Albion Capital, based at its Bank offices in London, recently opened its doors to UK retail investors with a new fund which was previously just available for high net worth individuals. The firm backs businesses long-term to support growth and investors returns with a series of partnerships with universities such as UCL and six other VCT’s worth £360 million.

This interview forms part of a series of articles in which we seek to understand what VCTs are out there in the UK and what sort of companies they tend to invest in and how much this tends to be.

Patrick Reeve, managing partner of Albion Capital describes the company’s growth over the last 22 years and how it has diversified its investments to keep pace with a changing world.

What are the details of the company?

Albion was founded in 1996 when I (managing partner Patrick Reeve) established Close Brothers’ venture capital arm, later buying the business to form Albion Ventures in 2009, before rebranding as Albion Capital in 2017 – a move that reflected the company’s evolution and diversification.  The wider Albion Group has funds of just over £1 billion under investment management or administration, including six venture capital portfolios with assets of around £400 million.

We see our job as looking at where the world is changing and where our funds can create value out of that change. We combine a thematic, returns-driven investment approach with specialist expertise, targeting sectors where we can have a long-term impact. Our focus is on longevity as investment partners in order to maximise returns for our investors and the management teams we support.

We have a strong track record of backing ambitious businesses and are currently targeting areas of innovation such as digital healthcare, automation, digital security and data analytics. But we have also built up quite a level of experience in life sciences, including gene therapy, through our partnership with the UCL Technology Fund. In summary, we back opportunities that have the potential to change business – and in many cases, the world – for the better.

What do scale up companies need to consider before they can secure investment from you?

We typically look to invest £2-5 million for a minority stake in high growth companies at Series A and early Series B. We support outstanding entrepreneurs who have demonstrated product-market fit and wish to optimise and scale their business rapidly, and especially like businesses with a clear go-to-market strategy and long-term differentiation in a growth market.

Within technology, we look at most sectors, with a particular focus on digital B2B companies – enterprise software and technology services –  in digital health, cybersecurity, martech and fintech. Companies that benefit from macro themes around disruption, digital transformation, and the trend towards a data-driven economy are particularly attractive.

Outside of technology we continue to be opportunistic and will review any business which fits our core criteria of high growth and product-market fit.

It is very important for us to feel that we are a cultural match for the companies we support. A good funding partner is committed to scaling a business sustainably over the long-term and must share the management’s vision.  Investors that deliver a robust funding structure and complementary expertise, but are also aligned on growth strategy, can help a company expand rapidly.

What high-profile fundraisers and exits have you orchestrated and how did you apply your expertise to secure a successful deal?

Four recent high profile transactions we have supported include Locum’s Nest-a mobile-first platform founded by doctors-which completed an early stage £1.1 million investment round led by Albion Capital and IDO Investments of Oman. 

Albion also invested £4.7 million in G.Network, which provides affordable ultra-fast broadband connectivity to businesses across Central London, bridging the gap between constrained copper-based broadband and expensive leased lines which have long lead times. The investment is being used to build out G.Network’s broadband infrastructure in Central London, prioritising streets with significant business density. Substantial further funds are now being raised to roll out the network.

Another fundraise, orchestrated by us and HSBC raised £2.5 million for gig data analytics firm Quantexa. The funding supported the opening of their Brussels office in 2017 and the doubling in size of their global headquarters in London. Last year they furthered their international expansion by opening a new office in Sydney, Australia.

Warrington-based digital monetisation company MPP Global raised £12 million Series B Investment from Albion Capital and Grafton Capital and clients include Sky, News UK, Daily Mail Group, L’Equipe and McClatchy. Albion’s investment supported the opening of three new offices in Dubai, Manchester, and New York last year.

A recent high profile and high-value exit is Grapeshot – Albion invested £2.9 million in 2014. Grapeshot provides brand safety and pre-bid contextual solutions to over 5,000 of the world’s leading marketers. Every month, over 38 billion programmatic ad impressions are enhanced by Grapeshot, Contectual Intelligence platforms, using dozens of languages. Grapeshot has been growing at over 100 per cent each year and has now been acquired by Oracle Corporation. Albion will make a 10x return on its investment.

What market trends do entrepreneurs need to be aware of when seeking investment? Also, how do you rate the UK entrepreneurial market at the moment?

The UK’s entrepreneurial market is currently extremely healthy, with a plethora of high-quality businesses seeking finance across a range of sectors. Recently, the Government’s Patient Capital Review recognised the excellent job that VCTs do to support these businesses.

The Government’s endorsement of VCTs, whose evergreen nature makes them an epitome of patient capital, was both welcome and sensible. Subsequent changes to VCT legislation have channelled their focus on truly innovative companies, and ongoing consultations are putting a great emphasis on knowledge-intensive companies.

Entrepreneurs, therefore, must consider how they meet the new criteria and fully demonstrate the pioneering nature of their product or service when they seek finance.

For high quality, innovative businesses there is likely to be increasingly strong competition between investors seeking to provide funding. Entrepreneurs should only seek funding when it is right for their business and must choose funding partners which can meet their long-term strategic needs.

Entrepreneurs must ask themselves whether potential investors can support them through to the next round of funding and if they have the contacts to secure the people needed to grow a business. It is also important to consider an investor’s expertise in your space. Establish whether they have a track record supporting similar companies and how well they know your market and its dynamics.

What key pieces of advice would you give to entrepreneurs who are seeking investment in their business?

We invest predominantly in B2B companies but do, from time to time, assess consumer-focused technology offerings which fit with our sub-sector specialisms.

A large number of the high growth technology businesses that we support operate a software-as-a-service (SaaS) business model. We have been investing in software companies for almost 20 years and usually focus on recurring revenue cloud businesses, typically at the application layer. We have a basic framework for evaluating SaaS businesses to clarify what we are looking for from companies, who can be bewildered by the vast array of metrics used to measure firms in the sector.

The key questions we are looking for entrepreneurs to answer are: Does the company provide a valuable service to its customers? Is the business model sustainable? Is there product and market fit in an attractive market? Is there a barrier to entry? Can the company scale profitably? What is the company worth?

There are also specific metrics that we suggest businesses use to measure their success on an ongoing basis. Some common measures include number of customers, net churn, gross margin, annual contract value and customer acquisition cost (CAC) payback.

Most importantly, however, is that entrepreneurs remember that every business is unique and the mix of metrics must be adjusted accordingly. 

Further reading on venture capital

Just Eat’s David Buttress enters the world of venture capital