The companies previously teamed up to for the Catalyst Stargate EIS growth fund, which closed in April. They say that combining resources provides the fund with a wider pool of investment opportunities.
The new fund aims to provide growth within three to five years by investing in a minimum of four small or early stage unquoted companies. that provide environmental and sustainable solutions to social and economic challenges. Firms that have developed a unique product or service with intellectual property and/or superior technology will be of particular interest.
Areas in which it is expected to invest include renewable energy and energy efficiency, sustainable living and consumption, waste management and recycling technologies, water treatment and preservation and environmental services.
Despite the environmentally-friendly theme, and the fact that the fund will not invest in certain industries, Catalyst says this is not an ethical fund. It says it is taking advantage of a shift in public attitudes towards green issues, which has seen environmental concerns become a major part of the political landscape.
The company also says there have been a number of regulations and initiatives in recent months, highlighted by the Stern Review on the economics of climate change, that has led to an increase in environmentally friendly investment opportunities.
Stargate also believes that with careful due diligence, the highest returns can be made by investing at a very early stage in a company’s development. It says investing in small caps has several advantages, including the fact that more deals than capital are available to the companies, smaller deals are often ignored by traditional venture capitalists and institutional investors, while monitoring companies through board representation is easier to implement.
While small-caps are under researched and often mispriced, with a greater scope for growth than bigger, mature businesses, this is a high-risk investment with a relatively narrow focus. However, this does make asset allocation easier in contrast to generalist EIS funds which invest in a range of areas.
EIS funds may be less attractive going forward given the pre-Budget report’s announcement of an 18 per cent flat rate of CGT. However, Aim investors who would have paid 10 per cent face an increase of 18 per cent so may be interested in an EIS to defer their CGT liability.