Angel investing in Europe is getting another boost: DFJ Esprit, a UK-based member of the Draper Fisher Jurvetson network of VCs, is preparing to close its second EIS Angel Co-Investment fund, up to £10 million ($15 million) that will be used to help angels invest as syndicate partners alongside DFJ Esprit’s larger investments from its institutional funds, with the latest of these valued at £90 million ($137 million).
Richard Marsh, a DFJ partner and manager of the EIS fund, says that they are currently 80% subscribed for the £5 million first close on the new fund, with the expected final range to be between £5 million and £10 million.
Last year’s angel fund was a pilot program, valued at £5 million and twice oversubscribed. Investments from that fund included Achica, Unbound, Lyst, Datahug and Aveillant, with Horizon Discovery, Sport Pursuit and one other expected to close soon. DFJ Esprit’s portfolio has included LOVEFiLM (sold to Amazon); Kiala (sold to UPS); and Nimbus (now a part of Tibco).
The Angels EIS fund is part of a scheme DFJ first announced last year, and is related to a UK government initiative called the Enterprise Investment Scheme. That scheme encourages up to £1 million in investments in UK or UK-owned European startups and offers rewards by way of tax breaks: private investors, DFJ Esprit points out, “benefit from institutional, investment-led deal quality with a tax wrapper that enhances returns,” which include 30% income tax relief on investments; zero capital gains on profits; and possible deferral of prior capital-gains tax on the initial investment.
A separate scheme, for seed investments, is called the Seed Enterprise Investment Scheme (SEIS). That was introduced last year and lets individuals invest up to £100,000, with companies able to raise a maximum of £150,000. SEIS offers 50% income tax relief on the amount invested; and as a one-off boost to start the scheme, if you re-invest capital gains from 2012/13 then you do not pay capital gains on this from then on. This year’s Budget 2013 extended this for the current tax year.
While the U.S. has been very fertile ground for angel investors (some might argue too fertile), it has been less so in the UK and Europe, with the knock-on effect being, so the thinking goes, fewer startups in general.
What’s interesting is how the EIS scheme ends up changing the game for angel investing in general.
Here, angels are brought into the game as a syndicate partner to invest alongside DFJ Esprit’s institutional investors, which are part of the larger fund. It opens the door to bigger opportunities for those angels and gets them more involved potentially in later stages beyond seed as well. “It looks and acts and has the deal flow and scale of a full scale VC fund, and gives access into top tier VC deals to angel investors and has 10-20x scale compared with what EIS alone has had in the past,” says Marsh. “We believe this fund is setting new horizons for what can be achieved with EIS.”
Marsh says that targets for its investments are startups with potential $100 million+ exits, with 3x-10x returns on investment.