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EIS: Deployment and Deal Flow – It’s all in the Timing

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The Oxford Capital Ventures Strategy is available in the Oxford Capital Growth EIS

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EIS: Deployment and Deal Flow – It’s all in the Timing

By Oxford Capital | Sep 11th 2018

Aligning with the Best Opportunities

When it comes to EIS investing, traditionally there has been a rush to invest as the end of the tax year approaches. Advisers are rightly keen to maximise the tax reliefs by making use of them in targeted tax years. But, while managers look to specifically identify EIS qualifying companies, investment success is the ultimate name of the game. And the best deals are certainly not confined to the last financial quarter.

At Oxford Capital, we recognise the tax reliefs remain compelling and we understand the importance of innovators and entrepreneurs but we are also acutely aware that there must be a focus on backing success and those with the potential for it. This is one of the reasons why deployment of investors’ funds is not an immediate or entirely predictable science.

There is no lack of appealing deals to be done – not for Oxford Capital, although that may not be the case for EIS managers that have had to pivot from capital preservation strategies. Our mantra is that quality follows quantity and the more deals we see, the better our chances of seeing those with most potential. As a result, Oxford Capital’s ventures team reviews over 2000 potential investment deals per year (around 70% of industry deals in our sector (Crunchbase)). The team meets with around 600-700 companies before carrying out detailed due diligence on the most promising candidates – perhaps 100 –  150 businesses each year. In all, successful companies are filtered through nine separate due diligence stages.

Nevertheless, if, after full and frank discussions, there is a barrier to proceeding at any stage, including EIS qualification issues, we will withdraw. In fact, recent internal reviews showed that around a third of companies do not make it from issuing a term sheet, an advanced stage in the due diligence process, to actual investment.

So, the timelines of investing simply cannot be guaranteed and this is one of the reasons why it’s likely to take at least a year for full, diversified deployment of subscriptions. So, the reality is that investing earlier rather later is a much better option; having money on account puts investors in the best position to take advantage of the best opportunities as and when they are uncovered. But, just as importantly, if it is the full subscription amount rather than ad hoc sums subscribed over a period of time, the manager has much greater scope to build a properly managed portfolio, with well-judged allocations across companies with various risk profiles, in a range of multiple sectors, and across several stages of development.

For more information about the exciting opportunities available through the Oxford Capital Growth EIS, click here.

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