VC giant launches co-fund for UK angels

Scheme set to open up EIS and SEIS benefits


Venture capital giant DFJ Esprit has announced a first-of-its-kind co-investment initiative, designed to help business angels take advantage of the government’s new measures to encourage early stage investment.

The Angel Co-Investment Fund, unveiled earlier this week, will enable private investors to channel money into a portfolio of start-up venture capital deals brokered by DFJ.

Through the co-fund, angels can reap the benefits of both the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS), the government’s twin initiatives to stimulate funding for early-stage businesses.

The SEIS, which goes live on April 6, will offer investors 50% income tax relief on investments of up to £100,000 in small companies, as well as a year-long capital gains tax holiday.

Meanwhile the EIS, which was first introduced in 1994, entitles angels to 30% tax relief on investments in companies of 250 employees or less.

Terms and conditions

In accordance of the terms of the EIS, angels participating in the DFJ co-fund will be able to invest anything up to £1m per year. In return for their investments, participants will be eligible for preferential as well as ordinary shares; Simon Cook, CEO of DFJ, told Growing Business that “we’ve been working with HMRC to come up with a standard term sheet, and we expect the terms for angels and VCs to be the same”.

Cook added that DFJ “probably makes a new investment around once a month”, and he expects this rate of investments made under the co-fund to be similar. Angels will also be able to take part in follow-up investments, channeling their money into companies which received initial backing last year.

Those taking part in the co-fund will be able to back both new and established companies. Cook said:

“We invest in everything from seed to growth deals. Probably half our investing has been in growth deals historically – these haven’t been able to enjoy EIS relief until recently, but the changes in EIS mean angels can realise significant benefits through this channel”.

DFJ has long been focused on disruptive, leading-edge companies, having built up a portfolio of cleantech, lifesciences and software investees. For its co-fund pipeline, Cook told us that the company is looking to invest in “world-class technologies, global markets and great entrepreneurs across a range of fields”.

The fund will be overseen by Richard Marsh, partner at DFJ Esprit and a seasoned entrepreneur himself, having founded Cambridge-based data software company Datanomic, which was acquired by Oracle last April.

Discussing the new initiative, Marsh said:

“Our Angel Co-Investment Fund is a unique product which provides private investors access to top tier venture capital deals, whose compelling returns were previously exclusive to the institutional investor community.”

Progress

DFJ says it is planning a short fund-raising period for the new fund, and has already established a pipeline of deals that will close from 2012 onwards.

With over $1.1bn (£70m) of institutional funds under management, DFJ is widely regarded as one of Europe’s foremost top-tier funds; indeed its portfolio companies achieved four of the top five largest European VC M&A exits in 2010 and 2011. Senior executives are confident the fledgling co-fund portfolio can achieve similar success.

Cook said: “This is a long-term venture for us – we’re going to develop this product over many years, so we’re not reliant on a short period of fund-raising. We’re very excited about this.

“We’re already doing a large number of deals with angels, and they help us build  some of our best deals. We sense some angels would like to be in every deal we do, and we’re offering them the opportunity to do this – while tying ourselves even more closely to the investment community”.

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