For entrepreneurs and their advisers, 2020 promises to be an interesting year, one way or another, writes BGF investor James Austin.
Sitting inside BGF – still the most active growth capital investor in the world – I wanted to provide some thoughts for business owners on how we will be looking at investment decisions for next year, and beyond. One thing that is guaranteed is that we will be investing strongly across the Thames Valley and its surrounds, continuing to support the fantastic group of entrepreneurs that operate out of this innovative and dynamic part of the UK.
Back to basics
In times of uncertainty, it is always a good opportunity to assess the fundamentals of any plan. The following thoughts are not intended to be ground-breaking, but I’ve found that these issues are still unclear or underdeveloped in the majority of business opportunities that we look at. Finding investment is not just a financial exercise, it’s one of the biggest decisions any business owner will ever make. It’s therefore important to ensure it’s the right one.
Find the right type of partner
An equity investment into a business must be about more than money. As an entrepreneur, you are taking on board another shareholder and probably a new director for your company. It therefore needs to be a relationship that you value, with an institution that you trust and whose employees will proudly and appropriately – not just successfully – represent your business to the wider world. Chemistry is a major success factor in creating a successful partnership.
As a minority investor, BGF is known for its supportive approach to entrepreneurs. Its what we were set up to do – just ask our portfolio!
Articulate your vision and execute it
Start off by ignoring the numbers. It is your vision that we are buying into from the beginning – from there we can work out a plan together that minimises the risk of achieving it. You need both a vision and a plan that can work in the real world.
You also need to really think about what success means for you. As an investor, one of my primary goals is to quickly understand the personal motivations and objectives of the entrepreneur driving the business. Aligning the objectives of the shareholder group with those is a task often neglected until too late in a process.
Do you really want to build a global multinational? Or do you want to de-risk your family within three years? Often these goals do not overlap.
What makes you special?
It’s easy to align yourself to others when thinking about your business in the market, but it’s what you’re doing differently that we want to hear about. Celebrating strengths that are unique to you and different to your competitors will help us understand what sets you apart.
In 2018, BGF helped the founders of Oxford-based Adestra exit to a NASDAQ-listed trade buyer. The senior team, which made up the majority of the shareholders, maintained a relentless focus on Adestra’s key differentiators and how this was reflected in the results of the business. This enabled buyers to quickly understand the value in the business, resulting in an efficient exit process with no surprises, at an attractive price.
The people factor
From our Reading office, about 80% of our investments are into technology businesses. However, it is as true in technology as any other sector that it will be the people that will create success, not the technology.
We can see an almost binary outcome from our portfolio of more than 300 businesses. Those that have been successful in rapidly injecting fresh talent do achieve their goals, and those that haven’t, don’t. This is irrespective of sector, business model, market dynamics, etc.
In fact, in a high-growth, scalable technology business, it is even more important to future-proof the team to make sure you can withstand the rigours of growth. Here is another well-known Thames Valley success story that neatly articulates these points.
Bullitt Group received investment from BGF in 2012 and subsequently grew from £5 million revenue to more than £100m within four years. It became one of the fastest growing technology companies in the UK and was recently named in the London Stock Exchange’s 1000 Companies to Inspire Britain. One of the joys of working with the three founders of Bullitt is their ongoing focus on building out the team. This included the daunting task of putting in a new CEO for the business which ultimately enabled a successful exit for all of the shareholders.