Since 1983, Oxford Technology Management (OTM) has specialised in making and managing investments in start-up and early stage technology-based businesses with high growth prospects. In total, we have made more than 150 investments in technology start-ups. Almost all of them are within an hour’s drive of Oxford, so that we can be actively involved to help.
The OTM investment team are all scientists or engineers by background, and understanding the technology is the starting point for any investment that we make.
Oxford Technology manages two funds:
The Start-up Fund makes SEIS investments in high risk, high reward science start-ups, in general within an hour’s drive of Oxford.
We have been investing in science start-ups for more than 30 years, and The Start-up Fund is fund number 12. We have learned from experience and believe that we are now quite good at this specialist activity.
The SEIS scheme transforms the economics of this business. The tax relief at the start is 50%, and there are further tax reliefs should the business fail, which, depending on the tax circumstances of the investor can reduce the losses on a failure to as little as 12.5% of the original investment. Any gains on the winners are tax free.
All the investments are outside Inheritance Tax after 3 years, so an investment in The Start-up Fund provides a good means of passing wealth on to the next generation in the form of long-term assets which cannot be sold immediately, which might be attractive in some circumstances.
The reason for the investments being within an hour’s drive is so that we can have frequent informal meetings with the founders, who may be Nobel Laureates, but who have probably not negotiated an exclusivity agreement with a distributor in China before. We get stuck in to help with key meetings and to help solve problems. In this way, we get to know the businesses very well, warts and all. This in turn puts us in a good position to be able to decide whether to invest further as the business develops, and at what share price.
The objective of The Start-up Fund is to invest the capital provided by any investor over three years as follows:
- In year 1, a third of the funds (less fees) is invested in 5-10 SEIS investments in science start-ups.
- In year 2, a third of the funds (less fees) is invested in EIS investments in those of the earlier SEIS investments which are showing promise. Year 3 is the same as year 2.
This has the advantage for investors that it is likely to result in a good return in the end. Having the ability to make a follow-on investment in a start-up as it develops is very important. Experience shows that investors who are not able to do this often fare badly.
The disadvantage of The Start-up Fund is that it takes up to four years for investors to receive all their tax relief. This is because before one can apply to HMRC for the necessary forms, the company has to meet certain criteria , so tax reliefs typically arrive 6-9 months after an investment.
The Start-up Fund made its first investment in 2012. The fund is open for investment at any time, with a minimum investment of £15,000.
The Development Fund is a one-year technology fund that seeks to make full use of the tax advantages offered by EIS investment schemes. We only invest in companies which we know well through investments from The Start-up Fund or our VCTs.
Our close and frequent involvement with so many developing companies means we have access to a steady stream of EIS investment opportunities. These high growth potential companies have made significant progress since our initial SEIS investment and will usually have overcome some of the first obstacles.
Any money invested into The Development Fund will be invested within one year in EIS investments. These investments will mainly be follow-on investments in companies in which The Start-up Fund made the initial investment.
Usually, The Start-up Fund will also make an EIS investment, but by the rules of that fund, this will be only of the same amount as the earlier SEIS investment. In most cases, if the business is developing well, it will be wanting to raise larger sums. It is useful for the company and good for its investors if The Development Fund also invests in these opportunities. This is usually to employ more people, to expand its sales force and to increase its marketing expenditure, now that the technology is working, and the first sales have been achieved. Therefore, the investment made by OTEIS will be expected to be slightly lower risk than the high-risk investment made by OT(S)EIS.
In the past, at the request of investors, we have been able to invest sums of up to £500,000 in up to five EIS investments in a matter of a few weeks, typically to meet a particular tax need. We cannot always do this, but often we can. At any one time, there are typically 5-6 of our investee companies with open fundraising in progress seeking to raise funds for expansion. If you wish to discuss whether we can help meet a particular tax need, please feel free to contact us.
If you have any questions about either fund, please call us on 01865 784466.
Oxford Technology Management is also the Fund Manager for the four Oxford Technology VCTs.