Tax-Advantaged Investments Calculus EIS Fund 84

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Analysing tax-advantaged investments since 1985 EIS Review

Calculus EIS Fund November 2017

Calculus Capital Limited (“Calculus” or “the Manager”) Contents is looking to raise up to £20 million for the Calculus EIS Fund (the “Fund”) for the tax years 2017/2018 and 3 Executive Summary

2018/2019. 5 Manager Quality

Manager Profile The offer is open to new and existing shareholders and launched Financial & Business Stability on 05 July 2017. Quality of Governance and Management team 11 Product Quality Assessment Score Card

Investment Team Discretionary Investment Strategy & Philosophy Fund Type Non- Approved Pipeline/Prospects and current Portfolio EIS Strategy Generalist Investment Process 84 Risk Management Cohort Type Evergreen Key Features (multi-cohort) Performance

Manager AUM £160 million

Closing9 Financials Date EIS Risk Level Medium Costs

Management 2017-18 tax year: 27 Oct 2017 Investment 26 Jan 2018 £50,000 Minimum subscription 2018-19 tax year: 27 Apr 2018 29 Jun 2018 No maximum subscription Maximum qualifying subscription per tax year

No Early bird discount

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Risk Warning for EIS Schemes

Individuals should always read and bear in mind the risk warning notices that are included within providers’ investment offer literature/documentation, including prospectuses, information memorandums, securities notes, brochures and other related marketing literature. Whilst the following list is not exhaustive, some of the main risks to be aware of include:

 Investments are in small, unquoted companies and should be considered as high risk;

 Investments are illiquid and need to be held for at least three years in order to retain the initial income tax relief;

 An EIS/Seed EIS investment should be viewed as a long-term investment;

 Legislation, along with the nature and level of tax reliefs is subject to change. There can be no certainty that investments will be eligible or remain eligible for EIS/Seed EIS Relief;

 Historic investment performance cannot be used as a guide to future performance, and the value of any given investment may rise or fall;

 Many EIS/Seed EIS Schemes involve investment in a single company or sector and therefore should only be considered as a small part of an overall portfolio;

 Investors may not have independent representation on the Boards of investee companies which can mean their interests are not adequately considered relative to the executive team;

 EIS/Seed EIS investments should only be considered by sophisticated investors who understand, and have given careful consideration to, the underlying investment strategy and associated risks. For help in determining potential investment suitability, professional advice should be sought;

 Often there will be no regulatory oversight and investors will usually not be eligible for compensation if things go wrong.

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Executive Summary

Offer: Calculus Capital Limited (“Calculus” or “the Manager”) is looking to raise up to £20 million, for Calculus EIS Fund (“the Fund” ) for the tax years 2017/2018 and 2018/2019 to invest in, EIS qualifying companies, across a range of sectors. Investments will be made according to an investment policy whereby subscriptions are allocated to quarterly tranches and shares in investee companies are allocated pro-rata to that tranche upon purchase. The Offer launched on 05 July 2017.

Manager: Calculus specialises in UK tax-advantaged investments across both Enterprise Investment Schemes (“EISs”) and Venture Capital Trusts (“VCTs”) and has established itself as a leader in the EIS industry with a long track-record and strong fundraising capabilities. As at 31 July 2017, Calculus had total assets of approximately £160 million under management, which had grown approximately 14% from the previous year.

Product: Calculus EIS Fund is a discretionary service focused on later-stage growth companies. The Fund offers investors a balanced portfolio of at least six qualifying companies across a broad range of sectors, with a slight bias towards healthcare and applied technology. The Fund has a target net IRR of 20% for each portfolio company and we understand that it is aiming to achieve a target average exit multiple of 2.0x-3.0x.

Summary Opinion: Calculus has long been well regarded in the tax-efficient space, particularly in the EIS market - especially given that it launched and managed the first ever EIS fund and has a 17-year record of investing in growing UK companies. Over the years it has proven capable of producing individual profitable realisations. Several Fund tranches are also showing modest positive total returns including realised and unrealised returns. Nevertheless, Calculus’s aggregate exit performance record has recently slipped in to negative overall returns – achieving a weighted average exit multiple of 0.84x (excluding tax reliefs) derived from 32 realised investments. We acknowledge Calculus’s explanation that venture capital investing will always incur a number of failures. However, we note that the most significant losses were generated in 2014 and2015, and that the rate of exits, both profitable and loss realising has become more frequent in the last few years.

These issues aside Calculus’s current portfolio may offer prospects for future profitable realisations given that it was most recently valued significantly above cost. The Manager’s steadfast emphasis on mature companies is likely to continue appealing to investors looking for the potential of capital appreciation within a diversified, generalist portfolio offered by an established tax-efficient Manager. Positives

At the Manager level:

 Calculus has a strong market profile in the tax-efficient sector, with a long track record as the first ever EIS to be launched; it has also received multiple industry awards;

 Calculus benefits from a very experienced investment team, the key personnel having been together for over 16 years and with additions in the years thereafter;

 Calculus has an established investor base allowing for a certain amount of predictability in fundraising terms;

 The governance procedures and committees that Calculus has in place are well structured, documented and of institutional calibre, despite the Manager’s small size;

 Calculus has consistently achieved and sometimes exceeded its fundraising targets over the past seven years;

 Although aggregate realisations to date have generated an overall loss, Calculus has previously proven capable of achieving individual profitable exits from various companies and sectors;

 The Manager’s deal flow pipeline and rates of capital deployment have both improved recently – after a slower period on the back of EIS regulatory changes. Calculus says it placed £30 million

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into 11 companies over eight months since December 2016 – making 2017 already its biggest year for investment (2016 was second biggest). During 2016 the Manager screened around 500 prospective deals and this year has already seen 400;

 The Manager has a very strong capital base relative to its costs which means if it were to suffer a fall in revenues it is well placed to absorb any short term losses. 

At the Product level:

 The Manager’s strategy is less aggressive than some growth EIS Funds in that it targets investment in more established companies, which are revenue generating, have predictable cash flows and with proven management teams;

 The portfolio aims to be well diversified with sector and position guidelines in place to maintain a balance within the portfolios;

 The investment team is experienced, with strong cohesion at a senior level including Robert Davis, Head of Portfolio Management and Richard Moore, Head of New Investments;

 Investor communications are comprehensive and detailed; regular updates and seminars are offered to investors with the management teams of investee companies;

 The governance process of the Fund appears strong, with detailed documentation;

 Because Calculus operates a similar strategy across the offered product suite, the EIS will have access to larger deals and portfolio companies though co-investment with the Manager’s VCT and other EIS tranches. This could reduce the overall risk profile of the EIS. Issues to Consider

At the Manager level:

 The losses realised in recent year have raised some concerns regarding the provision of follow- on funding to existing portfolio investments. While we accept that continued support may be essential for developing companies and acknowledge that the Manager has also made many profitable realisations on the back of such an approach, it does mean that investments can quickly increase in size. Much larger losses are then sustained by the aggregate portfolio should things go wrong - if not specific EIS Fund tranches;

 The Manager’s product suite is solely concentrated in tax-efficient products, which may leave it heavily exposed to HMRC changes in legislation that could have adverse effects on the portfolios;

 The strength of the existing investor base adds stability to Calculus’s fundraising activities. However, it is therefore somewhat difficult to assess the effectiveness of the sales team as the Manager has, at least in the past primarily relied on repeat investors. We understand however that the percentage of repeat investors has fallen recently due to an increasing proportion of new investors;

 Although there are many positives associated with a family-owned business, it may weaken controls, particularly in relation to segregation of duties although Calculus has robust corporate governance processes. We are pleased to note that the Manager uses external auditors to audit the Funds;

 Several administrative processes such as the issuance of EIS certification and the management and reconciliation of client money (in segregated accounts) are now performed ‘in house’. This is a reasonably onerous process and may place an administrative burden on the current staff, even with new hires having been made. It also means if revenues were to start declining, the firm retains a significant level of fixed costs;

 In recent years, EIS legislative changes had some, albeit temporary effect on capital deployment levels. While we are assured that qualifying deal flow is now as strong as it has ever been, in our

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view, this shows the Manager’s vulnerability to regulatory risk given its product concentration (in EIS predominantly);

 We acknowledge that the Manager’s Executive Committee comprises six heads of key functions, and that it has in place Heads for New Investments and Portfolio Management. Nevertheless, in our opinion Calculus retains a small element of key person risk, given the two founders responsible for building the business from inception retain exclusive ownership of the company.

At the Product level:

 Although 19 of the 32 realisations to date were profitable, 13 crystallised losses (of which 8 produced zero value). We acknowledge Calculus’s assertion that the nature of venture capital and the breadth of its aggregate portfolio means a few annual disappointments should be expected. Although we note that there have been some recent successful realisations, five failures since 2014 generated combined losses of £19 million across Calculus’s various Funds With weighted average realisations at 0.84x and total aggregate realized losses of £5.5 million it emphasises that despite the relatively mature nature of investee companies, significant risks remain;

 Although Calculus insists its deal flow pipeline is strong and capital deployment has recently been at it strongest level, we are informed that the average duration for each tranche to become fully invested is 19 months – slightly longer than the targeted 18 months;

 We view the fees charged directly to investors as being in line with its peers; Calculus also charges a set of fees to underlying investee companies which are generally higher than some of its peers – the Manager argues that its monitoring fee reflects the level of support provided to portfolio companies.

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Manager Quality

Manager Profile

Calculus Capital Limited was founded in 1999 by husband and wife, John Glencross and Susan McDonald, soon after which they launched the first ever approved EIS fund in the market. The Manager’s assets under management (“AUM”) stand, at the time of writing, at approximately £160 million spread over both VCT and EIS funds with a notable concentration in EIS. The AUM has grown organically at a steady pace since inception (the last five years are depicted below), in keeping with the Manager’s conservative views on fundraising proportionally to potential deployment.

CHART 1: ASSETS UNDER MANAGEMENT BREAKDOWN AS AT 31 AUGUST 2017 180

£Million 160

140

120

100

0 Apr-2011 Apr-2012 Apr-2013 Apr-2014 Apr-2015 Apr-2016 Aug-2017 Sources: Calculus; AllenbridgeIQ

Calculus has established itself as a leading and award-winning EIS Manager with the longest track record in the industry. The Manager’s AUM is made up primarily of EIS Funds c.92.6%, split as at July 2017, across 17 separate tranches. The remaining 7.3% consists of two (soon to be merged in September 2017) VCTs, namely Calculus VCT and Neptune-Calculus Income & Growth VCT. Calculus is also raising funds under a VCT Offer, which we are reviewing separately.

The Manager informed us that the focused product suite offered is primarily dictated by the qualifying investment strategy, which is consistent across both their VCT and EIS funds. Its product range is not as diverse as several other Managers in the tax-advantaged space, who have branched out into non-tax- efficient funds. Calculus therefore, does not benefit from resource or revenue diversity associated with a varied product suite and given product concentration it may be more exposed to regulatory risk. On the other hand, its resources are focused on a clear strategy. We understand that there are currently no plans to diversify the product offering and the existing split between EIS and VCT funds is likely to remain consistent for the foreseeable future.

In terms of resources, the Manager is adequately staffed for the product suite offered and in line with their positioning as a specialist Manager. The systems in place appear sound, with advances in investor communications being made through the implementation of a new investor portal completed in early 2016.

Employee numbers are not expected to fluctuate substantially from the current headcount, and we note that there have been recent additions to both the fund administration and investor relations departments to support the functions recently brought in-house.

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CHART 2: ASSETS UNDER MANAGEMENT BREAKDOWN AS AT 31 AUGUST 2017

93%

EIS VCT

Sources: Calculus; AllenbridgeIQ

Calculus places emphasis on client servicing and provides regular updates to investors, sending out e- newsletters with investment updates quarterly, formal valuations semi-annually and a narrative on each investee company annually. In addition, quarterly seminars are held enabling investors to meet the CEOs of portfolio companies, which we see as good practice. Following any investment a ‘postcard’ is sent to shareholders providing both information on the company and the rationale behind investment. Calculus has an investor relations team that can call on the support of the fund administration team, depending on the nature of any ad-hoc investor requests. A team of three (soon to become four) is directly responsible for investor relations.

A notable recent change is that Calculus has now gained FCA approval to hold client money. Un-invested cash is kept in segregated client bank accounts and reconciled daily.

We previously reviewed Calculus’ formal complaints handling procedure and found it to be detailed and robust. We were informed that there have been a relatively low number of complaints, none of which have escalated to the Financial Ombudsman Service.

Calculus has consistently met and exceeded its EIS fundraising targets since inception. Fundraising for the product is now evenly distributed between three to four tranches a year, which we understand allows for easier investment; historically, the focus was on the April close, which was always the largest.

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CHART 3: FUNDRAISING TRACK RECORD

35 £Million 30

0 Apr-2010 Apr-2011 Apr-2012 Apr-2013 Apr-2014 Apr-2015 Apr-2016 Apr-2017 Sep-2017 Sources: Calculus; AllenbridgeIQ Financial & Business Stability

Calculus’s revenue is currently generated solely from tax-advantaged products, derived primarily from management, performance and administration fees. Where Calculus provides a non-executive director to the investee company, Calculus will receive on average £14,000 per annum but takes a lower monitoring fee.

Overall, both revenue and costs had risen by a CAGR of 12% and 11% respectively over the past two years, which has improved profitability. However, despite the growth in revenue driven by fund inflows, the net profit margin declined in 2016 from the previous year, primarily we are informed, because Calculus bears the cost of VCT fundraisings in house and are reimbursed subsequently. Total costs averaged 67% of total revenue with the major components being staff costs.

Calculus is well capitalised and had a healthy balance sheet with no debt at the time of writing. A cash balance of circa £2 million as at 31 October 2016 was retained to support day-to-day operations.

In the table below, we present the summary of the key financial metrics of Calculus.

TABLE 1: KEY FINANCIAL METRICS SUMMARY 1-year 2-year (£'000) 2014 2015 2016 change CAGR (%) Revenue 3,300 3,591 4,166 16% 12%

Revenue growth (%) 8.82 16.01 Costs 2,417 2,235 3,001 34% 11%

Cost to Income ratio 0.73 0.62 0.72 Net Profit 694 1,107 960 -13% 18%

Net Profit Margin (%) 21.04 30.81 23.05 Net Assets 2,827 3,884 4,731 22% 29%

Current Ratio 6.46 10.44 11.87

Total Debt/Equity 0.00 0.00 0.00

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Total Assets/Liabilities 6.07 10.52 11.94

Source: Financial statement of Calculus Capital Limited for the year ended 31 October 2016 and 31 October 2015 Calculus runs regular stress testing on its accounts and systems, with key variables tested including underlying product performance and increased overheads. We understand overheads are mainly fixed contracts and discretionary salaries, which minimises the threat of fluctuations. The Manager meets capital adequacy requirements as per the FCA rules and seeks to maintain a cash buffer on the balance sheet.

Nevertheless, in focusing solely on tax-advantaged products, Calculus’s profitability is in our view, vulnerable to changes in HMRC regulations and FCA rules. As is the case other EIS and VCT providers, we note that previous legislative amendments had at least some impact in terms of sourcing significant numbers of prospective qualifying investment opportunities, and consequently for a period, the rate of capital deployment.

The firm benefits from a well-established investor base, which was initially sourced primarily from direct contacts of the founders. Following the introduction of a sales team in 2012 we understand the investor base has grown and diversified.

The ownership of Calculus is shared between John Glencross and Susan MacDonald through their holdings in Calculus Holdings Limited. The Manager stated that it foresees no change in the ownership structure nor departures of key management personnel. The Manager has a six-member Executive Committee, and the investment side of the business is headed up by Robert David (Head of Portfolio Management) and Richard Moore (Head of New Investments). Nevertheless, we regard John and Susan as having played key roles in the growth and success of Calculus. Given that they retain full ownership of the business, we are therefore of the view that they pose a small element of key man risk to the firm.

Calculus has established business continuity and disaster recovery plans, backing up data at two internal locations and with a third party, Commensus, on a cloud-based storage platform. Remote logins are in place for key personnel.

Calculus currently operates from an office located in Mayfair, London and informed us there are no plans to relocate or open additional offices in the foreseeable future. Quality of Governance and Management team

Calculus Capital Limited is a wholly owned subsidiary of Calculus Holdings Limited, which in turn is owned equally by John Glencross and Susan McDonald, both of whom are employed as Chief Executive and Chairman respectively.

Comprising four members, the ultimate decision-making entity is the Manager’s Board of Directors, although we are informed that much day to day operation management us handled by the Executive Committee. Susan McDonald is chair of the Board and sits alongside two other executives and one non- executive. The implementation of decisions taken by the Board is delegated to the Chief Executive, the deputy CEO and the Executive Committee, with the exception of matters relating to capital structure, capital expenditure above certain levels and risk management among others.

The Manager has a number of committees, including an Investment Committee, Audit Risk & Compliance Committee and “Treating Customers Fairly” Committee, which oversee various business functions and are an integral part of the decision-making process. These are detailed below:

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TABLE 2: OVERSIGHT COMMITTEES Committee Details Board - Mandate: Leadership within a framework of controls which enable risk to be assessed and managed. Sets the Company’s values and standards and ensures that its obligations to others are understood and met. Sets the Company’s strategy and monitors achievement of strategic objectives. Determines the nature and extent of the significant risks it is willing to take in achieving its strategic objectives and is responsible for ensuring maintenance of risk management and internal control systems.

- Members: John Glencross (CEO), Susan McDonald (Chairman), Ken Edwards (Non-Executive), Lesley Watkins (FD)

- Frequency: Quarterly Executive Committee - Mandate: Day to day operational management - Members: The Six Heads of Key Functions, namely John Glencross (CEO), Robert Davis (Deputy CEO, Head of Portfolio Management), Richard Moore (Head of New Investments), Lesley Watkins (FD), Madeleine Ingram (Head of IR and Marketing), Natalie Evans (Head of Fund Finance and Operations).

- Frequency: Every two months

- Mandate: Determine and agree investment policy, review current investments, monitor compliance with legislation, consider external appointments for advisers and directorships. Investment Committee - Members: Chairman, CEO, Head of Portfolio Management, Relevant Directors - Frequency: Monthly

- Mandate: Oversee the establishment, implementation an maintenance Audit Risk & Compliance of risk management policies and procedures along with maintaining Committee relations with external auditors. Members: 2 Directors, Compliance Officer (Tony Davies). Ken Edwards is the non-exec director who Chairs the Committee - Frequency: Quarterly - Mandate: Ensure funds are managed, and services provided are in line with the needs of the customer together with ensuring investor “Treating Customers communications correlate with fund performance. Fairly” Committee - Members: 2 Directors, Head of Fund Administration - Frequency: Quarterly

Source: Calculus Calculus currently has a headcount of 18 (plus one non-exec director), although this should soon increase to 21 with the recruitment of two analysts and someone in an investor relations role. Turnover appears to have been relatively limited. The senior management team is experienced and relatively stable. The last material change occurred to the Board six years ago when Ken Edwards joined to replace non-exec, Diane Seymour. We view this as good staff continuity. Given that the Manager, with a view to reducing costs and increasing efficiency, has recently internalised several previously outsourced processes, such as EIS certification applications, administrative pressures are likely to be increased. We are pleased therefore to note that the investor relations and fund administration teams have been/are currently being expanded.

We have previously reviewed both a sample board pack and minutes of the audit, risk and compliance committee, and found the documentation to be both detailed and comprehensive. Tony Davies is an independent management consultant who on a part time basis provides Calculus with advice on compliance with Financial Services and Markets Act rules.

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The Manager indicated that there were no regulatory or litigation issues at the time of writing. Our view is that Calculus exhibits strong governance characteristics, displaying internal controls and policies on a par with larger managers in the industry. Product Quality Assessment

Investment Team

Calculus can draw on an 11-member investment team (including two imminent analyst recruits and a self- employed portfolio management contractor) which bears responsibility for both EIS and VCT products due to the similar nature of their investment mandates.

The key personnel in the team have extensive experience operating in the tax-advantaged market, especially the owners John Glencross and Susan MacDonald. Both individuals are prominent in the EIS landscape - having launched the UK’s approved EIS fund in 1999. Before forming Calculus, they worked in the financial services sector advising on M&A deals, private equity transactions and IPOs etc. Richard Moore, who joined Calculus in 2013 as the Head of New Investments, has a similar background (former director of Citigroup) whilst the two Investment Directors supporting him have also previously worked in corporate finance advisory roles.

The core investment team has worked together for the past 10 years with only one key departure in the last three years, Rick Jones. He was replaced in June 2015 by Alexander Crawford, previously a director of JP Morgan. Robert Davis, previously the head of European M&A at Nomura, joined the team as an Investment Director in 2014 and is now head of Portfolio Management. In addition, two investment analysts were added to the team in early 2016 while another departed. Despite the size of the investment team, we regard John’s and Susan’s involvement as very important: they founded and retain full ownership of Calculus, have overseen its growth and direction since inception, are members of the Investment Committee and along with other Investment Committee members, play a vital role in making the final investment decision. Furthermore, the networks that they (and other team members) have built over the years will be advantageous to the Fund, especially when sourcing deals.

The team and board of Calculus have invested in the Manager’s products and will be doing so in this round of fundraising on the same terms as other investors, hence showing an alignment of interest.

Overall, we are satisfied that the investment team is well resourced and it has the relevant mix of experience to effectively execute the investment mandate. The team has a significant depth of expertise in private equity investment.

We have included the bios of the key personnel in the Appendix 1 below. Investment Strategy & Philosophy

Calculus Capital EIS Fund (“the Fund”) was launched in 1999 and was the UK’s first approved EIS fund. The Manager has continuously raised capital for this fund by offering a new tranche on an annual basis and hence there are 17 previous tranches. The Manager is currently raising £20 million through one additional tranche. Each investor will be exposed to a portfolio comprised of at least six qualifying companies (8-10 on average) within around 18 months, from the close dates, the earliest of which is October 2017.

Calculus EIS Fund is a discretionary service with an investment focus on capital appreciation over three to five years from the date of investment whilst at the same time aiming to have a lower risk profile than some other EIS Funds by investing in established, relatively mature companies. The Manager characterises its investment strategy as growth-equity: remaining broadly consistent over the years taking advantage of market opportunities as and when they arise.

The Fund is largely generalist although we have been informed that there are biases towards healthcare, and applied technology because of the specific expertise of the investment team. Although there are no explicitly excluded sectors, we understand the retail sector is unlikely to feature in the portfolio. Investee companies tend to be later-stage, established businesses with strong balance sheets, recurring revenues, usually either profitable or considered to be heading towards profitability within two years,

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proven successful products or services within their sectors and management teams that Calculus view as strong. While the risk profile of these companies would be expected to be lower relative to start-ups or early-stage companies, their growth prospects are generally more limited as well. As is typical for development capital finance, in the majority of cases (where an investment is progressing according to plan) companies will require one or potentially multiple later rounds of follow-on funding to provide continued expansion support. Shareholders are likely to receive holdings in some companies that are already present in earlier Calculus EIS Funds. We acknowledge that follow-on funding is a necessary part of Calculus’s philosophy, although risks are increased on an individual weighted basis as more money is provided to existing portfolio companies.

We understand that there are no hard metrics in terms of investment criteria such as minimum revenue or employee numbers and there is no minimum length of time that an investee company has to be operational. This can vary, as we understand that Calculus may consider an investee company that has been operational for a relatively short timeframe (for example, a year) if it has strong revenues.

Each investment in the Fund has a target average net IRR of 20% per annum and we understand that it is aiming to achieve a target average exit multiple of 2.0x-3.0x. Performance to date has fallen short of this (discussed later).

Calculus also manage a VCT alongside its EIS with in the region of £10 million assets – more may be raised under a separate fund raising offer. Ordinarily, this VCT will co-invest alongside the EIS Funds under the same investment strategy - subject to funds available and any weighting restrictions. Investments across all Funds will typically range in size from £2 million up to £5 million, with the average size expected to be approximately £3.5 million.

While Calculus has in the past co-invested with other Managers, these days it typically has the capacity to fully cater for an investee company’s funding requirements itself. Nevertheless, Calculus remains open to the possibility of further co-investment alongside trusted financiers should the opportunities appear sufficiently attractive.

Calculus says that the typical holding period is around 4-5 years. Based on information received from the Manager, we calculate that the average (non-weighted) holding period (from original investment through to final disposal) for the 32 realised holdings to date is just over five and a half years. This does not take into account earlier partial realisations or follow-on funding rounds. Currently minimal leverage is used in the portfolio (typically Calculus’s VCT provides debt finance to approximately 20% of portfolio companies– to the order around 5% to 10% of the financing for each of those businesses). Aside from standard invoice discounting of investee companies, the Manager expects this to be the case going forward. Pipeline/Prospects and Current Portfolio

The Fund’s objective is to invest in at least six companies, and on average 8-10, within 18 months from the respective close date of each tranche, across a variety of sectors. Each Fund to date has invested in a minimum of 8 companies.

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TABLE 3: CURRENT PORTFOLIOS (GROSS) Amount Pending Amount Fund Tranches Amount Raised HMRC Cash Available Deployed Approval Oct tranche £2.9m £2.9m £0m £0m

EIS Fund 15 Dec tranche £5.6m £5.6m £0m £0m April tranche £20.1m £20.1m £0m £0m Total £28.6m £28.6m £0m £0m

Oct tranche £6.2m £6.2m £0m £0m

Jan tranche £7.5m £7.5m £0m £0m EIS Fund 16 April tranche £7.6m £6.25m £1.35m £0m June tranche £4.9m £3.95m £0.95m £0m Total £26.2m £23.9m £2.3m £0m

EIS Fund17 Oct tranche £6.2m £2.7m £0.5m £3.0m

Jan tranche £5.5m £2.1m £0.4m £3.0m

April tranche £9.1m £2.0m £1.1m £6.0m

June tranche N/A N/A N/A N/A

Total £20.8m £6.8m £2.0m £12.0m

Source: Calculus Calculus expects full deployment of funds raised within 18 months from each tranche’s respective closing date. The above shows an investment run-rate in line with the target, although we note that some past Funds suffered from an initially slow deployment, which we understand was a consequence of regulatory changes and ensuing HMRC delay. Calculus’s rate of investment has reportedly improved over the last couple of years. A total of £20 million was raised the last EIS Fund and £20 million is again being targeted. Meanwhile, Calculus says that across is EIS Funds and VCTs (92.6% and 7.3% respectively) it has placed £30 million into 11 companies over eight months since December 2016 – making 2017 already its biggest year for investment (2016 was second biggest). Three of these deals were very recently completed. Apart from the January 2016 close of Fund 16 – where at the time of writing Calculus was waiting on one final investment to complete; all other currently investing Funds are within the 18 months target window.

Calculus says the average timeframe has been 19 months and rebuffs any suggestion that it has encountered ongoing deal flow and completion problems, insisting that it is confident of being able to invest all funds raised within its target timeframe. Nonetheless, investors may wish to factor in some delay in deployment when conservatively judging when they might expect to receive EIS relief.

It further reassures us that EIS rule changes over recent years have not had a lasting impact on its ability to source quality deal-flow – while certain trades or companies may no longer qualify, and even considering Brexit, Calculus stresses that the amount of deal flow it encounters in the £2 million to - £5 million range has increased. We have been informed that during 2016 the Manager screened around 500 prospective deals; this year it has already seen 400.

We understand that prospective deals valued at more than £20 million are in the current pipeline at various stages of due diligence. In common with other managers in the industry, Calculus usually has at least one deal submitted to HMRC pending approval, this typically takes around 8-12 weeks given the more complex qualifying rules.

According to Calculus, the provision of follow-on funding typically accounts for around one third of all investments made – four out of the last 11 investments have been follow-on and the amounts allocated may differ depending on the needs of the investee business. Typically between £1m & £3m is invested for additional rounds, and given that some companies may receive several rounds, it is feasible that some 13

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individual investments - represented across multiple Funds can increase significantly in terms of total cost. Terrain Energy and Scancell Holdings plc for example have aggregate cross-Fund costs in excess of £9 million and £8 million respectively. As is normal across the EIS industry, we note that such follow-on financing - especially where there are no third party investors, creates conflicts of interest over pricing valuations between existing and new investors. The Manager will need to assess a value which is fair to both.

The following table details all investments made in the most recently fully invested tranche (EIS Fund 16 – October 2015 close):

TABLE 4: HOLDINGS AS AT AUGUST 2017 IN EIS 16 – OCTOBER 2015 CLOSE Investee Company Sector Cost (£) Valuation (£)

Terrain Energy Ltd Onshore oil & gas 1.720 1.750 production Scancell Holding plc Biotech 0.170 0.140

C4X Discovery plc Biotech 1.020 0.860

Money Dashboard (The One Internet 0.038 0.050 Place Capital Ltd)

Air Leisure Group Ltd Sports, travel & leisure 10.000 10.000 (Jumptastic)

Origin Broadband Ltd Telecomms 31.372 39.520

Weeding Technologies Ltd Environmental technology 12.020 14.000

Park Street Shipping Ltd Shipping 1.034 1.310

Wheelright Ltd Technology hardware 110.000 110.000

Quai Administration Services Platform BPO 14.570 14.570 Ltd

Synpromics Ltd Pharma services 5.600 7.500

Blu Wireless Technology Ltd Technology hardware 0.725 0.725

Source: Calculus The table below details all of Calculus’s existing investments across all of its EIS and VCT funds. In nearly all instances the EIS Funds will co-invest with the VCTs subject to available cash and respective portfolio sector weightings.

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TABLE 5: CALCULUS TAX-ADVANTAGED INVESTMENTS AS AT JULY 2017

Investee Company Sector Cost (£'000) Valuation (£’000)

Operations performance Active Ops management & software 4,700 9,512 services Air Leisure Group Sports, travel & Leisure 3,000 3,000 (Jumptastic)

AnTech Energy equipment & services 4,350 4,721

Arcis Biotechnology Agri-Sciences 4,750 6,762

Digital marketing software & Avvio 3,500 5,480 services

Benito’s Hat Restaurant & food services 2,413 2,461

Blu Wireless Technology Technology hardware 2,400 2,400

Pharmaceutical drug C4X Discovery plc 3,000 2,529 development

Chop’d Restaurant & food services 1,936 3,053

Collagen Solutions Pharma services 1,750 1,536

Duvas Technologies Specialist engineering 2,250 2,250

Genedrive plc (formerly Healthcare equipment & 4,001 5,383 Epistem) services

Inspiresport Sports travel & leisure 2,370 3,911

Content management IPV 2,500 3,246 software

Mechadyne Specialist engineering 745 166

MicroEnergy Services Alternative energy 2,930 2,403

Mologic Pharma services 3,000 4,762

Money Dashboard (The Internet 4,242 4,347 One Place Capital Ltd) Once Upon a Time Marketing 2,500 2,972 London

Origin Broadband Telecomms 3,000 3,587

Park Street Shipping Shipping 4,750 6,016

Healthcare equipment & Premaitha Health 1,800 1,175 services Quai Administration Platform BPO 4,186 4,186 Services Ltd

Scancell Holdings plc Biotechnology 8,150 9,053

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Solab Group Manufacturing 1,935 3,514

Synpromics Pharma services 5,600 9,921

Terrain Energy Traditional energy 9,277 12,741

Tollan Energy Alternative energy 2,350 1,927

TP Group (formerly Energy equipment & services 1,280 2,475 Corac)

Venn Life Sciences Pharma services 1,250 687

Weedingtech Environmental technology 3,000 3,493

Wheelright Technology hardware 5,848 6,099

Total 108,763 135,768

Source: Calculus With 11 investments made since December 2016, the most recent are not shown in the above table. Investments include: £2.5 million into Axol Bioscience; £2 million into online mens’ toiletries subscription service business, Cornerstone Brands; a £2 million follow-on investment into telecoms and internet service provider, Origin Broadband which has thus far delivered growth ahead of expectations; and £2.4 million co-invested alongside ARM Holdings into Blu Wireless Technologies – a technology hardware firm focused on electronic chip designs for next generation data transmissions.

In terms of forthcoming realisations, Calculus informed Allenbridge that it was working on four exits, which are expected to be completed by the end of 2017.

Investment Process

The Manager considers around 500 deals a year. These are sourced from various channels but primarily comprising: personal networks - including management teams that Calculus has previously supported; the Manager’s investor base; as well as trusted long-standing relationships with select corporate finance houses. The Manager acknowledges however that a large proportion of these approaches are speculative and that approximately 150 progress through the initial filtration process. With the exception of direct approaches to senior members of the team, proposals are initially screened by junior members of the investment team with all approaches being reviewed by the Investment Directors.

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CHART 4: TYPICAL ANNUAL DEAL FLOW IN THE AGGREGATE CALCULUS PORT

c.500+ companies screened annually

150+ companies reviewed by investment team

Meet with 75+ companies' management team

Detailed due diligence on 20-25 companies

c.12 deals

completed

Sources: Calculus; AllenbridgeIQ

Deals are initially filtered based upon their fit with the investment strategy. Typical characteristics assessed at this stage include: prospective EIS qualification, management team experience, balance sheet strength and trading health, i.e. revenue generating/on-route to profitability. Subsequently, an opportunity will be raised at a weekly pipeline meeting attended by the entire investment team, wherein prospective deals are discussed and particularly, we are informed, potential exit opportunities identified. In-house due diligence is then undertaken and meetings are arranged with prospective investee companies. Typically, the team will meet approximately 75 management teams per annum.

Research is performed into potential routes to realisation with market research determining the types of companies active in the space in which the investee company is operating. Following initial meetings and due diligence (DD), an investment memo will be presented to the Investment Committee (IC). This IC consists of the Chairman, CEO, Head of Portfolio Management and the relevant investment director.

Formally, all investments must gain a majority vote to proceed although we are informed that historically no investment has been made without unanimous approval. This first stage of the screening and DD process can take between one and three months. Heads of terms (a document of understanding and terms agreed in principle) may then be signed.

Thereafter, further internal and externally commissioned DD takes place, typically taking between four to five months per company. Calculus has a panel of lawyers and accountants to undertake legal, financial and commercial due diligence, while management consultants may be contracted to review the capabilities of key members of the investee company team. The reasoning for the use of panels of preferred parties is that it allows Calculus to run multiple processes in tandem.

In line with the industry, in the event that an investment is not completed, all costs from the DD process will be borne by the Manager rather than the Fund. For those deals progressed to completion, costs will be split between the Fund and the investee companies. Calculus will then negotiate terms with the prospective investee companies

Final approval is required from the IC on each deal (including follow-on rounds) and in each case this must be unanimous (between all three senior directors not connected with the investment and the sponsoring director). It meets as required to ratify all investment and divestment decisions. Any other matters which may affect the EIS investors are also escalated to the IC for approval. On average, out of the 500+ deals screened every year, in the region of 12 deals will be completed. The total investment process takes, on average, four to seven months per company. In the case of follow-on funding round for companies already in Calculus portfolios, the IC would decide whether or not it requires a presentation from the

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company management on progress and plans before funds are allocated. Formal DD may also be commissioned – although the need for this this is assessed on a case by case basis. The manager aims to ensure it is confident of sufficient growth potential at each stage.

Calculus informed us that it has made follow-on investments in many companies – sometimes at a challenging point, which have then gone on to deliver value. The Manager is adamant that follow-on finance is essential for venture capital investments; that it should not be regarded negatively; and is in the nature of small company investment. We accept this, and in years gone by have regarded Calculus’s investment process - as described and partially evidenced to us, as robust. At the time of writing however, a concern has been raised following several recent complete losses of equity shareholder capital in companies that had received various tranches of Calculus follow-on funding. While acknowledging that there were also six successful exits from portfolio companies that received follow-on funding since 2014, there were another five that received follow-on funding round(s) and all crystallised a zero return (for equity shareholders) at a combined cost of £19 million. These are discussed in more detail under the Performance section. While Calculus can explain why each firm failed, and indeed in some instances the downturn in a company’s fortunes may have been unpredictable, we feel that such losses also highlight risks inherent in follow-on funding (i.e. investments sizes can increase substantially).

Post investment, typically, but not necessarily in every case (i.e. possibly in the case of co-investment alongside another manager), a member of the team will sit on the board of the investee companies. In certain cases, Calculus may appoint an external industry specialist as board representative and in that case, a member of the Calculus investment team will attend the board as an observer.

The Fund is expected to co-invest alongside other Manager-run vehicles (i.e. other EIS Funds and two soon-to-be-merged VCTs) that operate under a similar strategy. The VCTs’ investment process is broadly the same as for the EIS Fund, and the IC decides the allocation in accordance with the co-investment policy. Allocations are generally be made in proportion to the net cash available for investment by each fund – although the VCT may also invest using debt as a cheaper replacement for bank finance. We understand that such components are usually small relative to the size of the deal (approx. 5% - 10% of total Calculus funding to those companies) and doesn’t materially change the profile of the investment. Calculus says its VCTs have provided long term debt to approximately 20% of investee companies. Aside from standard invoice discounting facilities, generally each company will have negligible other debt.

Implementation of this co-investment policy will usually be subject to the availability of capital and other portfolio considerations such as tax status qualification, sector exposure and proposed investment structure. Due to a similar strategy across vehicles, conflicts of interest may arise. The IC and TCF Committee decides the allocation for VCT and EIS tranches at the point of each investment. In the event of a conflict of interest, these are resolved at the discretion of the independent director, Ken Edwards and the Compliance Officer, Tony Davies (biographies in appendix).

Risk Management

Similar to other EIS funds, the primary source of risk management hinges on the depth of initial due diligence and deal analysis at the time of the original (as well as for follow-on investments) and the level of diversification in the portfolio. As an EIS service, each investor will have their own individual portfolio based on the timing of investments.

The Manager aims to maintain a diverse portfolio by providing each investor with 8-10 investee companies across various sectors. Calculus follows diversification guidelines, which restrict exposure in any one sector to no more than 20% of a portfolio and exposure to any investee company to 17.5%. This should minimise both sector and position concentration.

Calculus claims to support its investee companies by helping with corporate strategy, providing guidance on key decisions, sharing market knowledge and industry connections etc. Generally, Calculus takes a position on the investee company’s board and monitors progress via monthly management accounts, checking cash flows and regular meetings with management teams (at least quarterly). Investments are reviewed internally at the monthly investment monitoring meetings chaired by the Head of Portfolio Management.

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Investments are valued semi-annually, in accordance with the International Private Equity and Venture Capital (IPEV) Guidelines. Valuation methods used include comparable company and transactional analysis as well as discounted cash flow approaches. Valuations are audited by external auditors; Hillier Hopkins provides independent valuation assessments for Calculus EIS portfolios. Calculus uses Grant Thornton to provide an independent audit for its VCT products and as a result of the large number of cross holdings between Calculus EIS and VCT funds the underlying investments are subjected to multiple reviews.

The Manager has an Audit, Risk and Compliance Committee (the “ARCC”), chaired by the Senior Independent Director, Ken Edwards (formerly a senior director at Baillie Gifford), who reports directly to the Board. The ARCC manages risk management policies and procedures and oversees risk management process. It meets on a quarterly basis and reviews the primary risk exposures and risk control issues. Prior to every meeting, a risk matrix is prepared which was previously evidenced to us and appeared detailed.

The EIS is vulnerable to any changes in legislation although this is a feature inherent in the industry rather than specific to this fund. The Manager believes that the threat of HMRC legislation affecting their portfolio is minimised by the nature of its investments being in the ‘spirit’ of HMRC rules.

As per our views on Calculus’s investment process, we have previously considered the Manager’s approach to risk management as being robust. We accept that multiple funding rounds are necessary for developing companies (other managers follow a similar approach) and acknowledge that many profitable realisations have been generated as a result. However, as has Calculus has experienced in recent years, the risks inherent in individual investments increase as additional money is ascribed, and this can evidently be difficult to manage.

Key Features

The following fees (number 1-4) describe the fees directly payable by the investors and the product fees (number 5) incurred by the Fund. We are informed that all fees attract VAT (on top of the amounts stated).

1. Initial and Ongoing Fund Management Fee

The fund management fee payable to Calculus includes:

TABLE 6: INITIAL AND ONGOING FUND FEES

Initial Fees On-going Annual Management and Administration Fee

1.5% admin fee plus 0.4% operating expenses p.a. 2.0%1 based on the Service’s last published NAV, paid quarterly in arrears

Source: Calculus The operating expenses include audit, legal and corporate governance expenses.

2. Early bird fees and other discounts There are no early bird discounts offered. The following discount on the ‘non-advised set up fee’ is available to direct investors satisfying the below conditions:

TABLE 7: OFFER DISCOUNTS

Closing Discounts Details Applicable Candidates Conditions Date Investors must already be a Loyalty discount Any existing Calculus EIS 1.0% N/A shareholder through Calculus investors EIS to qualify Source: Calculus 3. Subscription/Application Fees

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TABLE 8: SUBSCRIPTION/APPLICATION FEES Ongoing management charges Initial Application Fee (and initial (and ongoing Type of Investor commissions/initial adviser commissions/ongoing adviser charges) charges)

Direct Application (Investors who 2% plus 2% non-advised set up 1.5% admin fee plus 0.4% make an application, without using a fee* operating expenses p.a. financial advisor)

Application through an adviser / 2% (plus any facilitated adviser 1.5% admin fee plus 0.4% execution only intermediary charge) operating expenses p.a.

Source: Calculus * A loyalty discount of 1% is applicable for existing Calculus EIS investors.

If the investor has agreed to pay a fee to their adviser, the payment of the adviser’s fee can be facilitated out of the investor’s contribution.

4. Performance fees

There is a performance fee in place, which applies to the Fund. A performance fee of up to 20% of the total return in excess of the investor’s original contribution after deduction of adviser fees agreed with financial advisers. The fee will only be payable once an investor have received back the 100% of originally invested amount net of such adviser fees. Such a mechanism seems fairly standard across the tax- advantaged investment industry and we appreciate that Calculus has not changed its structure in years. However, ideally we would have preferred to have seen a more challenging hurdle – qualifying for an incentive payment for merely returning any small amount above the original subscription, years in the future seems rather generous to the management.

5. Product Fees

The other fees charged are listed in the following table.

TABLE 9: FEE DETAILS Fees Details Arrangement Fee (% of deal) 1.9% p.a. on average Finders’ Fee 0.65% Exit Fee 0.65% Monitoring Fees Recently £20k p.a.

Directors’ Fees £14k p.a. on average Source: Calculus, AllenbridgeIQ A dealing charge of 0.65% (i.e. Finders’ Fee and Exit Fee listed above) will be applied on purchases and sales of shares of investee companies, which will be charged on a deal by deal basis to each investor.

Calculus retains the right to charge each investee company an upfront arrangement fee for each investment contribution and an annual monitoring fee thereafter based on the total amount contributed. Generally EIS arrangement fees for Calculus are on average 1.9%; however, again this varies by deal.

Calculus stresses that arrangement fees merely covers the costs of making each investment. We are informed that the monitoring fee for the last few investments has been set at £20,000 p.a. – a notable increase from the £8,000-£10,000 p.a. in our last review. Calculus may also charge investee companies directors' fees when a non-executive director is appointed to the board, which is £14,000 p.a. on average. The cost of all deals that do not proceed to completion will be borne by the Manager; Calculus argues that it has been reasonable with the amounts it charges, believing them to be in-line with the market.

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We were satisfied with the transparency of Calculus’s fee structure. This EIS fee structure has not changed since 2012, except additional 2% set up fees charged on non-advised investors, which is common with EIS. Calculus also charges the investee companies a set of fees, including arrangement fee, monitoring fee and director fee. We have previously noted that Calculus’s fees charged to investee companies are generally higher than some of its peers. Excluding these fees, Calculus’s fees are broadly in line with its peer group. As a direct shareholder of an underlying investee company, investors should be aware that these fees will impact on the overall returns of the investment given that it represents an expense to the company. The quantum of the impact of the overall impact must be assessed on a deal-by-deal basis.

Calculus informed us that its employees invest in the Fund and receive the same portfolio as any investor who invested in the same tranche. Employees do not pay fees but all other terms that apply to investors also apply. Performance

Calculus has a 17-year record of investing in small unquoted UK companies. Since inception, it has made 60 investments and has realised 32 exits with 19 investments delivering positive returns.

Most recently, three profitable realisations were completed towards the end of 2016: Metropolitan Safe Deposits generated a 1.8x return; AIM-listed gene-editing technologies firm, Horizon Discovery likewise produced a 1.8x return; while mass participation sports events business, Human Race was profitably sold to ASO (owners of Tour de France) at a 1.2x multiple.

Unfortunately, during 2017 there have also been three companies which have been crystallised at nil value: Building materials firm, LMR Traditional suffered from a lack of working capital and the business no longer qualifying for funding after the seven-year rule change; Recruitment firm, Dryden Human Capital, whose problems began with a collapse in its contract work following the introduction of new EU Capital Ratio Regulations (Basel II) which impacted on many of its clients; And oil business, Brigantes Energy which received its funding when the price of oil was c.$120 per barrel, yet subsequently found itself unable to develop licences when its funding consortium broke apart on the back of the decline in the oil price..

Calculus stresses that it is a coincidence that these three portfolio companies were realised for zero value within a matter of months, and that this is part and parcel of managing a large venture capital portfolio – that is a proportion of failures are to be expected. Since it began managing venture capital portfolios 18 years ago, eight of the 13 realisations which failed to generate a positive return on exit yielded no return (including those described, above) with two producing negligible returns of less than 0.1 times. Of the remaining 19 profitable realisations, 11 crystallised return multiples in excess of 2.0 times (i.e. approximately one-third of exits have achieving the stated return target range). With only around 10 near/complete failures over 18 years (including those of 2017) to incur three within one year is disappointing.

At the time of our review last year the weighted average exit multiple across 25 full and partial realisations was 1.03x. However, less than one year on and the weighted average return on all realised holdings has fallen to 0.84x, whilst we calculate that the average implied IRR is -3%. These negative average returns are well below Calculus’s stated target of 2.0x-3.0x and a net IRR of 20%. Calculus has incurred substantial losses on a few deals that has negated the more widespread positive returns generated by other deals, i.e. Dryden, Brigantes and LMR (mentioned above) alone accounted for losses in excess of £6.8 million. Stripping those most recent losses out would have meant that an aggregate profit of £1.5 million was crystallised instead of losses exceeding £5 million.

Going a little further back, there has been a mix of successful, profitable realisations alongside other notable disappointments. Pharmaceutical firm Scancell Holdings Plc – a developer of therapeutic vaccine platforms in the treatment of cancer and infectious diseases, generated a (partial) exit multiple of 7.0x following its listing on AIM, while fellow pharmaceutical business,

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Epistem (now Genedrive plc), which develops therapies for epithelial diseases using stem cells crystallised a partial return of 3.2x, also following an AIM IPO. Together, Scancell plc and Epistem plc delivered realized profits of more than £5.5 million. Calculus retains shareholdings in both companies in its current portfolio. Since 2014 the Manager has overseen six successful exits from portfolio companies, each of which received follow-on funding rounds.

Unfortunately however, sustainable building material businesses, Hembuild was written -off in November 2015, crystallising a single loss (taking into account four follow-on funding rounds) of £7.3 million, after struggling to gain acceptance from large contractors who preferred standard building approaches and also encountering difficulties with one large (GSK) contract. Meanwhile, an investment in a provider of smart metering solutions and online payment and remote authentication services (based on chip and pin infrastructure and its own patented technology, Secure Electrans was crystallised for a total loss of over £4.8 million in 2014 after Calculus had provided/participated in four follow-on funding rounds. As with Hembuild, we understand that Secure Electrans encountered problems with one significant contract.

With the benefit of hindsight the ‘when’ and ‘why’ problems were encountered in each failed business can be pinpointed. However, it seems to us that while some of the failures Calculus has suffered may have been reasonably unpredictable, both Hembuild and Secure Electrans transpired to be highly vulnerable to difficulties arising with individual major contracts – both having played a major part in their downfall. In the case of LMR Traditional, additional funding was supplied after the seven-year rule was announced that eventually led to its downfall; while in the case of Dryden Human Capital, three rounds totalling almost £2 million were invested after the point at which its contract business initially suffered. Collectively, these five investments mentioned generated realised losses of approximately £19 million since 2014. The fact that they each received follow-on funding meant that the losses were substantial.

The performance record of the Manager since inception is summarised in the table below:

TABLE 10: TRACK RECORD SINCE INCEPTION

Details

No. of investments made (No. of realisations) 60 (32)

No. of gains on sale 19 out of 32

Weighted average exit multiple(1) 0.84x

Weighted average time for exit(1) 6.5 years

Average Implied IRR (%)(2) -3% Source: Calculus Note: (1) Weighted average based on capital employed (2) We assumed the weighted average holding period as the investment horizon to compute the implied for IRR for each sector

We segregated the realisations achieved by Calculus into 13 sectors. The Manager has generated positive returns in most of the sectors, notably in Energy Equipment & Services and Transportation. However, the best return achieved was over a decade ago on Debt Free Direct Plc - the only Diversified Financials company in the portfolio; Calculus invested before the firm listed, and sold out in 2006 to generate £1.9 million and an exit multiple of 8.0x investment value. The exits made in Pharmaceuticals & Biotechnology generated a net gain of £3 million, which was the largest among all the sectors. Scancell Holdings Plc was the most profitable Pharmaceutical deal that generated a (partial) exit multiple of 7.0x. Other successful realisations include specialist engineering firm, TP Group (Corac Group plc) (6.4x multiple); secure cash transportation business, RMS Europe Ltd (5.4x multiple); and contract catering business, Waterfall Services Ltd (5.3x).

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TABLE 11: RETURNS BY SECTOR Total Average Net Gain Average Average Average No. of Capital Capital from Sector Holding Exit Implied exits Employed Employed Exits (1) (1) (2) Period Multiple IRR (%) (£’000) (£’000) (£’000) 5.0 Business & Professional 5 6,275 1,225 -2,905 0.54 -12 Services years 3.1 1 240 240 1,667 7.95 94 Diversified Financials years 2.9 Energy Equipment & 2 399 200 1,913 5.80 85 Services years 12.5 Healthcare Equipment 2 1,795 898 2,565 2.34 7 & Services years 4.4 2 9,897 4,949 -9,897 0 -100 Materials years 6.8 1 147 147 -147 0 -100 Media years 3.8 Pharmaceuticals & 3 1,083 361 3,073 3.91 43 Biotechnology years 6.0 Restaurant & Food 2 900 450 2,716 4.02 26 Services years 4.7 Specialist 3 1,537 512 86 1.07 1 Engineering years

3.9 Sports, Travel & 2 2,550 1,275 520 1.20 5 Leisure years 13.4 2 5,016 2,508 -4,649 0.07 -18 Technology Hardware years 6.9 4 2,625 656 -985 0.62 -7 Traditional Energy years 4.1 3 650 217 712 2.09 20 Transportation years

Total 32 33,114 1,034 -5,331

Source: Calculus Note:

(1) Weighted average based on capital employed (2) We assumed the weighted average holding period as the investment horizon to compute the implied for IRR for each sector While realised value and the timeframe taken to achieve that is the most important aspect of performance, the valuation of the current portfolio is also of importance. As at July 2017 Calculus’s aggregate portfolio of 32 companies was valued at £135.8 million relative to a total cost of £108.8 million. With only six companies having sustained provisions and four held at cost, at a glance the current portfolio would appear to be offer good prospects for future profitable realisations.

Investors’ subscriptions will be deployed into a tranche of companies rather than into the Fund and the specific companies that an individual investor is allocated will depend on which tranche they are in. The table below shows the performances of various funds/tranches since Fund 8 – launched in 2008.

TABLE 12: RETURNS BY FUND Name of the Fund Multiple (without tax relief or fees)

Fund 8 1.29 Fund 9 0.87 Fund 10 0.75 Fund 11 1.03 Fund 12 – October 2011 0.84

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Fund 12 - April 2012 0.78 Fund 14 - October 2012 1.02 Fund 14 - December 2012 1.16 Fund 14 - April 2013 1.18 Fund 14B - October 2013 1.07 Fund 14B - December 2013 1.08 Fund 14B - April 2014 1.10 Fund 15 - October 2014 0.81 Fund 15 - April 2015 1.06 Fund 15 - December 2015 0.99 Fund 16 - October 2015 1.06 Source: Calculus

Based on the data shown above, the average total return multiple generated thus far by all the 16 funds/tranches is 1.01x, i.e. virtually no return to shareholders (not taking into account tax relief or fees) on original subscriptions. Looking specifically at the 10 (out of 16) funds/tranches that generated positive returns, the average multiple was still only 1.11x – significantly short of Calculus’s 2.0x-3.0x average return target. Of course, it remains too early to meaningfully assess the performance or prospects of those Funds launched in the past few years, while carrying valuations are also likely to prove different to eventual realised returns. However, on balance our view today, is that the overall performance of Calculus’s Funds has been disappointing. While it is true that a select few recent company failures have, due to their size, skewed overall returns, aggregate performance has declined since one year ago.

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Appendix 1: Key Personnel

John Glencross - Chief Executive Officer

John has over 30 years’ experience in private equity, corporate finance, and operational management. During that time, he has invested in, advised on or negotiated more than 100 transactions and served on publicly quoted and private corporate boards.

Before co-founding Calculus Capital, John served as an Executive Director of European Corporate Finance for UBS for nine years where he advised on M&A, IPOs, restructurings and recapitalisations, strategic alliances and private equity. Prior to this, John was headhunted to be Head of the Mergers & Acquisitions Group of Philips and Drew, a 100 year old London based financial institution. At the start of his career, John qualified as a Chartered Accountant with Peat Marwick (subsequently KPMG). He then went on to be a founder member of Deloitte’s newly established consultancy practice in the Gulf Region and then Corporate Finance practice in London.

John graduated from Oxford University with an MA (Hons) in Philosophy, Politics and Economics.

Susan McDonald - Chairman

Susan is one of the UK’s leading experts on investing in smaller companies and the government’s Enterprise Investment Scheme.

A pioneer of the EIS industry, in 1999/2000, she structured and launched the UK’s first HM Revenue & Customs approved EIS fund with John Glencross. Susan has over 27 years of experience and has personally directed investment to over 80 companies in the last 16 years covering a diverse range of sectors. She has regularly served as board member of the firm’s private equity-backed companies.

Before co-founding Calculus Capital, Susan was Director and Head of Asian Equity Sales at Banco Santander. Prior to this, she gained over 12 years’ experience in company analysis, flotations and private placements with Jardine Fleming in Hong Kong, Robert Fleming in London and Peregrine Securities (UK) Limited. Susan has an MBA from the University of Arizona, and a BSc from the University of Florida. Before entering the financial services industry, Susan worked for Conoco National Gas Products Division and with Abbott Laboratories Diagnostics Division.

Lesley Watkins – Finance Director

Lesley's primary role is Finance Director but she is also involved in investment management. Lesley joined Calculus Capital in 2002. She has 18 years’ corporate finance experience at senior director level with responsibility for executing corporate finance transactions, providing financial, strategic, stockbroking and investor relations advice.

Most recently, she was Managing Director, Global Investment Banking, at Deutsche Bank, which acquired Bankers Trust Alex Brown where she was a Managing Director in the UK Advisory Division. Before that, Lesley spent 14 years at UBS, where she was a Managing Director in the Corporate Finance Division and was a member of the management committee responsible for running the European Investment Banking Division. She has extensive experience of fundraising, flotations, mergers and acquisitions, disposals and restructurings.

Lesley is also on the board of Panmure Gordon where she chairs the Audit Risk and Compliance Committee (ARCC). Previously Lesley was on the council of the Competition Commission where she also chaired the ARCC.

She is a Fellow of the Institute of Chartered Accountants, qualifying as a Chartered Accountant with Price Waterhouse (now PwC). She has a BSc (Hons) in Mathematics from Southampton University.

Ken Edwards – Non-Executive Director

Ken joined Calculus Capital in 2012. He has over 40 years’ experience in Financial Services and held senior management posts at two leading investment management companies and the unit trust arm of a major

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UK Retail Bank. He was Intermediary Sales and Marketing Director, Retail Investments at Baillie Gifford & Co for 12 years. Before that, Ken spent 3 years at Barclays Unicorn, where he was Head of Intermediary Sales.

He was Managing Director of Hill Samuel Professional Adviser Services, the intermediary distribution arm of Hill Samuel Investment Services and operated out of Bristol, London and Croydon. He has extensive experience of the UK Intermediary market, Sales Management, Marketing, Distribution Strategy, PR, Compliance and Client Service. Since retiring Ken has, set up an investment management arm of a City headhunting firm, become a Business Mentor for The Prince’s Trust and been appointed an Honorary Life Vice-President of Rockleaze Rangers FC.

Investment Team

John Glencross – Co-founder and CEO

See above

Susan McDonald – Co-founder and Chairman

See above

Lesley Watkins – Finance Director

See above

Richard Moore – Head of New Investments

Richard joined Calculus Capital in 2013. Prior to this he was a Director at Citigroup, which he joined in 2005, and previously worked at JPMorgan and Strata Technology Partners. Richard has over 14 years corporate finance experience advising public and private corporations and financial sponsors on a range of M&A and capital raising transactions. Richard began his investment banking career in the UK mid-cap advisory team at Flemings (acquired by JPMorgan in 2000), working with companies across a broad a range of sectors. More recently Richard has specialised in advising companies in the technology industry. Richard has advised on a wide range of transactions including buy-side and sell-side M&A mandates, public equity and debt offerings, private equity investments and leveraged buy outs in the UK, Europe, US and Asia. Richard began his career at KPMG where he qualified as a Chartered Accountant. He has a BA (Hons) in Politics and Economics from Durham University.

Alexandra Lindsay – Investment Director

Alexandra joined Calculus Capital in 2008. She specialises in the valuation of investment opportunities, focusing on the energy, manufacturing and life sciences sectors. Her recent projects include oil and gas exploration and production and pharmaceuticals. Alexandra is responsible for project management from proposal through due diligence to completion. Prior to joining Calculus Capital, she worked on the hedge fund team at Apollo Management International where she conducted research into companies and markets. She graduated from University College London with a first class degree in History of Art, having previously studied Engineering Science at Wadham College, Oxford. Alexandra is a CFA charterholder.

Robert Davis – Deputy CEO and Head if Portfolio Management

Robert joined Calculus Capital in 2014 with responsibility for working with the portfolio companies in helping to build value and, importantly, guiding them towards a successful exit. Robert has over 25 years’ advisory experience with particular expertise in M&A. Most recently he was Head of the European Business of Avendus Capital, an Indian investment bank, and previously was the Head of European M&A at Nomura International for eight years. He has also held positions at JP Morgan and Robert / Jardine Fleming. Robert qualified as a Chartered Accountant with Price Waterhouse and holds an MA in Natural Sciences from the University of Cambridge.

Alexander Crawford – Investment Director

Alexander joined Calculus Capital in 2015, and has over 20 years’ corporate finance experience, incorporating M&A, capital raising in both public and private markets, and other strategic advice. He spent ten years with Robert Fleming & Co, Evercore Partners and as a director of JP Morgan in London,

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New York and Johannesburg, where he advised the South African government on the privatisation of their incumbent telecoms operator. He was more recently a Managing Director at Pall Mall Capital. As a senior member of the investment team, Alexander’s role is to source and execute new deals, as well as managing some of the existing portfolio companies through to exit. Alexander has an MA in Mathematics from Cambridge University and qualified as a Chartered Accountant with KPMG.

Roshan Puri – Assistant Director

Roshan joined Calculus Capital in 2013. Prior to this, he qualified as a Chartered Accountant with Ernst & Young where he worked in transaction advisory, tax and audit, advising domestic and international companies on structuring investments, mergers and acquisitions, and preparing companies for external investment and sale. Roshan has a wide range of industry experience and since joining Calculus Capital, has worked with businesses within the leisure, healthcare and software sectors. Roshan graduated in Economics from the University of Warwick.

Daniela Tsoneva – Associate

Daniela joined Calculus in 2016. Prior to that she worked as an Analyst in a mergers and acquisitions focused investment bank Berkshire Capital Securities in New York City where she covered the financial services sector. Daniela’s experience also includes product launch and supply chain consulting projects in the renewables and financial services industries in Africa. Daniela holds an MBA (Dist) degree from Oxford University and a BA (Hons) in Political Economy from Middlebury College in the US.

Toby Scregg – Investment Analyst

Toby joined Calculus in 2016 and works in the investment team. Prior to this, he worked as an analyst within the Mining and Metals industry team at Standard Chartered Bank, assisting in the origination and execution of a range of structured financing, M&A and financial market transactions after having completed the Corporate Finance and Coverage International Graduate Scheme. Toby graduated in Economics from the University of Exeter.

Independent Directors

Ken Edwards

See above

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