Fifteen experts from the world of tech investment took part in BusinessCloud’s latest roundtable to look at what the investment market has in store in 2021.
Dan Matkin, investment director at NorthEdge, says that in the first six months of this year “tech will remain the focus”.
He said: “We had a good start to 2021 with Helios Medical Communications and we’ve got a couple of other things that we’re fairly well progressed on. We’re expecting to see a raft of opportunities.”
Beech Tree Private Equity made a ‘significant investment’ in 2020 into fast-growing cloud computing business Transparity Solutions.
Adam Rudd, director at Beech Tree Private Equity, said: “We tend to source a lot of deals ourselves. Because we go quite deep into sectors that we’re interested in we tend to uncover interesting but slightly smaller businesses.”
Elizabeth Gooch founded office software supplier EG Solutions in 1988 and sold out to US tech group Verint for £26.3m in 2017. She’s now involved in a couple of tech start-ups as an angel investor and is CEO of The Tech Growth Factory.
She said: “I actually raised money for a turnaround during Covid. Literally we’d just gone out to investors two weeks before lockdown. The businesses that I’m working with are mainly (aiming at) angel investors. The angels all ran to the hills. That was the first thing that happened. The VCs all looked at their portfolio. It took about nine months to raise this money.
“What I’m seeing now across my portfolio is the businesses are coming up to their next round of funding and they’re finding it very difficult to get reception below £1m Annual Recurring Revenue (ARR). My attitude is when it’s hard you work harder. Look after your cash. My advice to businesses is get some customers. Investors want to see that you can sell your product.”
Jonathan Boyers is head of Corporate Finance at KPMG. “We’ve done some research that shows that half the mid-market private equity deals that have been done have been in the technology space,” he said. “The technology sector has been a lot more resilient than the rest of the mid-market. That mirrors our experience. Half the deals we’ve done are in TMT or tech-enabled business services. Almost every sector is converging into technology. Multiples have generally held up. There’s so much PE around that for a decent opportunity the multiples have held up. Talent is always an issue.”
The North West team at UK-wide firm BGF started 2020 by announcing they’d topped the £300m mark for investments in businesses across the region and 2020 turned out to be a busy year for BGF.
Investor Pinesh Mehta said: “We’re a volume investor but we’re also a minority investor. We have continued to see appetite for growth capital into businesses. Last year we deployed around £400m of growth capital and around 25 per cent of that was in the tech sector. This year we’re hoping to get to £500m and that tech percentage will stay the same or increase. Traditionally tech should be a safer bet because most of these businesses have recurring revenue so they tend to be quite resilient. The key is the scalability of the model.”
Workforce People Solutions was founded in 2006 and has placed 15,000 people into jobs, with around 90 per cent of recruits coming from overseas.
CEO Simon Hayton, who is also a councillor for the Confederation of British Industry (CBI), said: “In the last 15 years we’ve relocated around 15,000 skilled workers from overseas to areas of skilled shortages. What we have seen when tech businesses have had investment is having the ability to leverage the talent to grow. In tech we all know there’s a shortage of skills. The day rates for these contractors are increasing. When the investment goes in the growth has got to follow.
“None of us have got the crystal ball. We don’t know what’s coming in the next couple of months. Some of the key trends I’ve seen from the CBI webinars I sit on is it’s all about attitude. People are saying ‘we’ve had enough, we’ve got to find a way’.”
Ryan Bevington, fund manager of the NPIF Fund, said: “2021 will be a very interesting year. We’ve not seen a drop-off in businesses wanting to raise money. We do see a lot of businesses trying to raise money very early without anything proven in terms of a customer base. We’re at the volume end of the market. We have more than 150 investments in our portfolio of which around two thirds are tech or tech-enabled.”
Praetura Ventures has a track record of investing in tech having previously backed Patchwork and Dr Fertility. In September Praetura invested £1m in Leeds-based RapidSpike, which helps businesses defend themselves against customer-focused cyber attacks.
Its MD David Foreman said: “We’re getting around £50m of opportunities a week. That’s £2.4bn of opportunities every year. We’re at the early stage of becoming a volume investor. People coming to us looking for cash to prop up their balance sheet are in the wrong place. We’re looking for businesses that are looking for capital to grow. I always say we’re not trying to start the fire, we’re trying to fan the flames.”
Frances Edwards has spent much of her career in London having previously worked for the likes of BlackRock, Barclays and Lloyds. She has a background in internalisation, having taken BlackRock into Israel and China. She also specialises in scaling businesses and bringing products to market.
She said: “There is a world outside of London and successful businesses are also built outside the capital.”
Manchester-based Saas business Pimberly secured a significant investment from NorthEdge and has big ambitions to grow further. The company has not furloughed any staff during the pandemic.
Founder and CEO Martin Balaam said: “A lot of my peers will spend an inordinate amount of time getting investment in. I’m not 20–something years old. I’ve been around the block a few times. You don’t even go for investment until you’ve got a minimum viable product. I knew exactly how much I wanted in Series A funding. I went to a few select people, agreed a reasonable valuation and got the money as quickly as possible so that I could concentrate on the business.”
Pimberly employs 54 people and the CEO said the key was recruiting early. “Always recruit ahead of the curve,” he explained. “I probably put my top team in a lot earlier than they would have considered. I’m not afraid to spend the money to bring in the talent 18 months before normal founders would do.”
Balaam said some companies had just been unlucky because of Covid. “There’s money out there if you have the right metrics but there’s a bunch of entrepreneurs who just through bad luck have found themselves at the wrong end of Covid and I think it would be a shame if they give up or are allowed to fail,” he said.
YFM Equity Partners has invested £2.5m in consumer insights business Vypr, which has tech veteran Richard Law as the chairman.
Partner Dan Freed said Covid had transformed some tech companies. “This time last year Teams wasn’t really talked about,” he explained. “There weren’t many users. Look how that’s exploded. The pace of technological change has been accelerated by Covid.”
He said Vypr was a perfect investment for them. “The experience of the team and having the right mix is very important,” he said. “Talent density is important and being ahead of the curve.”
SaaS-based system integration and data analytics specialist Xiatech Consulting agreed a growth capital investment with Rockpool Investments. They’ve won a number of new clients during the pandemic and reported turnover of £5m last year.
Founder and CEO Jonathan Summerfield said: “We took the funding because it was either going to be my money that I spent or the private equity money. We felt finding a partner was the right thing. Last year we had our best year during Covid. I don’t know if that’s a coincidence. We were able to show we could win new business.”
2020 was an especially busy year for LDC, capped with a £36m investment in Cheshire manufacturer Rhino Products and a number of exits of tech businesses.
Director Aziz Ul-Haq said: “We have a busy pipeline for the next couple of months. We’re optimistic. We have capital to deploy. We have the ambition to deploy it. There are definite opportunities. Traditional deals (like travel) are not in the market so there’s a concentration of deals in the tech space. That’s driving up a certain level of valuation.”
Deepbridge has a big focus on technology and life sciences companies.
Partner and head of marketing Andrew Aldridge said: “We’re about adding smart capital. We like to leverage our experience. I think the key thing from our perspective is making sure that our capital goes in as growth capital and not just keeping them afloat. We do have a great funding ecosystem in this country. Those companies that have a product that is genuinely solving a market problem will thrive. Those with strong leadership will be agile and will identify opportunities.”
AXM Venture Capital is focused on seed, start-up, and early-stage companies. It has 20 businesses across its portfolio, ranging from television production through to software development; social networking tools and e-commerce
Investment director Rupert Wingate-Saul said: “The majority of the portfolio was reasonably well insulated (against the impact of Covid). The challenge we see for our companies is to cross the divide from sub £1m ARR to over £1m ARR. I hope the M&A market will be strong in 2021.”