When am I ready to launch my EIS fund? Some practical advice on steps to take before engaging advisers.
7th September 2017
You want to launch an EIS fund? Over the coming weeks, we at Mainspring will be publishing a series of short articles to walk you through the process.
PART 4: RAISING CAPITAL
With the legals in place for your new “fund”; the relevant permissions (directly or through an umbrella); and the right service providers, it’s time to raise capital. That’s the topic for this article.
If you are already experienced at fundraising you may have all of the skills and contacts you need to successfully raise capital for your fund. If not, you may want to buy in some expertise and resources.
You will find that most introducers (often termed “promoters” in this market) will expect to be paid an upfront fee for their services and there are a variety of ways in which additional fees may be structured, often tied to the amount of capital raised. The relatively large amount of effort required to raise a small fund, particularly if it is from a new manager, may make this an expensive choice, but the value of successfully raising your first fund is enormous. Indeed, some of the operators in this field may also be able to offer regulatory cover (as discussed in the last article), helping you get to market more quickly.
Most investors investing into an EIS fund will typically do so through the recommendation of their financial adviser, so the firm you engage with should be able to demonstrate a strong network in this sector. Access to the network of UK IFAs is crucial to the success of many EIS funds. Whilst getting onto the panel of a larger IFA network is unachievable for most managers when they start out, getting on their radar as soon as possible will mean that, performance permitting, fundraising will be easier once you become better established and can demonstrate a strong and consistent track record.
You will probably also find it helpful to launch and maintain a website that details your investment strategy, your team and your track record, as well as demonstrating any relevant sector expertise and thought leadership in relevant areas. It may be tempting to set this up before you engage with advisers, but a website could be considered as marketing by the FCA, which is a regulated activity, so it should only be made live with the proper regulatory permissions in place. It will also be necessary to draft a disclaimer for the website, indicating which sorts of investors it is for and, importantly, who is not permitted to view it or act on its contents. A lawyer will be able to assist you with this.
Of course, the point on marketing is true not just for your website. It is vital to take expert advice on what may or may not constitute marketing in the FCA’s eyes. Conducting any kind of regulated activity without the correct permissions can end your chance of raising a fund before it has even officially started.
As well as active fundraising, you will want to introduce your fund to the ratings agencies that cover your sector. The most established ones are MJ Hudson, Allenbridge and Martin Churchill, and a favourable review from them can help position you as an interesting fund to the IFAs. New providers are also entering this space, such as MICAP, and speaking with all of them will give you a leg up.
Now that you have considered your fundraising strategy and designed a website, you need to get out and meet investors. Good luck!
In our next piece we will look at the expectations of investors regarding reporting and communications – what you need to tell them and how you can keep them coming back.
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