Williams Technology EIS Fund

Foresight Impact Funds

Venture Capital Trusts

Regional buyout funds

Walking in to the Foresight Group’s HQ on the 23^rd floor of London’s Shard building is a bit like stepping out into heaven, with the science-fiction panoply of London spread out beneath you.

Foresight Group was founded back in 1984 by former 3i investment managers who raised £20 million for a technology venture capital fund. Early on, it backed the company now known as SIM card manufacturer Gemalto, which went on to make a 30x return on investment.

Today, Foresight Group has around £470m of assets under management and has made over 70 investments in UK-based small and medium-sized businesses (SMEs).

Last year alone, it invested £56 million in 28 new SMEs.

Recent investments include £5m investment in ticketing software business Spektrix, a £1.5 million stake in bionic arms creator Open Bionics and a £2.15 million deal for specialist software company ClubSpark.

‘What we’re looking for is a sustainable competitive advantage, something with differentiation’

It invests anything between £250,000 and £5 million in UK SMEs.

Foresight takes minority or majority stakes in companies looking for growth capital, equity release or management buyouts.

The firm is sector agnostic and covers business services, consumer, healthcare, industrials and technology/media but favours “slightly unloved but nice high-margin sectors,” says partner James Livingston.

In addition to its Shard headquarters, Foresight Group has satellite offices in Manchester, Nottingham, Leicester and Milton Keynes.

Livingston says: “Having that local contact is so important for SMEs. We like to have our feet on the street. We can find better deals for our funds, and be a better demonstrable partner, when we’re local.”

Last year, Foresight ran its slide rule over circa 1,500 business plans and invested in 28 companies (having made offers on over 100).

Livingston, who joined Foresight in 2007 having left Deloitte, says that there are myriad reasons why he might have to say no.

“It’s a bit Goldilocks. The deal could be too small for us or too big. Or it’s too early stage for us. You also get some pretty bonkers business plans that haven’t been thought through. What we’re looking for is a sustainable competitive advantage, something with differentiation.”

Sometimes entrepreneurs approach Foresight who have already crowdfunded their startup, which can prove problematic.

“Typically, we find that crowdfunded business have quite a high, excitable valuation, which makes it hard for an institution to follow on,” says Livingston.

What Foresight looks for

What Foresight looks for is evidence of business planning, as well as having a backable management team in place.

In addition to equity, another element Foresight offers is bringing in board-level experience.

Says Livingston: “We can offer more than a bank can. We can invest and help strengthen the team around the entrepreneur. Usually one of us will join the board and we will introduce an experienced non-exec director.”

For example, Foresight arranged for former Screwfix chairman George Adams to become chairman of Folkestone-based power tool retailer FFX.

Foresight funds – a breakdown

Foresight’s private equity arm is divvied up into seven different funds:

Williams Technology EIS Fund

This high-risk fund backs disruptive and innovative technologies. It is a joint venture with the Formula One Williams Advanced Engineering team, which consults for aerospace as well as engineering.

This fund, backed by the government’s Enterprise Investment Scheme (EIS), offers between £500,000 and £2 million in equity in three stages: seed investment of between £500,000 to £1 million; Series A of between £1 million-£1.5 million and growth capital of £1.5 million-£2 million

Tech startups that are pre-revenue, but also post-revenue are eligible — even if they still making a loss.

From Williams Technology EIS Fund’s point of view, it is hunting for startups which could eventually make a 10x return.

Foresight Impact Funds

• Midlands Engine Investment Fund

Foresight manages a £35 million allocation of the £250 million Midlands Engine Investment Fund (MEIF).

The fund looks for SMEs less than seven years old, based in East and South East Midlands.

Foresight writes cheques of between £250,000 and £2 million, and has invested nearly £10 million so far in year one.

Venture Capital Trusts

Foresight’s two venture capital trusts (VCTs), Foresight VCT and Foresight 4 VCT, are open to retail investors.

Between them, the two VCTs have raised £250 million in backing through individual investors offered a 30 per cent income tax relief and tax-free dividends.

The average investment is tied up for seven years, but to date Foresight has sold 28 companies since 2010 and has generated a 2.8x return on investment.

Each VCT looks for £1 million plus in revenue from potential investees.

Regional buyout funds

• Foresight Nottingham Fund
• Manchester-based Foresight Regional Investment Fund (FRIF)

Concentrating on the North West and the Midlands, these two funds with a combined capacity of £100 million target more established, profitable businesses with track records whose owners either want to sell up or cash out, possibly through management buyouts.

Again, Foresight offers between £1 million to £5 million.

So far, around £50 million has been deployed.

Foresight launched these regional buyout funds because VCTs are meant for growth capital purposes and are not able to purchase second hand shares.

Regional buyout funds are looking for £1 million plus EBITDA from potential investees.

Done deals include contract office cleaning firm Tudor, e-commerce golf retailer Clubhouse Golf and the Indian restaurant chain, Mowgli.

Foresight is investigating opportunities to launch more regional buyout funds and are keen to roll out its successful regional strategy in new regions.