The fund will focus on capital preservation as well as growth. It will invest in at least four EIS qualifying companies, mainly smaller privately held firms.
The fund will manage risk by targeting more mature businesses with long term positive trends, where there is a higher degree of predictability. Strong management teams and market positions, with significant recurring revenues and adequate cash flow are also important factors.
To find suitable investment opportunities, Calculus will use the network of contacts it has developed over the years. Calculus executive chairman Susan McDonald and chief executive John Glencross have both invested in unquoted companies since 1997. They founded Calculus Capital in 1999 and the firm has launched and closed nine EIS Funds over the period. This equates to one every year except 2008, as Calculus felt the market was overvalued last year.
Calculus says the market has changed since then and believes now is a good time to invest in an EIS fund. It says taxes will inevitably rise to pay government debts and EIS funds will be attractive because they provide a good range of tax benefits.
Company valuations have also fallen over the last 18 months and even good well-managed companies are finding it difficult to raise money for expansion. Investing now means that as the economy emerges from recession, investors can benefit fully as smaller companies grow.
This fund offers the diversity that a single EIS investing in one business cannot provide and having an experienced team to select the investments may provide a comfort factor for investors. The tax benefits may be appealing, particularly at a time when tax relief on pensions is becoming less attractive. However, investing in unquoted companies is higher risk relative to quoted investments.