In the next instalment in our series of exclusive interviews with industry experts, Shane Elliott, Partner at Beringea, provides his insight on the biggest growth opportunities and most common risks for investors and discusses his company’s approach to investing.
1.) What tax-efficient schemes does your company work with, and how do you offer a unique/compelling approach for advisers?
Beringea is an award-winning venture capital firm that manages two tax-efficient investment products – the ProVen Venture Capital Trusts (VCTs) and the ProVen Estate Planning Service (PEPS). The firm has offices in the UK and in the US, which together manage approximately $900 million of funds and a portfolio of more than 60 investments. Beringea has managed the ProVen VCTs since their launch in the early 2000s, and this experience distinguishes us as an established player with a clear track record of delivering for our shareholders and the advisers that support them.
For more than 20 years, the ProVen VCTs have delivered returns through backing high-growth entrepreneurial companies. The sales of Monica Vinader, Zoovu, and Blis, among others, in the last couple of years have illustrated the shareholder value that can be driven through this model. PEPS builds on this track-record, leveraging ProVen’s expertise in tax-efficient investing to provide investors with an opportunity to mitigate Inheritance Tax (IHT) through a flexible, discretionary portfolio service that invests in private trading companies that are expected to qualify for Business Relief (BR).
As part of a transatlantic investment group with funds and operations on either side of the Atlantic, Beringea also offers a distinctive proposition in the wider venture capital market, where there is often significant competition for prospective investments. The firm’s funds, operations and network in the US support portfolio companies with strategic insights, on-the-ground support, co-investment opportunities, and introductions to customers, among others.
PEPS, meanwhile, offers a compelling focus on the UK solar market, which has provided investors with stable, long-term income, while also offering capital growth. The trading companies in the solar strategy generate much of their revenue from index-linked, Government-backed income streams.
2.) How active are you in providing education to advisers on the types of clients that are suitable for these types of investments, as well as any changes in regulation or nuances in the existing rules?’
We run a variety of initiatives to ensure that our network of financial advisers is kept updated on news from the portfolio and relevant regulatory changes. One of them is a monthly programme of CPD-accredited webinars, which are hosted by both internal and external speakers. These sessions provide educational content on tax-efficient investing and topics related to the ProVen VCTs and PEPS.
An example of a session we ran last year is our review of the consumer duty guidance and its impact on financial adviser firms. Beringea’s General Counsel sat down with one of Howard Kennedy’s corporate finance solicitors and with Deloitte’s Director of Risk Advisory Practice to introduce the new guidance and identify the changes financial advisers were likely to face with the new duty.
We also send a monthly newsletter that provides information on relevant topics about the ProVen VCTs and PEPS, including legislative changes and any compliance-related matters. Updates are also posted on the ProVen website and linked to the newsletters, as well as our LinkedIn page.
Beringea’s Sales Team also hosted in-person seminars across the UK throughout the year, where they gather small groups of financial advisers and provide an update on the two tax-efficient investment opportunities and any regulatory changes relevant to them.
3.) Where and in which types of companies are you seeing the biggest growth opportunities?
We’ve seen a lot of growth in businesses leveraging the circular economy that deliver both economic and environmental sustainability. An example of such company in the ProVen VCTs’ portfolio is MPB – the world’s largest reseller of photo and video kits.
The ProVen VCTs first backed the business back in 2018 with a £5m Series B investment co-led with another investor. Less than 18 months after the initial investment, the ProVen VCTs participated in a follow-on investment in MPB. In 2021, MPB raised £49.8m Series C, which allowed the Brighton-based company to open its first US operational centre in Brooklyn and a German site to become the leading global platform for trading high-end photography and filmmaking equipment.
We’ve also seen significant and exciting innovation from brands seeking to provide healthier, more sustainable options to consumers. Alongside our investment in Lucky Saint – the leading non-alcoholic beer brand – we’ve also recently backed DASH, the zero-sugar, zero-calorie seltzer company known for infusing wonky fruit in its drinks. The ProVen VCTs led a £8.7m Series A funding round into the brand at the end of 2022.
Today, DASH is the fastest-growing beverage brand in the UK and the leading “seltzer” in the UK with a 41% market share.
Since its launch, DASH has grown sales by over 120% each year, and its sustainably crafted seltzers are now available in more than 12,000 stores worldwide and over 20 international markets. In 2023, the company sold over 30m cans of DASH Water. It has also secured partnerships with major retailers and distributors including Tesco, Sainsbury’s, Waitrose, Planet Organic, and Starbucks.
Its range of drinks can also be purchased directly from its website, and customers have the option to subscribe for regular deliveries at a discount — these online channels have generated an impressive 61% of sales.
4.) What do you see as the biggest risks for investors?
When investing in VCTs, it’s worth understanding that the early-stage nature of their investments means that VCTs can be riskier than other products. To mitigate some of these risks, Beringea ensures a rigorous process for investing on behalf of the ProVen VCTs, which we have laid out below, to ensure that the action of finding, backing, and scaling high-growth start-ups is delivered effectively.
Sourcing: While the firm typically makes between 5-10 new investments a year from the ProVen VCTs, Beringea annually sources around 1,000 potential deals. They are generated through various channels such as events, industry contacts, and inbound/outbound origination.
Initial due diligence (DD): Upon sourcing these deals, the investment team will conduct an initial review of the company and any fundraising materials it is able to provide to understand whether it presents a compelling investment opportunity.
Investment memo: Promising deals undergo a management presentation and if interest persists, a comprehensive investment memo is created. The team leading the deal will then produce a comprehensive analysis of the investment. This memo is reviewed by the Beringea investment committee and ProVen VCTs’ boards.
Third-party DD: Alongside internal analysis carried out by the Beringea investment team, due diligence involving third-party assessments also takes place.
Active portfolio management: Once part of the Beringea portfolio, companies will be provided with significant support from the firm to help the business identify and harness commercial opportunities. This includes board representation and access to the Beringea Scale-Up Academy.
Exit: Having worked with the company to drive growth and improvements in financial performance, Beringea will work alongside the leadership team to deliver an exit for the ProVen VCTs. The firm aims for exits within four to six years following the initial investment.
When it comes to PEPS, the heightened inflation risk since 2022, with rates peaking at 11.1% in October – the highest in 40 years, posed a significant risk for investors.
Despite ongoing economic uncertainty, PEPS demonstrated resilience. The solar companies on the platform offer stable income with Government-backed, RPI-linked revenue streams, serving as a potential hedge against inflation. PEPS’s strategy of investing in trading companies with revenue growth in inflationary environments led to a five-year blended growth of 5.2% in September 2022.
5.) Should advisers be worried about a lack of diversification, and why?
We find that most investors come to VCTs after having worked through their pension allowances and ISAs with their financial adviser. At this point, VCTs can offer a nice diversification within an investor’s portfolio.
It is worth noting that both the ProVen VCTs and the ProVen Estate Planning Service can offer immediate diversification to investors. The ProVen VCTs have a portfolio of more than 50 companies, while PEPS offers access to four trading companies spanning two investment strategies.
Within the wider market for tax-efficient investment schemes, we also see value in diversification of providers, ensuring that investors can access different types of products and strategies.
