Jeffrey Faustin, Chief Investment Officer at Jenson Funding Partners, discussed with GBI Magazine how his team are utilising various methods of diversification to ensure their EIS and SEIS portfolios are as robust as possible to meet investors’ needs.
Jenson Funding Partners are a team of SEIS & EIS Fund Manager investing in & supporting start-ups that have currently invested over £21 million in 125+ entrepreneurial UK businesses.
Speaking with GBI Magazine, Jeffrey Faustin highlighted how his team at Jenson have continued to achieve such positive outcomes during a difficult time for all businesses through diverse portfolios and the growing of their VC ecosystem.
Jeffrey went on to discuss how the extension of the sunset clause and increase in SEIS limits will allow entrepreneurs to focus on building their businesses rather than being preoccupied with fundraising.
Q: What are the merits of a diverse portfolio versus sector specific?
“The Jenson EIS & SEIS funds are sector agnostic with a focus on tech-enabled businesses with a unique and disruptive technology. The fund has a mandate to focus on long-term capital growth and enables private investors to invest in a range of committed and ambitious entrepreneurs and their early stage growing companies.
“Jenson believes in offering investors a range of investments across sectors and in the words of the FCA ‘Not putting all your eggs in one basket’. By diversifying across sectors investors are de-risking their investments.
“By investing in a diverse portfolio of investee companies with a focus on a wide range of sectors and geographical locations, the fund will reduce its exposure to any particular sector or investee company with no more than 25% of any investor’s contribution being invested into a single investee company (unless otherwise agreed with the investor).
“Jenson aims to allocate investors across a portfolio of eight to 12 SEIS qualifying companies, with a single company representing between 5% and 15% of an investor’s portfolio, which should mitigate against the effect of individual failures (failures are to be expected in a portfolio of early-stage companies). Investors in Jenson EIS are invested across five to 10 EIS qualifying companies with a single company representing between 20% and 10% of an investor’s portfolio.
“To further de-risk investments it is advisable to diversify an investment portfolio across different asset classes.
“External factors can impact sectors i.e., economic downturns affect industries in different ways, and so investing across sectors mitigates against this. Given the early stage nature of the companies Jenson invests in, they tend to be more agile and adaptive to changes in the economy and have more flexibility to pivot and diversify as they grow.
Q: How important is support and growing the VC ecosystem to enable portfolio companies’ access to funding, long term growth prospects and suitable advice?
“Jenson doesn’t just invest and leave. We have built a network of VCs that we can reach out and introduce our portfolio companies to when raising follow on funding. Introductions are important for these companies. They have a business to run, when they are fund raising they are distracted from running and developing the business. This will give longer term growth prospects, plus more visibility of the companies’ raising follow-on funding in the medium and longer term. We also encourage portfolio companies to look at opportunities for external benchmarking and guidance.
“Jenson may provide additional services to support companies in raising follow on finance in the external market, such as financial modelling, pitch deck preparation and promotion of the company to investor networks.
“Once an investment has been made, Jenson, through at least monthly contact between investees and the Jenson team, will provide investee companies with both general management and strategic advice, including a particular focus on governance and financial management, planning and control. Lack of expert advice is a key factor in the failure of many start-ups; while many entrepreneurs are highly creative and driven individuals, many have limited experience of business and finance.
“Jenson’s aim is to leverage wherever possible the funds, the portfolio and the Jenson network’s collective experience for the benefit of our investee companies. As such Jenson support during the investee companies’ formative years is likely to reduce the risk of investee companies not performing to levels predicted by their business plans or failing due to factors that would have otherwise been avoidable with expert advice.”
Q: Given the extension of the ‘sunset clause’ and increase in SEIS Limits, how important is this for portfolio companies?
“From April 2023, the amount companies can raise through SEIS will increase from £150k to £250k, and the annual investor limit will be doubled to £200k. The age limit for companies accessing SEIS will increase from two to three years and the gross asset limit (will be upped to £350k.
“Entrepreneurs should now have to spend less time fundraising, and more time doing what they do best — building a business. For Jenson this will mean companies already in our portfolio that have received earlier SEIS funding will be able to receive an additional £100k funding if they are within the new prescribe time limit.
“An analogy I like to use for companies that received SEIS funding is like seeing a boat in a lake and the £150k doesn’t quite give them enough fuel to get to the other side to pick up EIS follow-on funding, this new amount gives them more fuel to complete the first part of the journey.
“Scrapping the sunset clause will give investors and entrepreneurs alike a much clearer path to future growth. Knowing founders have the ability to raise follow-on funding ensuring they can continue on their growth trajectory should give comfort to investors that they have a longer runway for success.