BGF supports Tech Track 100
The owners and directors of Britain’s fastest-growing private technology companies were recognised at the 14th annual Sunday Times Hiscox Tech Track 100 awards dinner in London in November 2014.
The Tech Track 100 league table ranks Britain’s 100 private tech, media and telecoms (TMT) companies with the fastest-growing sales over their latest three years, and is published in The Sunday Times. This year’s 100 companies have increased their combined sales by an average of 79% a year from £450m to £2.1bn, and together they employ 14,000 staff, having added more than 10,000 jobs over the period.
As a sponsor, BGF attended the dinner along with more than 240 guests, including founders and senior directors from tech companies including Skyscanner, SwiftKey, SecretSales.com, TransferWise, YPlan and Zopa.
The guests heard from Jay Bregman, co-founder and former chief executive of taxi hailing app Hailo, winner of last year’s Tech Track ‘Ones to Watch’; and Sir William Sargent, co-founder and chief executive of Framestore, the visual effects company that won an Oscar for its ground-breaking work on the space epic Gravity, and featured on the sister league table Profit Track 100 for fastest-growing profits.
Jay Bregman spoke about the huge potential of drones and robotics in all spheres of life but said their development should be self-regulated to protect privacy, an area that is the focus of his new business venture following his departure from Hailo in October. “In 10 years this room will be filled with robots of all kinds and the sight of robots will be as familiar as traffic in Trafalgar Square,” he told the guests.
Sir William Sargent gave an insight into the technology used in creating a film such as Gravity and spoke about the need for businesses to constantly adapt and stay fresh. “Every five years we are a different company to the one we were five years before”, he said. He warned the journey is not always smooth, particularly for the CEO. “Give yourself permission to take a break and to make mistakes,” he said.
Tech Track 100 award winners
The Tech Track 100 sponsors presented several individual awards for excellence in the following areas:
The Tech Track ‘Ones to Watch’ award was presented by Richard Phelps, managing director at Barclays Wealth and Investment Management, to co-founders Graeme Malcolm and Gareth Maker and director John Nicholls of M Squared Lasers. The company’s remote monitoring and measurement lasers are used by Philips, MIT and Harvard, and it plans to grow fivefold after securing £3.8m from Business Growth Fund (BGF) in 2012.
The Tech Track 100 award for social innovation, sponsored by Barclays, was presented by head of TMT Sean Duffy to group commercial director James Jean-Louis of Chargemaster. The firm has installed 30,000 charging points for electric cars across Europe, and is offering UK households free charging points, under a government-backed scheme.
The Tech Track 100 best management team award, sponsored by BDO, was presented by Julian Frost, national head of TMT, to co-founder Nick Hynes of mobile marketing firm Somo. In addition to leading their current venture, the co-founders have helped build and sell a number of firms, including The Search Works that featured on Tech Track 100 in the past and Overture, which was sold to Yahoo! for $1.6bn.
The Tech Track 100 outstanding achievement award, sponsored by BGF, was presented by chief executive Stephen Welton to co-founder Barry Smith of Skyscanner. The online flight search engine generated the highest profits on the league table of £23m, and was valued at half a billion pounds last year when Sequoia Capital acquired a minority stake.
The Tech Track 100 award for high-tech manufacturing, sponsored by The Sunday Times, was presented by deputy business editor Simon Duke to chief executive Paul Loeffen and chief financial officer Craig Tombling of Cobalt Light Systems. Its technology can identify liquids in a sealed container in seconds, and is now being trialed in 65 airports around the world to identify explosives.
The Tech Track 100 award for digital innovation, sponsored by Hiscox, was presented by Matthew Webb, head of technology & cyber, to chief financial officer Richard Gibson of Swiftkey. Its intelligent keyboard is available in 92 languages and was downloaded by 1 million iPhones in the first 24 hours after Apple opened up to third-party keyboard apps earlier this year.
The Tech Track 100 fastest-growing company award, also sponsored by Hiscox, was presented by Steve Langan to chief executive David Mercer and fellow directors of LMAX Exchange. The company has created an electronic trading platform for foreign exchange which it spun out of Betfair, and last year it handled orders worth more than $1trillion. Its revenues increased an average of 306% a year over three years to £18.4m in 2013.
As CEO of BGF, Stephen Welton is responsible for the management and strategic direction of the company. Since its launch in 2011 and under Stephen’s leadership, BGF has grown to become the most active provider of growth capital for small and mid-sized companies in the UK.
Prior to BGF, Stephen was one of the founding partners of the global private equity firm CCMP (formerly JP Morgan Partners), and Managing Director of Barclays Private Equity and Henderson Ventures, which he co-founded. In 2013 he was appointed as an Advisor to the UK government regarding the establishment of the British Business Bank. He has served as an independent director on a broad range of companies both in the UK and internationally during the past 25 years.
Stephen started his career in banking, has a law degree from Durham University and is a qualified Barrister-at-Law.
“BGF is operating at the very heart of the UK economy. We launched with the ambition to become a champion for British business, the most active provider of long-term capital and the first choice investor for ambitious entrepreneurs. I have no doubt that many of the great British companies of the future are already in our portfolio – and we have only just scratched the surface.”
FUNDING ALTERNATIVES FOR UK SMES: TIM BREEDON & STEPHEN WELTON IN CONVERSATION
Tim Breedon is the former CEO of Legal & General Group. He has served as Chairman of the Association of British Insurers, and a Director of both the Financial Reporting Council and the Investment Management Association. In 2011 he was asked to chair the UK government’s Non-Bank Lending Taskforce, an industry-led team that looked at the structural and behavioural barriers to the development of alternative debt markets in the UK. The “Breedon Report” was published in March 2012; Government and industry are currently seeking to enact many of its recommendations.
This conversation took place in April 2013.
Stephen: Your report last year looked at non-bank lending. Do you think there has been too much focus on the major banks?
Tim: The political and media focus had certainly been on banks, and possibly rightly so. But you are right; I thought it was important to take some heat out of what is still a very highly charged debate. First of all we tried to establish the nature and the scale of the problem we actually face. What is the shortfall in lending? Is this a problem of demand, or supply? And how is this problem likely to develop over time? I wanted to get beyond the blame game. The debate had become dominated by political rhetoric – and that undermines confidence, and then itself becomes part of the problem.
Stephen: I think it still is, but at least an alternative and more constructive debate about what we can be doing is now happening – albeit quietly – alongside.
Tim: Yes. It is certainly true that banks’ lending to SMEs has fallen … but it is also the case that demand for funding from businesses is down, and that is principally because of a lack of confidence in the broader economy and … a lack of ambition or drive from the companies themselves? It is well known that SMEs are currently net depositors with the banks. They are collectively sitting on records amounts of cash. But maybe – when the media and public policy agenda is dominated by austerity and bad news – it is rational to be risk averse. That doesn’t mean we shouldn’t be trying to change that. We need to provide the support, advice and confidence that businesses need to make them want to invest. Because not only are cash deposits at a record high, investment by small businesses is also at a near record low.
Stephen: Yes – history tells us very clearly that what is arguably a rational approach in a gloomy economic climate, is storing up trouble for tomorrow. Under-invested companies will suffer … and more than that they are simply missing so many fantastic opportunities to grow. Do you think much has changed since the Report was published?
Tim: I do. At a macro level I am actually quite positive about the economy, and SMEs in particular.
Stephen: I agree. It is very easy to paint a picture of doom and gloom – but we are seeing lots of growing and successful small businesses, strong pockets of growth and a new, emergent entrepreneurial spirit in the UK. We are also seeing a greater willingness to engage with different funding sources, and lots of product innovation from new entrants, as well as from the traditional banks.
Tim: The call for more competition is interesting. I don’t believe we simply need more banks. We don’t need lots more institutions processing payments, holding retail deposits etc. What we do need is more alternatives for SMEs looking for finance. That means more competitive and alternative products … and these don’t all need to be provided by fully fledged banks.
Stephen: You have also seen some progress on some of the specific recommendations you put forward. Not least the proposed Business Bank … of which I am very pleased to have been asked to sit on the Advisory Group charged with helping to establish it.
Tim: The Business Bank could be really important. It could make a real difference. In general I think we are beginning to see a more mature, more evidence-led debate. We have made some progress on advice, on supply-chain and invoice financing. And as you say we have, in the shape of the putative Business Bank, a new institution which could potentially take forward some of the ideas to encourage new institutional investment into UK SMEs.
Stephen: Support and advice is an interesting area. I am constantly surprised by the number of businesses that don’t have a strategic plan. They have an idea, they have a sense of what they want to or could achieve, but they don’t have a plan. It isn’t written down and they find it difficult to articulate. It can be hard to invest in that business!
Tim: That is why advice is so important. One of our recommendations was a Business Finance Advice Scheme. This has been enthusiastically picked up by the accountancy profession … small companies in particular need help and guidance in getting the best out of a more diversified and complex financing landscape.
Stephen: The Report talks about businesses needing to be “enabled to be better consumers of finance”. Advice is a big part of that. And companies need advisers to talk in a language they understand. Too often finance people talk down to companies. If you can’t understand something an adviser or investor is saying, either it’s not being explained properly or they don’t want you to understand it. And business owners won’t put up their hand and say: ‘I don’t understand’.
Tim: The other component of advice is simplicity … I think the proposed Business Bank has a real opportunity to play an important role here. It can also do a lot more besides. I am very interested in how it might aggregate SME loans and so enable and encourage some of the UK’s major financial institutions such as insurance companies and pension funds, to invest in SMEs.
Stephen: I hope so. There has long been talk about establishing a bond-market for UK SMEs. There are many issues, lots of challenges involved with getting this up and running … but I think the Business Bank could prove to be a real catalyst in this regard.
Tim: Absolutely. In the round, we definitely have the potential to see the emergence of a more diverse, vibrant environment for UK business; banks of course will remain very much at the core, but businesses of all sizes should be able to make an informed and rational choice, based on readily available advice, across a range of potential instruments and funding mechanisms.
Stephen: It is interesting that you say that businesses should be able to make informed choices. For SME businesses, decisions are ultimately made by one person – the CEO, founder and main shareholder – all in one.
Tim: True. These individuals are sometimes not as knowledgeable as they need to be. And sometimes they are not as tenacious as they need to be, or we might want them to be. For the Report we asked companies how many different options they looked at when they were seeking finance. The majority that took an idea to the bank – and had their request for funding turned down – didn’t then look anywhere else. They simply walked away. They gave up.
Stephen: Perhaps they didn’t know where else to go. Or they feared going anywhere else. There is a general lack of trust across financial services.
Tim: Our research also revealed that where companies did look beyond the traditional banks and products, especially overdrafts, there is an expectation that alternative funding sources will come with some element of grant or subsidy.
Stephen: Companies require different types of support and different forms of funding at different stages in their growth. If you better understand where you are on that trajectory, you will understand the risk and return and the opportunity you present to a potential funder, and then you will have a much clearer sense of who to look to for funding, and how to approach them.
Tim: I think this tells us a lot about the way in which our small businesses work and think. In recent years, for SMEs there has been a fixation on debt, and on bank debt and on overdraft facilities in particular. I can understand this; it was cheap and plentiful.
Stephen: We see this, a lot: companies that have grown by using and extending their overdraft facility. I think some entrepreneurs even began to use the size of their overdraft facility as a measure of their current success – and then as a signal for how confident they can or should be. “If the bank is confident enough in me to double the size of my overdraft, maybe I should be confident enough to use it”. Conversely today – when many of these companies have seen facilities reduced, sometimes halved – the entrepreneurs are reading a signal that says now is not the time to take any risks?
Of course the truth is that the overdraft was probably not the optimum way to finance their business then, and it certainly isn’t the best or only option to be looking at today.
Tim: Yes … the challenge we face is about demand as much as it is about supply … in fact much more so. Why aren’t companies investing? It is a lack of confidence. We need to encourage businesses to want to invest. And we are not doing that. In fact there is a sort of indirect discouragement … a belief that the bank are likely to say no, and that simply asking the banks for anything at the moment is not a good thing to be doing. That needs to be reversed.
Stephen: The crisis here is not really a lack of capital. It is one of missed opportunities. Of companies deselecting themselves.
Tim: Government can play a role here too. Maybe through the Business Bank, maybe something else. But it does need to be something that sounds positive … that sounds friendly and that encourages companies to be confident themselves.
Stephen: Whatever it is also needs to be properly promoted. My sense is that a lot of good initiatives have underperformed not because they were poor ideas or poor policy, but because business owners didn’t know about them. Promoting new products, and building new brands takes time and takes resources … but it needs to be done.
Tim: I have always believed that government can play a role, and that well targeted interventions can help.
Stephen: Your report also considered the practical steps that big business can take in procurement and prompt payment to support UK SMEs. Do you see progress here?
Tim: I want SMEs to consider funding as part of their supply chain. They need to manage the way money flows “down” to them from the banks, from investors, and from customers, just as efficiently as they manage the flow of materials and products from other suppliers. We need to apply the science and the partnerships of supply-chain management to the way we finance companies. We’ve just been talking about how many small companies rely on their overdraft to absorb the impact of short term fluctuations in sales. If we could free up some of that headroom, not only would it release immediate capital, it would also increase their propensity to invest. Prompt, certain payment and greater use of supply chain financing could make a huge difference. The Government are working hard to get larger companies to sign up to a prompt payment code. I hope more can be done in this area.
Stephen: There is a lot going on, and my sense is that there is a new, and real, focus on small and mid-sized companies.
Tim: I’m optimistic and enthusiastic. Things are changing. The economy is not as bleak as some people want to paint it, and it is already evident that small companies have a greater range of funding sources than ever before. BGF is a very good example of just that, and I am hugely encouraged by what you are doing.
Stephen: Thank you. We are certainly positive. It is really important that we present the different routes open to SMEs, so there is real choice and higher awareness of what options exist. Equity investors, like BGF, need to work hard to explain what they offer and to earn the trust of business. And businesses themselves need to put aside some of their preconceptions, even misconceptions, about equity and other non-bank finance and have the confidence to plan for growth with an informed and open mind. We need more collaboration and co-operation. That will generate greater confidence. And, as you say, it all starts from there.
GIVE EQUITY FINANCE A CHANCE
I have never met an entrepreneur who willingly wants to give away a part of the business that they have built. That’s hardly a big surprise.
But I have also never met a successful entrepreneur that doesn’t want their business to be more successful; whether that means bigger, more profitable, able to employ more people or simply having their products in the hands of more customers.
For me that ambition is, and should be, the very essence of entrepreneurship. Yet it is becoming an increasingly rare quality. In the past two years as CEO of BGF, and over a career of investing in a wide variety of businesses, I have heard plenty of reasons not to act. Why take on all the risk and uncertainly of developing your business to the next level, to make it more competitive and productive, when it is easier to sell out and reap the rewards? Why try to struggle against austerity, the Eurozone crisis, the next big problem? It all sounds too difficult. But if you are not careful inertia can rapidly become a permanent way of life.
Yes it is true that credit is a factor. But let’s face it, for too long all of us, including business, have subsisted on a diet that is excessively rich in debt. Equally, it is fair to say that overdraft facilities – a seemingly easy and accessible route to credit – are less reliable because they are not committed. But this shouldn’t present an insuperable barrier to growth; it shouldn’t mean ticking over or prematurely selling up; and it certainly shouldn’t deter entrepreneurs from being able to develop promising businesses.
One of the first questions that I ask an entrepreneur is whether they have really accomplished all that that they hoped for when they started their business.
Today they may be achieving strong and stable revenues, providing employment and enjoying a prominent position in their local market. They may have an excellent product or service to offer and a strong customer base. And by anyone’s standards they have done very well.
But why just stop there? What could a robust, properly financed business plan achieve over the next three, five or ten years? Could the business double its workforce or treble turnover? Could it expand out of its home region through organic or acquisitive growth and develop a national or international footprint? Could it develop its supply chain, launch new products and increase exports to new overseas markets?
These can be more than mere aspirations. Growth comes in many different forms and so does the means to fund it. It doesn’t always need to be debt alone. For many businesses equity finance is an option that should be seriously considered.
Growth capital investors, like BGF, buy a minority stake in a business at a fair price. They take a calculated risk on its future and they gain from shared success with management. Theirs is a vote of confidence in an entrepreneur’s ability to build a stronger, more valuable business.
However despite all that it offers, it is a fact that a very limited amount of growth capital is currently being channeled into UK SMEs – just tens of millions of pounds. When you consider the possible universe of good businesses seeking finance to support growth, you cannot fail to recognise a missed opportunity.
Certainly it is something that we at BGF are seeking to tackle with up to £2.5 billion of growth capital available for small and medium-sized businesses with ambition to invest.
But I believe that some of the issues holding the industry back are more systemic . We need fundamental cultural change.
Aspiration and ambition is critical to growth. We should make no apology for it, and we need to create a culture where it is applauded and properly supported.
The financial services market as a whole has a role to play in presenting and articulating the different routes open to SMEs, so there is real choice and higher awareness of what each option provides. Providers of equity finance, like BGF, need to work hard to define what they offer and to earn the trust of businesses they seek to support. Equity investors need to to be open and transparent; and to be seen and act as real partners.
And lastly, businesses need to put aside some of their preconceptions, evenmisconceptions, about equity finance and have the confidence to plan for growth with an informed and open mind. With more collaboration and co-operation, we will generate greater confidence. It all starts from there.
Stephen Welton Talks
Transcript goes here…