Name: Matt Taylor
Company: Foresight Venture Partners
Likely investment: Between £200,000 and £2.5 million
Best way to impress: ‘Have a wise non-executive director on your board’
Foresight specialises in businesses ‘with a technology edge’, according to partner Matt Taylor. ‘This can be anything from a venture with lots of patented technology to a services business using IT to make it more productive, or another technology application.’ This varied approach has benefited the group, which is the only manager of a Venture Capital Trust (VCT) to return the initial money invested to subscribers.
To get an audience with Foresight, or other successful investors, Taylor says the best thing is ‘to have someone involved in your business who has done it before. For example, it could be a non-executive with a financial background, who has previously been involved in a serious fundraising. He would be ideally suited to introduce you to relevant contacts and prospective investors. It’s so important.’
Taylor says many of Foresight’s best investments come via this introduction route. ‘The non-executive chairman of Sarantel [a wireless antenna business that has recently floated on AIM] introduced us to the company when it was seeking finance. And a recent investment, Aigis, a developer of blast-proof materials, came through our own financial adviser Williams de Broe. We were very excited by this as we believe homeland security is a big issue at the moment.’
Taylor also says that corporate financiers themselves are a good source of possible investments. ‘All the accountants as well as boutiques like Icon and Catalyst introduce us to ideas.’ However, he maintains the first step is to appoint a suitable non-exec with experience who can then set up a first meeting, possibly even with an appropriate financier. ‘Then that adviser can put together the necessary ten meetings you need to have with investors.’
Once you’re in the door, Taylor cautions that ‘the first five or ten minutes of a meeting are very important. I expect a presentation to be made and a business to explain in that time exactly what they do. This is the ‘elevator’ pitch. The first two slides can tell you a lot. If you haven’t managed to hold my attention after 20 minutes then I will start to leaf through the rest of the presentation – that’s a bad sign as I’ve generally already made my mind up not to invest.
‘Another tip is to show your product to the investor,’ he continues. ‘If you’ve got a satellite navigation tool, then let me feel it, play with it in my hands. If it’s a piece of software, tell me how it will benefit the business.’
Again, for Taylor, the chief executive is vitally important. ‘Ideally, he or she will have managed a bigger business before. We find that half of entrepreneurs can’t develop as the business grows – a mix of skills is required in addition to leadership. We might suggest that a chief operating officer is added to the team if need be.’
Foresight does not look at pre-revenue businesses but is prepared to invest as little as £200,000. ‘Our largest deal size recently is £2.5 million. But if we syndicate a deal it can be up to as much as £4 million,’ remarks Taylor.
You should also bring up the exit plan at the initial meeting, according to Taylor. ‘You need to show how shareholders will make money. We will want to discuss how much the venture will be worth in three to five years’ time. We generally want to grow businesses to a value of between £10 million and £50 million over that period.’
His final piece of advice is to ‘look at what the investor has backed in the last year. If they have supported a very similar business to your own then probably don’t approach them, but if it is only vaguely related, in terms of size and technology, then go for it.’
Name: Simon Like
Company: MD Barnard
Likely investment: Varied amounts
Best way to impress: ‘Take your business to market’
MD Barnard is a traditional stock broking business with around £150 million under management. At least £30 million belongs to long-standing private clients of Michael Barnard himself. The group also runs a growth and an income fund for Marlborough and last year raised nearly £9 million for an AIM VCT, called New Century.
As such, fund manager Simon Like says the majority of his investments, which are made in tandem with Michael Barnard, are in quoted companies. ‘We work very closely together and have similar views about what makes a good investment. If you gave us a list of a hundred possible investments we would both choose the same half a dozen we would like to back.
‘We very rarely back private companies – the art of exiting is important and the only way of selling a stake in a private firm is via a trade sale or a flotation,’ explains Like, who worked for ten years at HSBC when it was the Midland, and at his family Land Rover dealership before Michael Barnard contacted him on discovering his skills and interest in the markets were suited to being a fund manager.
The best way to approach Like is first to consider floating. VCTs have to buy newly issued shares in private companies or those on AIM. However, Like does not simply rely on the flow of new issues coming from brokers bringing companies to the market.
‘I am happy and willing to meet up with companies only considering a flotation,’ he says, citing a recent example of a business that approached MD Barnard and then, following an initial meeting, was introduced to a suitable broker.
Like is also increasingly keen on backing companies on OFEX, the private stock market undergoing something of a revival at the moment. He recently used the VCT money to back health and safety consultancy PHSC, which has just moved to AIM, and CKS, a recycler of IT equipment, which remains on OFEX.
Whatever the source of the companies, he maintains that all should display solid investment credentials: ‘we are looking for businesses that are profitable, with little debt, that generate cash and that we can understand. We are not bothered about the sector, but we do avoid oil and gas exploration plays.
‘We like businesses that have good control of their costs,’ he continues. But one of the things that makes Like sit up and take notice is if the business has ‘some topicality about it.’ Two AIM new issues he has backed this year that exhibit such a flavour are debt advisor Debtmatters, making the most of the consumer debt crisis, and Tristel, a leading provider of disinfectants to the NHS, an institution currently beset by cleanliness issues sparked by the MRSA superbug.
Name: Mike Kennedy
Company: The Capital Fund
Likely investment: £250,000 initially
Best way to impress: ‘Fill in the right details online’
The Capital Fund is one of nine Regional Venture Capital Funds and because of the unique nature of these funds, says investment manager Mike Kennedy, ‘We deal with lots of enquiries .’
The nine regional funds, introduced by the Government several years ago, can only initially invest £250,000 into a business, although this can be followed by a further £250,000 after six months and, exceptionally, by even more money for particularly promising investments. This is to encourage the funding of fledgling businesses often overlooked by venture capitalists.
‘The Capital Fund raised £50 million in July 2002,’ explains Kennedy. That money could be used to back as many as 200 businesses through the fund, which is managed by YFM Venture Finance, a subsidiary of Yorkshire Fund Managers.
Despite these figures, the fund did not invest at all during the first year of its existence. ‘We spent a year getting the structure right, in particular thinking about setting up a standard process for companies applying for investment.
‘Our website is quite detailed and explains exactly how to approach us. It has a list of basic steps to follow and takes people through how to fill in a form on the web for us to assess.
We designed it so a prospective company doesn’t even need an adviser,’ says Kennedy. ‘Indeed, we are very keen to get prospects who don’t have an adviser.’ That said, he finds that businesses with an adviser acting for them have already had ‘a useful filter’ applied to them.
Nevertheless, he still insists that companies using experienced personnel to approach the fund fill in the web form. ‘We find that this helps people to work out for themselves whether we are appropriate.’ It also aids the fund’s decision process. ‘We print off all the forms then discuss them each Monday morning. We promise an answer within ten days.’
Although inspired by a Government initiative, the fund has commercial backers and pension funds supporting it. ‘This means we are trying to provide our shareholders with profitable returns.’ When making a decision to invest, ‘a lot of it is down to the team. Ideally, they should have done it before, but, even if they haven’t, they should be strong, passionate and committed.’
So far, the fund has chosen to back 29 companies. At this rate Kennedy anticipates that the fund will be fully allocated by the end of 2008. It is generalist in terms of sectors and is prepared to back businesses at all stages – early stage, established and those undertaking management buyouts.
Despite the structure, he maintains that the fund also invest in start-ups. ‘We have backed Quotient Diagnostics, and managed to pull in external investors to join a syndicate to raise the funds the company required to develop its products.’
Name: Sean O’Flanagan
Company: Unicorn Asset Management
Likely investment: £2 million
Best way to attract: ‘Have a business with strong organic growth potential’
Unicorn Asset Management is run by renowned investor Peter Webb, whose empire now consists of ten diverse funds with around £400 million under management.
O’Flanagan manages the Unicorn AIM VCT, a £58.4 million fund that has recorded the best performance of all of the specialist VCTs launched in 2001/2002. In 2004 the Unicorn AIM VCT II was created. It currently has £23.3 million under management, although a fundraising is underway to furnish this vehicle with additional resources.
To get in front of O’Flanagan, you will have to use a broker. ‘Most of the companies I see are introduced to me by a broker looking for funds for a company he or she hopes to list on AIM,’ he says. The key, therefore, is to choose the right broker. ‘My advice to any chief executive is to check the track record of the broking houses they hope to appoint.’ He argues that the types of company they have floated, the size of the fundraising and the record of the companies in the market should give you ‘a good indication of their calibre’.
Only once a broker has pitched the business on your behalf to Unicorn does O’Flanagan advise opening up direct communications. ‘Brokers do like to protect their relationship with their clients, but I am all in favour of CEOs of prospective investee companies talking directly to us once the fundraising ball is rolling. It helps cement personal relationships and assists us with our understanding of your venture.’
What you – or any broker operating on your behalf – have to realise though is that Unicorn AIM VCT is not a big fan of early-stage companies. ‘We rarely back start-ups. In fact, what we do is not, strictly speaking, venture capital. It’s more development capital. We are looking for businesses that will be valued at around £10 million after any new money is injected.’
‘We are not focused on any one sector – we have backed everything from pub chains like Nectar Taverns to software companies like AttentiV Systems. What we like to see are businesses at least at breakeven point, with strong revenues and good recurring income.’
Another door-opener at Unicorn would be if you can demonstrate the strong organic growth potential of your enterprise. ‘There are so many buy-and-build companies around. But the endless issue of shares, options and lock-in agreements can cause problems in the future. For us, there aren’t enough businesses coming our way where organic growth is key. This is disappointing because some of Unicorn’s most successful investments – the likes of building maintenance group Mears, Printing.com and Synergy Healthcare – have expanded rapidly organically. Acquisitions by these firms have supplemented the overall growth story, not dominated it.’
The other sure-fire way to get onto the Unicorn and O’Flanagan radar is to be committed in terms of time and money. ‘A management team that is taking money out as we inject cash in does raise eyebrows here. What we want is to see CEOs with a solid track record who are dedicated to the business, both in terms of their financial commitment and the effort they will put in to grow it. We also need someone who can sell the company’s story to the City. That’s vital!’