Stirling investment group rejigs £25m tech-focused fund

● Move follows new tax breaks helping both investors and beneficiary firms

A Stirling-based investment syndicate has switched its planned £25 million technology fund to capitalise on recent increased tax breaks relevant to the sector.

ESM Investments, which is focused on high-growth tech firms, yesterday unveiled the Enterprise Investment Scheme (EIS) qualifying technology fund, which will make its debut early in the New Year.

The group, which aims to bankroll scale-up businesses in Scotland and across the UK, said the EIS will supersede its Venture Capital Trust (VCT) unveiled in September, and could see further, similar ESM funds launch.

Steven Morris, founder and chief executive of ESM Investments, told The Scotsman that the decision was made given both the track record of the organisation with Eisrelated investing, and the tax reliefs announced last month in the Budget by UK Chancelit lor Philip Hammond. Morris said the VCT option still had appeal, but “we decided to switch [to EIS], purely because it’s more attractive for investors in the short, medium and the long term”.

ESM said the Budget had made EIS schemes more attractive “rather than worsening the rules as widely expected”.

Measures included the annual EIS allowance doubling to £2m for individual investors when investing in “knowledge-intensive companies” such as university spinouts, life science and technology companies.

The amount such firms can receive in EIS funding in one year has also doubled to up to £10m.

ESM’S new fund will invest in scale-up businesses at the “pre-series A” stage. Series A comprises a company’s first significant round of financing for outside investors.

The move comes amid the much-cited funding gap for scale-up firms in Scotland. Morris acknowledged efforts to address this gap, but said still existed. “It is our job to assess the companies we believe will have every chance of success going forward,” he stated.

“The companies at this stage of funding have had accelerated progress to-date, but still have challenges – new technology ideas sometimes have as little as six months to make their mark or they are usurped.

“We have already had several strong notes of investor interest in our plans and really look forward to presenting to additional investors in early 2018.”

He added that ESM could go “beyond” the forthcoming fund if demand was there. “If the fund within its first two years goes in the direction that we want it to go, I couldn’t see any reason why we wouldn’t kick-start a second fund pretty soon [afterwards].”

Morrissaidesmaimstohave at least £100m under management with its various funds. The business was founded in 2011, has invested £8m in tech start-ups so far, and through the new fund intends to grow its investor base from about 80 high-net-worth individuals to more than 200.