Taking tech from the lab to the production line requires a long term perspective
Long term, growth capital investors are needed to support our high-tech manufacturers, writes John Eggleston (article featured in 2014’s Sunday Times Tech Track 100 supplement)
Tablet screen displays, efficient power transmission systems and liquid explosives detection are all technologies that are being developed by firms appearing on this year’s Tech Track 100.
These high-tech manufacturers, from London’s Apical (No.41), to Northern Ireland’s Camlin Group (No.54) and Oxfordshire’s Cobalt Light Systems (No.10), are growing quickly, reinvesting a significant proportion of their revenues back into research and development. Their growth is all the more impressive when you consider the capital required to commercialise their ideas in the first place.
Take Cobalt Light Systems, which was established in 2008 when it was spun out of the Rutherford Appleton Laboratory by Czech-born scientist Pavel Matousek and backed by early stage and angel investors. Its imaging software can detect the chemical make-up of materials through packaging and is used by global pharmaceutical companies and in airport security systems.
At BGF, we back similarly capital hungry cutting-edge tech companies with patient growth capital. For instance, Aberdeen-based SPEX Group, which develops new devices to improve well control during oil and gas extraction featured at No.4 on Tech Track 100 last year and in March we invested £5m for a minority stake to accelerate its growth here in the UK and overseas.
Many companies on this year’s Tech Track 100 will be less capital hungry, at least in their early days. Developing software and services that are internet-based and utilise cloud hosting keeps initial costs down. But those with ambitions to grow quickly and internationalise their operations will inevitably come up against a requirement for external finance sooner or later
Borrowing from a bank can work, but those with volatile cash flows can find servicing that debt is not always possible, or a combination of debt and equity better suits their needs.
BGF was established in 2011 to support Britain’s smaller and medium-sized growing companies across the UK. Backed by five of the main UK banks we invest between £2m and £10m in long-term, growth capital. We also provide follow-on funding – a sign that we are prepared to back the companies that we invest in for the long term rather than seek a quick exit.
Having made more than 60 investments to date we now talk to literally hundreds of management teams each year and find that many are looking for more than simply finance.
They also want access to expertise and contacts, which we provide through our Talent Network, as well as portfolio collaboration and more informal dinners that we hold across the UK to bring entrepreneurs together to learn from each other.
Of the companies that make this year’s league table we have invested in Inoapps (No.77), The Exchange Lab (No.21) and Unruly Media (No.14), all of whom are making great strides in their respective markets.
We were introduced to James Aitken co-founder of The Exchange Lab by one of our shareholders. His team have created a trading and intelligence platform, called DataLab, which leverages data to find the right audience at the right time at the right price for brand owners and ad agencies across digital platforms and devices.
The company has grown sales organically by on average 99% a year for the last three years and have a great customer base, including WPP, Ford in Europe and Dell in North America. They have tripled their global headcount to 150 people and were looking at ways to accelerate the development of their technology. That costs money and our £5m funding for a minority stake has helped to accelerate, as well as support their plans to expand in the US and the Asia Pacific region. We also introduced them through our Talent Network to Chris Dobson, a former BBC advertising senior executive, who has become their executive chairman, based in the UK.
“Chris Dobson has helped us scale the business”, says Aitken, who says BGF’s professional network was one of our appeals as an investor. The company has used the funding we provided to develop its DataLab technology and continue its international expansion.
“We were looking for partner that was additive to our business,” Aitken adds. “What we really liked was their appetite to have the entire funding round, to make it one partner.”
Like The Exchange Lab, many of the companies on Tech Track 100 operate internationally while retaining their base in Britain, which is increasingly supportive of tech entrepreneurs.
There are superb tax breaks for investors in early stage companies via the government approved seed and enterprise investment schemes. These schemes are encouraging a huge amount of early-stage tech activity.
The UK government is also stimulating investment in infrastructure, from high-speed broadband to start-up incubators and centres across the UK where research teams from universities collaborate with businesses to take their breakthroughs from the lab to the production line.
At BGF, we match that national focus, providing capital from our seven offices and backing companies from Southampton to Aberdeen. We have a technology focussed investor in each of our regions so they are able to work closely with the companies that we back and can meet the entrepreneurs of new companies looking to grow. For those tech entrepreneurs looking to see their company on the Tech Track 100 next year, now may be the time to drop us a line.