligent and disciplined investmentapproach over many years identifyingbusinesses where there is a real opportunityfor long-term capital growth.5.2.1 What companies will theFund invest in?While the Fund will aim to have breadthwith regard to the sector and industry of itsInvestments, Jenson and the Fund Managerwill seek to identify prospective InvesteeCompanies with similar key characteristicsand these include the following:• Generating revenues or with a clear pathto revenue generation;• High growth potential with the possibilityof realising a return of a multiple of atleast five times on the Fund’s Investment;• Disruptive business models that can thrivein a recessionary environment whether bychanging or enhancing a market;• Evidence that a prospective InvesteeCompany’s concept, product or serviceis innovative and has market potentialthrough testing, external validation or bydemonstrating pre-orders;• Addressing market gaps and brand lags –with unique and defendable propositions;• Non-capital intensive business models thatare both scalable and capital efficient; and• Led by an inspiring, energetic andambitious entrepreneur(s) capable ofdelivering the forecast investment returns.The Fund Manager intends that all InvesteeCompanies will qualify for relief as both SEISQualifying Companies and EIS QualifyingCompanies for the purposes of obtainingTax Reliefs.Jenson LLP and the Fund Manager will takesteps to identify and avoid investment in anycompanies which are carrying out or intendto carry out any of the excluded activitieswhich preclude a company from being a SEISor EIS Qualifying Company. A summary of theconditions Investee Companies need to satisfyto be SEIS and EIS Qualifying Companies,including a list of excluded trades is set out insection 11 of this Information Memorandum.As the SEIS Reliefs are more beneficial thanthe EIS Reliefs, initially the Fund Manager willseek where possible to invest exclusively inInvestee Companies that are SEIS QualifyingCompanies. Together with Jenson LLP, it willtherefore be looking for small companieswho are less than two years old, with lessthan 25 employees and with gross assets notexceeding £200,000.5.2.2 How will the Fund findInvestee Companies?Jenson LLP and the Fund Manager willfind prospective Investee Companies in anumber of ways. Both Jenson and the FundManager have an established track recordin identifying high quality start-ups. The verynature of Jenson’s business services meansJenson already has an existing network ofentrepreneurial clients, business contacts andangel investors. Through this network JensonLLP has already identified a pipeline of possibleInvestee Companies. The Fund Manager’stypical investor base comprises many seniorfinance professionals who also regularly providea source of investment opportunities.In addition, the Fund Manager and Jensonhave developed relationships with accountants,lawyers, financial sponsors and otherintermediaries over many years who also mayprovide investment opportunities for the Fund.A further source of potential InvesteeCompanies for the Fund may be companiesin which Jenson or its associates have anexisting investment. Investments in thesecompanies would not only provide the Fundwith an opportunity to build on an establishedrelationship with the entrepreneurs but it wouldalso have the advantage of further aligningInvestors’ interests with those of Jenson.Due to the reputation of the Fund Managerin the venture capital industry, theFund also expects prospective InvesteeCompanies to approach the Fund directly.