Patrick joined BGF in March 2012 and is based in Edinburgh. Patrick covers the central belt of Scotland and Northern Ireland, where he identifies and invests in growing businesses.
Patrick has 15 years’ investing and corporate finance experience leading investments into over 30 businesses. Prior to BGF, Patrick was Investment Director at Sigma Capital Group, where he focused on providing development capital into the general tech and clean tech sectors across the UK and Europe. In a number of cases, Patrick also joined the board of the companies. Patrick began his career at Deloitte & Touche, working in the financial services team as well as the corporate finance department specialising in SMEs.
Patrick has an honours degree in Law from Edinburgh University and is a qualified Chartered Accountant. He is married with two children and lives in Edinburgh.
“My role at BGF gives me a fantastic platform to meet and interact with a vast array of entrepreneurs and business people. It is immensely rewarding to have the opportunity to work with these individuals, and the wider management teams, to create further value in their businesses.”
- Braidwater (Board Director)
- Stevenswood (Board Director)
- Jumpstart (Board Director)
- Duncan and Todd (Board Director)
- AFG Media
- M Squared Lasers (Board Director)
- Campion Homes (Board Director)
- RiverRidge Recycling (Board Director)
FUNDING PRODUCT DEVELOPMENT
What is it that fast-growing businesses have that enables them to leap forward when so many companies are simply coasting? The answer, very often, is an unerring commitment to product development – both of the existing range and of new goods or services.
Take AFG Media, the company behind the Morphsuit phenomenon. After its three founders racked up £1m of sales in their first year, having launched the business in their spare time with just £3,000 of their own money, one might have expected the company to catch its breath. Not a bit of it – instead, AFG’s focus has been on developing its core product, the spandex all-in-one suits that have brightened up so many Halloween parties and stag-dos, while launching two new product lines.
“Once we were able to give up our day jobs, we became much more ambitious,” recalls Fraser Smeaton, one of the trio of founding directors at AFG. “We started to think about going after licensing deals with the Morphsuit product, as well as launching into the children’s market,” he says. “And we launched two new ventures – Foul Fashion, selling outlandish party shirts, and Royal & Awesome, which sells golfing trousers.”
Still, despite its stellar organic growth since that 2010 launch year – AFG’s sales hit £11m in 2012 – the business could never have pursued such an aggressive product development strategy without support from investors. “As we scaled up, we really started to think about equity finance,” says Smeaton. “Our cashflow was incredibly tight and while we were able to get limited trade loans, we were paying through the nose for them because the banks want to see that you have a backer with deep pockets and we didn’t have that.”
For AFG, the answer was growth capital, in the form of a £4.2m investment in the company from BGF, which completed in June 2012. BGF took a minority stake in the business, rather than buying its founders out, as other private equity firms might have wanted. And the company no longer had to beg for funding from the banks.
Duncan Macrae, an investment director in BGF’s Edinburgh office, who joined AFG’s board following the deal, says the company impressed from day one. “AFG had great management even though they were young – they had followed their convictions and committed themselves fully to maximising the potential of their idea,” he says. “But they really needed capital to pursue those licensing opportunities, which are huge but can require a financial commitment that might take two years to pay off, especially as they were also developing other product lines.”
Growth capital is ideal for growing companies concentrating on product development argues Macrae, because it gives them the time to bring the right offer to market. “If AFG had gone to the bank and asked for millions of pounds with no security to sit on the balance sheet so that they had the confidence to go after licenses, for example, we think that most debt providers would have laughed them out of the building,” he says.
However, says Smeaton, it wasn’t just money that attracted AFG to equity investment and BGF in particular. The company’s founders were acutely aware that while they had developed one smash-hit product, they had no experience of developing a business capable of repeating the trick. “We were three young guys who had previously worked in middle management and we had no idea about how to build a multi-national company,” he concedes.
To that end, BGF introduced AFG to Ralph Kugler, who joined the business as chairman. Kugler, whose career has included stints on the board at consumer giants Unilever and InterContinental Hotels, has provided AFG’s founders with the experience they so sorely lacked. “He is someone who the company would just never have met, let alone persuaded to join, without our introduction,” says Macrae.
The tie-up between AFG and BGF has already begun to pay off, Smeaton says. “We were already profitable but this money has given us a platform that has really set us on our next stage of growth.”
The company’s new brands are beginning to take off, it has appointed a developer to work on a new offering for the thousands of fancy dress shops that already stock its products and, in October, AFG announced its first licensing deal – within days, Power Rangers Morphsuits hit the streets (literally, since Facebookorganised flashmobs are one of the company’s most successful marketing tricks).
AFG’s product development and diversification strategy is one that is familiar to Graeme Malcolm, the chief executive of M Squared Lasers , another of BGF’s portfolio businesses. For Malcolm, who co-founded the high-tech business in Glasgow in 2005, has been on a similar growth trajectory.
By 2011, M Squared was already producing strong growth, with an impressive roster of science-focused blue-chip clients for its precision laser technology. “However, we were at an inflexion point,” says Malcolm “We knew our existing technology had a wide variety of different applications that could push it into new industry sectors, and we had also developed a new product using our lasers for remote sensing that would take us into a whole new market.”
However, the company needed capital to exploit those opportunities – partly to develop the infrastructure to support sales and marketing, particularly in export markets, but also to commercialise all its potential technology applications as quickly as possible. “It’s possible we could have chosen to go for further organic growth, but it would have been significantly slower,” says Malcolm. “In an emerging technology, you need to be one of the first movers in the market and we would have missed that opportunity.”
Duncan Macrae, who was also involved in BGF’s decision to invest in M Squared – the fund injected £3.85m of growth capital into the business in April 2012 – says the deal was recognised as the right way for the company to pursue its ambitions. “Would M Squared have got debt funding for their core product? Maybe, but cashflow lending is very limited and if you need to build a product to sell, rather than having the order upfront, you won’t get it,” he says.
“The business certainly wouldn’t have got funding for its products in development – you couldn’t finance that in any other way than with equity – so their growth potential would have been really limited.”
Malcolm shared that analysis, but he was also wary of investors that would have wanted to buy the company outright or take full control. Together with his co-founder at M Squared, Gareth Maker, he had launched a similar business in the mid-nineties which the pair eventually sold to a US technology company that subsequently reaped all the benefits of its growth. This time around, the BGF deal has worked out much better, Malcolm says. “The money has already had a substantial impact on our business,” he explains. “We’ve been able to scale up in order to really confront those technical and marketing challenges and we’ve already made inroads into those new sectors – we’re really excited about where we go from here.”
By James Hurley
“We haven’t got the ‘not invented here’ mindset,” says Richard North, founder of Midlands toy business Wow!Stuff. “Our attitude to innovation is ‘whoever, wherever’ – we don’t care who comes up with the idea, or where they are inthe world.”
Even on the side of a mountain in Vermont. This is no imaginary example – it’s the strange, isolated home of Jaimie Mantzel, an inventor that North is hoping will help him deliver a hit toy this Christmas.
Mantzel spent a decade flipping burgers, painstakingly saving up $22,000 to buy a remote piece of land that would be his escape from the rat race. Once he’d found a 20 acre plot on the side of a mountain, he designed and built an “off grid” three-storey dome structure from reclaimed materials to live in.
Deciding he wanted to build a workshop, he obtained a disused aircraft hanger and transported it up the mountain by foot, piece by piece and reassembled it. With a better way to carry materials to his new base clearly required, he started work on an off-road vehicle. Building a DIY 4×4 would be impressive enough, but Mantzel is a man who likes to put his imagination to work: he started creating a giant, 12 foot tall robotic spider from scrap aluminium that he could pilot.
Documenting his singular lifestyle and esoteric creations on a blog and, crucially, on YouTube brought Mantzel a global audience. The giant robot proved a particular source of fascination. One of those who followed Mantzel was a robot scientist working for Wow!Stuff and fascinated with the eccentric inventor, he told North.
As it turned out, Mantzel had already spotted the potential of toy versions of his giant arachnid – but had bad experiences with American toy giants. North and his team eventually convinced the reclusive creator that they could enjoy a fruitful relationship.
The result is Attacknid – a six-legged “battling machine” that North is convinced will be the number one boys’ toy this Christmas, with all of the UK’s major toy retailers having agreed to list it.
Wow!Stuff has a knack for coming up with toys that capture the imagination. Last Christmas, it sold 400,000 Air Swimmers, a giant inflatable radio controlled fish that ‘swims’ through the air. Another hit was My Keepon, an interactive robot that dances in time to music.
Its origin? YouTube again. Wow!Stuff workers spotted a video on the site starring a dancing robot designed by scientists to help therapists improve the social development of autistic children. When North watched the video, he saw the potential of the £20,000 device, which had been developed by US company BeatBots.
The lesson, North says, is that no amount of market research and analysis of trends can substitute simply recognising an inspired idea.
“You’ve got to back your hunches. Research won’t predict the next big thing. If you’re growing a business you can have a perception that all the ideas have to be generated internally. We’ve realised you have to look outside.”
The company – which has won a National Business Award for its approach to innovation – also uses the internet and social media to find new ideas and inventors, which North says can come from any industry and any location.
“You have to cast your net wide. The people we employ are people who share ideas freely and aren’t selfish – innovation has to be in everything we do, not just toys. There’s a world out there full of ideas, so it’s your job to capture that, not think, ‘we have all the ideas here’. It’s about being free and inclusive.”
If that makes the process of product development sound easy, North is at pains to point out that the pressure in his industry to innovate quickly and accurately can be “brutal”.
“When we started out I remember talking to people in the industry. Everyone had the same remark – it’s one of the hardest industries to do a start-up. Even the biggest toy companies, with millions to spend on development, research and focus groups say 50pc of their toys won’t work commercially. It’s like being a venture capitalist – you know a lot of what you do will fail. And the amount of start-up capital you have to invest upfront can kill you quickly if you get it wrong”.
With toys taking between two and three years to develop, the moment they’re presented to retailers is “nerve racking”, North says, with some understatement. He’s just back from toy fairs in the US and Hong Kong where he’s been doing just that. Unusually, all of the toys that Wow!Stuff presented received orders or interest.
“That never happens. It’s the best we’ve ever done. At the point of the first reveal, you’re hoping people get it. Sometimes you’ve just missed the trend, sometimes you’re too far ahead – predicting something that hasn’t arrived yet,” he says. “We saw a lot of companies doing toys that worked with mobile apps. They’re probably two years ahead of the consumer. Next year is when we think the timing will be right for that.”
When I tell North that the way he describes innovation makes his company sound like it is run by Tom Hanks’ character in the 1988 film Big, his response is telling: “I’ve never seen it but people keep saying that to me.”
In the film, a 12 year-old boy is granted his wish to be given an adult body. He gets a job in a toy firm and becomes an unwitting nemesis to an experienced product developer by rubbishing his ideas and coming up with much better ones of his own.
“The industry is like that – there are lots of clever people trying to justify their jobs by relying on research and numbers. The truth is, the answers are out there, not in you. The minute you start getting hierarchical is the time you lose your innovation. You need to think like a kid, be like a kid – before you were indoctrinated by life and educated in the supposed right and wrong ways of doing things.”
However there is no one single way to innovate; companies will invariably take different approaches to it as is evident within BGF’s own investment portfolio. The important common denominator is that innovation is high on the corporate agenda for them all.
At M Squared Lasers in Scotland, backed by BGF this year, thinking like a child is not on the agenda – they have to take a rather more structured approach to innovation. The company develops lasers for a huge array of industries, and for a wide range of applications – from advanced scientific research to sensing hydrocarbons in oil and gas production, sensing explosives and chemical warfare agents and computer chip manufacturing.
All of the industries that the company sells to demand both speed and accuracy – and constantly changing demands means M Squared needs to come up with new
products all the time.
“Our term is dependable innovation,” says the company’s chief executive, Dr Graeme Malcolm. “They’re novel processes but solving a real problem, so what we produce needs to be robust as well as quick. The customers don’t want flaky prototypes.”
In one sense, however, the approach M Squared takes to achieving that aim is strikingly similar to Richard North’s“whoever, wherever” philosophy. “We can sense chemical agents from hundreds of metres – that’s unique to us. What we’ve done to get that advantage is take a collaborative approach with supply chain partners and universities. Typically, our big publicly listed competitors take the ‘not invented here’ approach to life. We’re smaller and more agile, which gives us a bigger research and development group – because it’s not just us coming up with the ideas.”
Working with a multitude of partners is not a soft option, however. “You have to think harder about intellectual property this way,” Malcolm warns. Detailed agreements are made in advance so partners know where they stand on ownership if something commercially valuable is created. Working with academia as a small, fast growing company presents challenges of its own but Malcolm says it’s less of an issue than one might expect.
“We try to work with the most like-minded groups in universities – there are agile parts that are already working with industry. The rest, the more research-based academic parts, can be worked with for longer term projects,” he says. “We license a lot of technology from universities – that makes the relationship last longer because they’ll come back to you.”
For Malcolm, the hard part about innovation isn’t coming up with good ideas – it’s bringing them to market. “There’s often much more innovation involved in the process than in the original idea,” he says.
“Some of the things we’ve worked on have been groundbreaking. But 1,000 times more effort goes into rigorous engineering and developing a new market, and educating a new customer base. That’s the bit that’s underestimated – the light bulb moments can be obvious.”
To make sure innovative ideas quickly result in physical products, unlike many of its larger rivals, M Squared uses local manufacturing, via an advanced production facility in Glasgow. “The proximity between engineering and manufacturing is crucial when you’re doing it quickly. It’s an intimate process – and allows you to keep the skills you need to do the whole cycle from analysing a market to delivering a product. It’s difficult if you don’t have those close connections.”
Encouragingly, he thinks the principle could apply to less hi tech industries too – rising costs in emerging markets mean fashion companies increasingly see the speed and control benefits of coupling innovation with local manufacturing.
“I think that trend is something the UK is pulling through strongly on,” he says. “It makes the cycle of iteration much more rapid – so innovation can happen more rapidly. Many of the great innovations in recent years have had a number of iterations – the tighter the loop the better.”
But what about companies that aren’t involved in developing physical products? How do they approach innovation?
A care home isn’t something one immediately associates with innovation.
However, Graeme Lee, chairman of Springfield Healthcare Group, insists plenty of creativity has gone into turning a family business with sales of £400,000 into a £12m turnover company. He too is pioneering a new way of doing things in the domiciliary care market.
Unlike Wow!Stuff and M Squared Lasers, Lee’s innovation is focused on service and his business model rather than product design and production. Yet Lee’s emphasis of looking outside your own business for inspiration echoes the approaches of North and Malcolm.
In his role as chairman of a not for profit care association, he visited a multitude of care homes. A range of problems struck him – residents felt isolated in remote homes and frustrated by living on top of one another. “They wind each other up,” he says.
Worse, many have to cope with a change in circumstances – if a resident develops dementia, they’ll often have to move.
Lee’s solution is simple, but unconventional – a “care village” in the heart of a normal community just outside Leeds. Residents have separate units, and can move from complete independence to sophisticated care in one location. And they’re in the heart of real community life – the pub, the village shop, the post office.
“Say Mrs Smith comes in at 70 – we can deliver everything she needs for the next 25 years. Normally, if you’re in residential care and you get dementia you have to move. This is a home for life. And for us, we keep the patients longer so it’s a good business model, if we give people the right care at the right time.”
Echoing Malcolm’s point, for Lee, the hard part is in the delivery, not coming up with the original idea.
To bring the care village to life, Lee has had to convince both the NHS and local councils – hardly organisations known for embracing change – of the benefits of his approach. He’ll need their backing if he wants to expand the business, after all.
Just as North warns that bad timing can kill a good toy, Lee has picked a time of upheaval in the healthcare market to introduce a new model.
“GPs take control of healthcare budgets next year. They love what we are doing because they know that everything the patient needs is taken care of. For doctors, we’re ticking all the boxes.”
BGF liked the idea enough to invest and Lee is hoping to replicate it in other
When BGF backed North’s business, he says it focused the mind on what they were buying into – and ramped up the pressure to keep coming up with the bright ideas.
“As investors, their worry is, how do they know we’ve got the magic touch. You don’t know why it’s you that they’ve chosen; but then, why not us?”
The key to staying innovative for these growing companies is to keep looking outside their businesses for inspiration, hiring people who don’t care where the best ideas come from and remembering that being innovative doesn’t stop at simply coming up with neat product ideas. And of course, timing is everything.
WHAT IS INNOVATION?
If the Wall Street Journal is to be believed, innovation is the most overused word of 2012. It is often bandied about by consultants and PR executives, and companies can be just as guilty; heralding innovation when in truth what they have is simply a good product.
So what is real innovation? There are numerous definitions, and the experts can’t quite agree, but here are a few examples to consider:
- Inventing a product, technology or service that is genuinely new. Like the light bulb, wifi or Google.
- Revolutionising an existing product by changing the users’ behaviour while at the same time revolutionising the market. Apple’s iPhone anybody?
- Inventing a new process, delivery method or business model. Turning mainframe computers into personal ones or shifting video rental from stores, to post and then online.
- Creating a new market for a leftover or overlooked commodity, or extending a market for an existing product. Best Buy, the US electronics retailer is creating revenues from recycling so-called ‘e-waste’.
- One could always just go with the summary offered by the late Steve Jobs who knew a little about the subject: innovation is what “distinguishes between a leader and a follower”.
M Squared appoints Finance and Sales Directors
M Squared Lasers has announced two new director appointments as it looks to build on “a hugely successful” 2012.
David Vettese joins the Glasgow-based technology firm as sales director from Forth Dimensions Displays Ltd whilst Chartered accountant Alan Porter, who spent nine years with PwC, joins the company as finance director. More recently, Porter has worked with software manufacturers Graham Technology and Sword Ciboodle.
Dr Graeme Malcolm, managing director of M Squared Lasers, said:
“David and Alan join us at an exciting stage in the development of the business. That we were able to attract candidates of such a high calibre is testament to the success we have enjoyed in the last 12 months. David brings with him a fantastic record of success and a proven ability to develop international sales operations, which will be invaluable as we seek to grow our own sales team in the USA, Asia, and in particular, Europe.
“Alan is a hugely respected CA who has both in-house and advisory experience. Both his knowledge and commercial acumen precede him, and he will be a hugely successful addition to the team here in Glasgow.”
M Squared Lasers, a developer and manufacturer of next-generation lasers and photonic instruments for a range of sectors, was established in 2006 by business partners Graeme Malcolm and Gareth Maker. The company has recorded growth of more than 1,600 per cent over the past five years and was one of five Scottish firms to feature in the 2012 Deloitte Fast 50 list of the UK’s fastest growing technology firms.
In May 2012, BGF invested £3.85 million in M Squared to help it pursue high growth opportunities in the defence and medical industries for its Firefly laser product.
M Squared Lasers in Deloitte EMEA Fast 500
With a wider geographical scope than the UK Fast 50 the Deloitte EMEA Fast 500 ranks the fastest growing technology companies in Europe, Middle East and Africa. M Squared ranked in the top 100 at number 73 in the list.
M Squared Lasers enters UK high growth top ten
Every year Deloitte produces a ranking of the 50 fastest growing technology companies in the UK according to revenue growth over the last 5 years – the Fast 50 as it’s known.
In the first year of eligibility M Squared was ranked in the top ten in the UK and top in Scotland.