2 blogs
  • Recent coverage on the BBC has focused on UK technology companies, and has posed the question of whether the UK can compete in the global technology industry. One only has to think of Google and Facebook to realise how far behind the US we are in the UK. Where are the UK’s world leading technology giants, and what more must we do to support them?A number of tech entrepreneurs as well as investment specialist have offered their views on what they believe the problem is. Not surprisingly, the common theme amongst them is the struggle that businesses face for funding. However, and perhaps surprisingly, the problem doesn’t lie with seed and start-up capital. In the UK we are actually very good at nurturing small businesses, and the government and organisations such as the NHS have worked hard to support innovation and university spin outs, particularly in the sectors that the UK is strongest in, including life science, healthcare and technology. Instead, the problem is later in the life cycle of these businesses, when they move on to commercialising the product or service that they have built. They need to scale up to meet the demand that they have created, as well as having the fire-power to break into new markets. Neil Woodford, who set up his Patient Capital fund to invest in UK venture was quoted by the BBC this week responding to a question about scale up capital:"We have been appallingly bad at giving those minnows the long-term capital they need" Why then do they struggle to attract investment? The answer is quite simply because the UK’s fund management industry has no place for venture in its portfolios. A thriving, high growth technology company is considered far too risky. As long as this attitude holds sway, the evolution of the UK tech sector will be impeded. We have observed this over the last 10 years, as we have watched a gap open up between the early seed and start up rounds and the later Series A or first institutional investment round. Where not so long ago a Series A might have closed within 3-4 years of seed funding, it is now more likely to be 5-7 years afterwards, if that soon. It is precisely at this stage, what we have termed the “bridge to Series A stage”, that Juno focuses its investment activity. The businesses we are working with are not struggling, far from it. These companies are selected by us for (a) generating more than £1m of annual recurring revenue and (b) growing at unprecedented rates, often with revenue growth in excess of 100%, year on year. Working with Swansea University’s School of Management, Juno has been involved in research to understand why the gatekeepers to the UK’s personal wealth are not supporting venture as effectively as they might. It is a serious problem and our research has left us in little doubt that until the investment industry, specifically IFAs and fund managers, consider an allocation to later stage commercialisation, or scale up stage venture in their portfolios, the UK venture industry will continue to struggle for funding to support growth to any significant scale. The UK government’s EIS regime has, to a meaningful degree, facilitated the evolution of a world-leading entrepreneurial sector at the start up stage by off-setting an element of the perceived risk against tax relief. Similar policy making focused on the scale up stage is now required to support the development of that sector to maturity. If the fiscal and regulatory incentives are in place for investors, there seems little doubt that British innovation will be well-placed to compete on the global stage and perhaps then we will see our own Google, Facebook or Uber. Dr Julian HickmanPartnerJuno Capital LLP@junocapitalwww.junocapital.co.uk
    2042 Posted by administrator
  • Recent coverage on the BBC has focused on UK technology companies, and has posed the question of whether the UK can compete in the global technology industry. One only has to think of Google and Facebook to realise how far behind the US we are in the UK. Where are the UK’s world leading technology giants, and what more must we do to support them?A number of tech entrepreneurs as well as investment specialist have offered their views on what they believe the problem is. Not surprisingly, the common theme amongst them is the struggle that businesses face for funding. However, and perhaps surprisingly, the problem doesn’t lie with seed and start-up capital. In the UK we are actually very good at nurturing small businesses, and the government and organisations such as the NHS have worked hard to support innovation and university spin outs, particularly in the sectors that the UK is strongest in, including life science, healthcare and technology. Instead, the problem is later in the life cycle of these businesses, when they move on to commercialising the product or service that they have built. They need to scale up to meet the demand that they have created, as well as having the fire-power to break into new markets. Neil Woodford, who set up his Patient Capital fund to invest in UK venture was quoted by the BBC this week responding to a question about scale up capital:"We have been appallingly bad at giving those minnows the long-term capital they need" Why then do they struggle to attract investment? The answer is quite simply because the UK’s fund management industry has no place for venture in its portfolios. A thriving, high growth technology company is considered far too risky. As long as this attitude holds sway, the evolution of the UK tech sector will be impeded. We have observed this over the last 10 years, as we have watched a gap open up between the early seed and start up rounds and the later Series A or first institutional investment round. Where not so long ago a Series A might have closed within 3-4 years of seed funding, it is now more likely to be 5-7 years afterwards, if that soon. It is precisely at this stage, what we have termed the “bridge to Series A stage”, that Juno focuses its investment activity. The businesses we are working with are not struggling, far from it. These companies are selected by us for (a) generating more than £1m of annual recurring revenue and (b) growing at unprecedented rates, often with revenue growth in excess of 100%, year on year. Working with Swansea University’s School of Management, Juno has been involved in research to understand why the gatekeepers to the UK’s personal wealth are not supporting venture as effectively as they might. It is a serious problem and our research has left us in little doubt that until the investment industry, specifically IFAs and fund managers, consider an allocation to later stage commercialisation, or scale up stage venture in their portfolios, the UK venture industry will continue to struggle for funding to support growth to any significant scale. The UK government’s EIS regime has, to a meaningful degree, facilitated the evolution of a world-leading entrepreneurial sector at the start up stage by off-setting an element of the perceived risk against tax relief. Similar policy making focused on the scale up stage is now required to support the development of that sector to maturity. If the fiscal and regulatory incentives are in place for investors, there seems little doubt that British innovation will be well-placed to compete on the global stage and perhaps then we will see our own Google, Facebook or Uber. Dr Julian HickmanPartnerJuno Capital LLP@junocapitalwww.junocapital.co.uk
    Sep 20, 2016 2042
  • I was chatting with one of our VC Fund co-investors the other day, mostly about how we might collaborate more closely given that we have already co-invested twice (in Idio and Volo Commerce). It was particularly fascinating that we have very similar investment interests with the key differences boiling down to the requirements of fund investing compared to syndicate investing.   The most fundamental difference between a Syndicate and a Fund is that a Syndicate has many diverse clients with a wide variety of investment appetites and portfolios; while a Fund manager refers to one investment mandate only, which can lead to different decisions in any given scenario.   I had meant to write about this for some time because I am often having to counter the assumption that we are only hoping that 1 or 2 out of 10 of our investments will drive high overall returns. While some Funds adopt this strategy, this is not how the Juno Syndicate operates, and I would argue it should never be the strategy of any Syndicate.   Another way of looking at this is for us to consider the conversations we have with our clients. Rarely if ever do they ask “How is my portfolio performing?”. They are, however, keen to hear about the progress of individual portfolio companies. They have favourites and those where they have invested more than others. While we provide the best available investment opportunities, they are ultimately responsible for their portfolio construction.   We base our investment decisions on the case for each investment. We cannot afford to take excessive risk with a particular investment, as this might form 50% of a clients’ portfolio with us.   A Fund has only one portfolio to consider. Its Limited Partners (investors in the Fund) are concerned with overall performance as they have only made one investment decision. They acknowledge that the Fund might take a series of smaller higher risk bets and back those that show the most promise with a larger share of the Fund’s resources (management and cash). This strategy is entirely rational – allocate resources where it will be most financially rewarding.   The starkest manifestation of this strategy is in biotech. A specialist biotech Fund will make a series of near binary investment bets (huge returns or bust) which are highly risky individually, but if well enough diversified in a Fund, the overall portfolio can have a satisfactory overall risk/reward ratio. Here are some ways in which this difference shows itself:   The Fund size will dictate the minimum % a Fund needs to own in each portfolio company. As Syndicate investors, we are not constrained in this way.   A Fund is more likely to ‘abandon’ one of its portfolio companies if it feels that it can deploy its capital better elsewhere. There is unofficial competition between companies within a Fund’s portfolio for the follow-on money. Private clients are less likely to be so hard-heartedly rational and may follow an investment if there is still promise.   Time is money. Fund managers are rewarded for achieving a high internal rate of return (IRR). This consideration will dictate how they manage the timing and sequence of exits. Private investors have no master and so are more concerned with absolute returns from each of their investments.   All this is not intended to imply that private venture investors do not or should not be very mindful of how they build a portfolio. I’ll write another blog on that shortly. However, I hope that I have shown how the needs and demands of our clients drive the different investment decisions. Happily, despite these, we can more often than not align our interests and gain mutual benefit.   Has this piece raised further questions for you which I have not addressed? Do you see the distinctions differently? Are you interested in understanding more about how such diverse interests can collaborate effectively? Perhaps having read this you would like to attract investment from the Juno Syndicate. If so, please do leave a comment or contact me directly https://www.junocapital.co.uk/pages/edward-rudd
    2637 Posted by administrator
  • I was chatting with one of our VC Fund co-investors the other day, mostly about how we might collaborate more closely given that we have already co-invested twice (in Idio and Volo Commerce). It was particularly fascinating that we have very similar investment interests with the key differences boiling down to the requirements of fund investing compared to syndicate investing.   The most fundamental difference between a Syndicate and a Fund is that a Syndicate has many diverse clients with a wide variety of investment appetites and portfolios; while a Fund manager refers to one investment mandate only, which can lead to different decisions in any given scenario.   I had meant to write about this for some time because I am often having to counter the assumption that we are only hoping that 1 or 2 out of 10 of our investments will drive high overall returns. While some Funds adopt this strategy, this is not how the Juno Syndicate operates, and I would argue it should never be the strategy of any Syndicate.   Another way of looking at this is for us to consider the conversations we have with our clients. Rarely if ever do they ask “How is my portfolio performing?”. They are, however, keen to hear about the progress of individual portfolio companies. They have favourites and those where they have invested more than others. While we provide the best available investment opportunities, they are ultimately responsible for their portfolio construction.   We base our investment decisions on the case for each investment. We cannot afford to take excessive risk with a particular investment, as this might form 50% of a clients’ portfolio with us.   A Fund has only one portfolio to consider. Its Limited Partners (investors in the Fund) are concerned with overall performance as they have only made one investment decision. They acknowledge that the Fund might take a series of smaller higher risk bets and back those that show the most promise with a larger share of the Fund’s resources (management and cash). This strategy is entirely rational – allocate resources where it will be most financially rewarding.   The starkest manifestation of this strategy is in biotech. A specialist biotech Fund will make a series of near binary investment bets (huge returns or bust) which are highly risky individually, but if well enough diversified in a Fund, the overall portfolio can have a satisfactory overall risk/reward ratio. Here are some ways in which this difference shows itself:   The Fund size will dictate the minimum % a Fund needs to own in each portfolio company. As Syndicate investors, we are not constrained in this way.   A Fund is more likely to ‘abandon’ one of its portfolio companies if it feels that it can deploy its capital better elsewhere. There is unofficial competition between companies within a Fund’s portfolio for the follow-on money. Private clients are less likely to be so hard-heartedly rational and may follow an investment if there is still promise.   Time is money. Fund managers are rewarded for achieving a high internal rate of return (IRR). This consideration will dictate how they manage the timing and sequence of exits. Private investors have no master and so are more concerned with absolute returns from each of their investments.   All this is not intended to imply that private venture investors do not or should not be very mindful of how they build a portfolio. I’ll write another blog on that shortly. However, I hope that I have shown how the needs and demands of our clients drive the different investment decisions. Happily, despite these, we can more often than not align our interests and gain mutual benefit.   Has this piece raised further questions for you which I have not addressed? Do you see the distinctions differently? Are you interested in understanding more about how such diverse interests can collaborate effectively? Perhaps having read this you would like to attract investment from the Juno Syndicate. If so, please do leave a comment or contact me directly https://www.junocapital.co.uk/pages/edward-rudd
    Apr 05, 2016 2637