Our Investment Strategy
Mercia Growth Funds are a unique hybrid of SEIS/EIS investments, blended into an early stage, technology-focused fund. We invest nationally, but with a particular focus on the Midlands, the North of England and Scotland. We also target four key technology sectors, in which we hold deep expertise.
These sectors are:
- Digital & Digital Entertainment
- Software & the Internet
- Life Sciences & Bio-Sciences
- Electronics, Materials & Manufacturing / Engineering.
Around 30% of our deal flow is sourced from our 18 university partners across the Midlands, the North of England and Scotland. These are managed by our Universities team, headed by Dr Nicola Broughton, an expert in technology transfer.
The mixture of young start-ups and more established companies creates a well-balanced portfolio.
We additionally manage an institutional evergreen fund that invests exclusively in university spinouts.
Each member of our investment team has an impressive resumé, with deep expertise in their target sectors. Our Head of Digital & Digital Entertainment, for example, was formerly SEGA's CEO for Europe and America. He now leads an impressive portfolio of digital businesses, which includes VR developer nDreams.
[CEO of nDreams Patrick O'Luanaigh (left) stands with Head of Digital Mike Hayes at Mercia Fund Management's AGM 2016.]
The Complete Capital Solution is combined with our unique investment strategy, delivering end-to-end funding to high growth businesses. However, we go above and beyond cash funding, as our industry-expert Investment Directors provide strategic advice and commercial introductions which add considerable value for these early stage businesses.
From drafting a business plan, to recommending board members, and even providing PR and marketing assistance, our Investment Directors are able to assist in all aspects of a business' journey as and when the company requires it.
Additionally, we can support value creation by "following on" in subsequent rounds, providing the requisite support and guidance to drive growth.
SEIS and early stage
Mercia Growth Funds contain a balanced mix of early-stage companies, including start-up companies through to more established companies with considerable revenue. All early-stage investments are high risk, but creating a diversified portfolio - both in terms of sector and stage - mitigates some of these risks.
An early stage investment should be considered "Risk Capital", but we make every effort to reduce these risks and still deliver the targeted venture capital return. The UK government supports early stage investment with various attractive tax breaks, as the growth of small businesses is a substantial contributor to Gross Domestic Product (GDP).
Investment criteria for our start-up investments includes UK companies that are:
- Achieving sales of £0.2m or less
- Less than two years old
- Seeking investment of up to £300,000 (typically of a maximum of £1m to get to exit)
- Made up of fewer than 25 employees
- Able to demonstrate a clear route to generating positive earnings before interest, taxes, depreciation and amortisation (EBITDA) within two years of our investment
- Able to generate dividends within three years of our investment and provide a credible exit plan within four to seven years
EIS funds and late stage investment
Investment criteria for more established early-stage businesses includes companies that are:
- Achieving sales of £10m or less
- Made of fewer than 250 employees
- Demonstrating a referenceable sales pipeline
- Demonstrating a strong management team, ideally with a track record of delivering investment returns
- Seeking investment of up to a maximum of £2m to get to exit
- Either earnings before interest, taxes, depreciation and amortisation (EBITDA) positive or demonstrating a clear route to generating positive EBITDA within two years of our investment.
For more information on Mercia's strategy, watch this video: