Fund managers with several funds that invest at different stages of a company’s life can be very beneficial for a portfolio company, for the investors and the fund manager, as well as being a highly effective way to achieve long-term financial planning aims. An example of a multi-stage venture capital fund manager is one that offers SEIS, EIS, series A and series B using LP funds.
A multi-stage framework provides many advantages over a single fund offering. Firstly, the fund manager gains greater flexibility so can work on a longer investment horizon which may reduce long-term risks to a company and the investment can be evaluated over time so that fund managers are able to support companies and founders over multiple funding rounds from the Seed to the series A/B stage.
This may provide greater stability for the company as the management will have gained greater understanding of the objectives and approach of the fund manager. At the same time the fund manager will have a deeper understanding of the firm’s journey, gained through the longevity of their involvement, so they can better help guide the company, which may allow the firm to flourish and gain greater economic strength earlier.
In addition, there are further advantages for portfolio companies because fund managers of multi-stage funds will have a thorough understanding of their investment and should mean that the injection of new monies should not be as torturous or time consuming as that of a completely new company looking for finance. This may also provide greater support for the company as the management can concentrate on running the firm rather than continually being distracted by roadshows or presentations to prospective investors.
For the investor there are considerable advantages using a multi-stage fund manager. Firstly, the manager will be able to guide their investment in the company by ensuring it remains appealing which is vital to attract other later stage investment which should contribute to make the investment a success. Secondly, the fund manager may be able to provide an earlier, quicker and more trusted exit route. In the case of an EIS investor this might mean having their shares purchased by the fund manager’s series A /B LP fund (once the 3-year timeline to secure the tax reliefs has expired). It is also likely that while the due diligence process for subsequent investment rounds will most likely be thorough, the fund manager will have a good understanding of the Company, so the deal can be completed faster so the investor receives their proceeds more quickly. Thirdly, for the fund manager there is the additional prospect that on a successful sale the investor may re-invest their monies into one of the fund manager’s multi-stage funds.
This multi-stage venture capital fund approach may be helped by selecting a custodian that can provide the services and support to all these fund types as this will reduce the time-consuming task of engaging with different service providers and their processes.