Why is deployment method important?
Because it will have an impact on your tax reliefs, the diversification of your portfolio and the value at which your portfolio is constructed.
There are two typical deployment models; the evergreen model and the tranche model. There are pros and cons to both and it is important to weigh up what is right for you.
The tranche model
This is the approach used by most investment managers. They will announce a fundraise and a close date, and any funds and applications received during this time will form part of that particular tranche. Each investor in this tranche will get an identical portfolio of companies.
Investment managers will normally look to deploy this within a six month period. They will however usually only begin to deploy this once the tranche ahead of it has been deployed. This can cause a significant delay to deployment, during which time the money will be sat as undeployed cash.
Pros
Cons
The evergreen model
This approach means that the EIS fund is always open for investment. When investors submit their application and funds they will begin investing into the next available EIS companies. Think of it like joining a slip road onto the motorway, you will just slip into the current deal flow rather than having to wait for your turn.
Pros
Cons
Important questions to ask providers
For investment managers who use the Tranche model:
For investment managers who use the Evergreen model
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