What I look for in a software business

Magic dust, an honest culture, and relentless improvement are what BGF’s Harry Jones looks for in a software business. Hear more from the Manchester-based investor in this sector deep-dive.

5 January 2022

Harry Jones is an investor in BGF’s Manchester office. He has invested in software businesses such as DriveWorks and Unique X.

1. Culture

An honest, transparent culture is key. It’s important to be candid about what’s gone wrong as well as what’s gone right, to learn from failure and be collaborative. In management teams, I look for a balance between conviction in the mission and openness to other points of view. We’re looking for confidence, but not arrogance.

2. Relentless improvement

Technology is never ‘done’ so the best software businesses are continually evolving and improving. This is reflected in the way the engineering team works and interacts with the rest of the business. Of course, we look out for best practices around development, deployment and product management, but I also want to see the product improving with every release as the business learns more about its customers and its market.

3. Scalability

We generally look for businesses that operate in the cloud with a software-as-a-service (SaaS) model – unless there is a good reason not to do so. If a cloud-hosted platform has been well built, then it should be scalable and capable of growing fast. Ideally, customers can buy the product ‘off the shelf’ and be up and running, maybe with onboarding and training, within weeks – with minimal need for bespoke development.

4. Data-led

Every tech business has different divisions: you don’t want them to become siloes. The divisions have to be integrated throughout the development process, with a data-led approach from the top. That said, I also believe building great software is as much an art as a science. You must use data to inform decisions, but you can’t let it override common sense, instincts and flair.

5. Agility

As well as having a great product and a great team, a business has to be willing to pivot if things aren’t going to plan. I look for businesses that take risks in a calculated manner and are quick to change course if things don’t work. Being agile also helps a business take advantage of unexpected opportunities – many of these have been thrown up in the tech sector by the coronavirus pandemic.

6. Magic dust

In the software industry, competition for talent is ferocious. Software businesses have to be realistic and pay competitively, but they also have to offer something else that attracts staff to their mission – I call it the magic dust. It’s important to have a purpose and clarity about the problem you are solving because techies are often purist in nature. Yes, some are mercenary about pay, but mostly they just want to build something really cool that solves a problem.

Which BGF investments have you made that are great examples of the kind of businesses you look for?

DriveWorks, based in Warrington and co-founded by vice president Maria Sarkar and CEO Glen Smith (above), provides design automation and 3D configuration solutions for manufacturers around the world. It can take an engineer hours or even days to redesign and customise a product, but DriveWorks fully automates the design and amendments within minutes, eliminating human errors and freeing up time for engineers to do more interesting things. The software also offers sales features, enabling 3D configuration of a product in a browser that a client on the other side of the world can view and customise in real time. DriveWorks’ software platform has taken more than 15 years to build and they have high levels of staff retention – people rarely leave because they’re passionate about the problems they’re solving.

Another example is Unique X, which provides automation and film distribution solutions for the cinema industry. Movies used to be delivered physically as rolls of film, but it’s all done digitally over broadband now, which UniqueX enable through their encrypted network. Their software also automates other tasks within a cinema from the lighting in the theatre to the scheduling of advertising. Unique X provides mission-critical services, continually optimises its platform and never loses customers.

Looking ahead, are there any sectors that you are excited about investing in?

Any business that is embracing technology to make a positive and tangible impact on the environment. Offering solutions that not only reduce our carbon footprint but also measure these savings through specific and relevant data are valuable. At BGF we are placing huge focus on cleantech – we have already backed a number of companies aiming to transform the energy sector, from developers of hydrogen fuel cells to next generation lithium-ion batteries. However, we recognise that there is still much more to do if we are to make the net zero agenda a reality.

Parts of this article appeared in ‘What I look for when investing in a software and technology business‘, published by CRN

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