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What are investors looking for. Catherine Simpson, Scottish Equity Partners

Catherine is Head of Operations at SEP. With a background in law and investment, she was one of the SEP founder team members. Catherine will give an overview of SEP, what they are looking for from companies seeking investment and what makes a good pitch!

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What are investors looking for. Catherine Simpson, Scottish Equity Partners

  1. 1. Venture capital and SEP 7 November 2013
  2. 2. F
  3. 3. Venture capital > Venture capital is medium to long term finance, provided in return for an equity stake in early stage, high growth potential, unquoted (private) companies > As shareholders in the company, returns on investment are wholly dependent on future growth and profitability > Used where cash from operations is insufficient to fund growth and other sources of funds are unavailable > Differentiated from bank debt where the lender has a legal right to repayment and interest, irrespective of the company’s success or failure
  4. 4. Objective To invest in a company and make it more valuable, over a number of years, and finally sell it to a buyer who appreciates that lasting value has been created. 4
  5. 5. Economic and social impact > £40bn has been invested in >5,000 companies by venture capital and private equity over the last 5 years > 3,800 businesses are backed by UK venture capital and private equity firms > 90% of VC investments are directed at UK SME’s > 0.5m+ people are employed in the UK in venture backed businesses > PE / VC backed companies grow sales, exports and jobs faster than FTSE 100 and FTSE 250 companies
  6. 6. What VCs look for > Non-“life-style” businesses > Aspirational companies with potential for significant growth > Competitive edge/USP > Large market opportunity > Experienced and ambitious management teams > Willingness to sell shares in return for investment
  7. 7. What we don’t! 7
  8. 8. What VCs bring > Investment > Experience of growing companies > A portfolio of other like-minded entrepreneurial companies > Contacts > Mentoring and monitoring > Exit planning > Corporate governance
  9. 9. Stages/type of investment Venture Capital Private Equity Seed MBO, MBI, BIMBO Start-up Secondary, replacement Early Stage Refinancing bank debt Growth equity Turnaround
  10. 10. Pitching > Research fund investment criteria > We see approx 2,000 enquiries p.a. > Approx 400 of these are qualified > Approx 44% from advisors; 23% from our own deal origination and balance direct from companies, other investors and NXD’s > Complete approx 5 new investments per annum
  11. 11. Growth criteria > Substantial and rapidly growing revenues of > £5m > At or close to profitability > Low residual technology risk > Large and attractive market > High calibre entrepreneurial management team
  12. 12. The plan > Product or service > Market size and growth potential > Competition > Management team > Financials past and future > Funding requirement
  13. 13. Process > Review of business plan > Management team meeting(s) > Offer letter/heads of terms > Comprehensive technical, commercial and market due diligence > Formal review by Internal Investment Committee and discussion with Investment Advisory Board > Final negotiation and completion of legal documentation > Close involvement post investment - board participation
  14. 14. Valuing companies > Valuation depends on:- Risk / due diligence - Growth potential - Investment time period / cash required - Confidence in team (execution) - Anticipated future value - Market competition > Does the potential reward justify the risk?
  15. 15. Structuring > Lead or sole investor > Generally minority stakes > Preferred ordinary shares > Tranches > NXD appointment > Monthly management meetings and corporate governance > Exit
  16. 16. How venture capitalists exit > Sale of company or merger > IPO > Sale of company to another private equity buyer > Sale of stake in company to another private equity buyer > Sale of stake back to company/other shareholders > Note 10 year LP structure > Expected returns vary
  17. 17. Scottish Equity Partners > UK’s leading venture capital company, established in 2000 > Offices in Glasgow, Edinburgh, London and Ireland > Focused on UK companies with significant growth potential > Technology and technology-enabled companies:IT, Internet, e-commerce, healthcare, energy > Investment range £1-20 million covering growth stage investments and ancillary stage venture capital programme > Authorised and regulated by the Financial Conduct Authority
  18. 18. Our credentials > 30 partners and staff > Very successful track record across 150 investments > Named the UK’s top venture capital firm in 3 of the last 6 years > Investors in some of Europe’s most successful technology companies > Blue chip limited partner base – pension funds, insurance companies, banks, corporates, fund-of-funds, family offices
  19. 19. Some of our investors…
  20. 20. Scotland > Strong Scottish heritage with head office and substantial team based here > Investments in >50 Scottish companies to date > Behind some of Scotland’s biggest technology success stories: Wolfson; Atlantech; Craneware; MTEM; Indigo Vision > Current Scottish portfolio includes: Skyscanner; Sumerian; Aridhia; Deep Casing Tools; Daysoft; Green Highland; Cyberhawk; Smarter Grid Solutions and Aquamarine > Encouraging deal activity
  21. 21. Investment approach > We look for companies with strong differentiation and high growth potential, rather than investing in themes and trends > We are highly selective in the investments we make and have a strong focus on specific sectors where we understand key market drivers > We are closely engaged with portfolio companies > We are long term investors and usually exit at the same time as the entrepreneurs we provide capital to > SEP portfolio companies have aggregate revenues of £560m and c.3,800 employees
  22. 22. Portfolio companies TMT Energy Healthcare 22
  23. 23. Portfolio highlights > Skyscanner secures investment from Sequoia at $800m valuation > Aridhia in strategic partnership with Pivotal to create new tech platform for management of chronic diseases > Daysoft sells over 430m lenses and expands premises > Deep Casing Tools delivers100th tool > Cmed opens new offices in Boston and California > Anesco named in top 100 global cleantech firms > Numerous other industry awards
  24. 24. 17 Blythswood Square Glasgow G2 4AD T: +44 (0) 141 273 4000 F: +44 (0) 141 273 4001 29 St George Street London W1S 2FA T: +44 (0) 207 758 5900 F: +44 (0) 207 758 5901 Authorised and regulated by the Financial Conduct Authority