Andy Gregory of BGF
BGF
Each January, a slew of emails arrive in my inbox providing statistics, evaluation and touch upon VC funding into Britain’s startups and early-stage companies. For these with an curiosity within the well being and prospects of the U.Ok. innovation financial system, the varied experiences normally make for heartening if considerably predictable studying. Frankly, we’ve all grow to be used to the truth that fairness funding – even within the face of Brexit and Covid – stays on an upward development.
Witness the most recent figures from London & Partners and Dealroom.co. In keeping with the information, London is at the moment the world’s fourth most tasty funding hub, having attracted $25.5 billion in VC money in 2021.
With a lot capital accessible, it could be straightforward to imagine that for startups and comparatively early-stage firms, probably the most pure factor on the planet is to exit into the market and lift as a lot money as is humanly attainable from prepared VCs. However there may be maybe one other facet to the story. Not all entrepreneurs welcome the prospect of dilution and nor are they all the time desperately eager on committing themselves to an exit that aligns with the expectations and timelines of enterprise capitalists. Consequently, they could be reluctant to hunt fairness finance, even when it could assist them to develop extra shortly.
It is also essential to notice that whereas VC funding throughout the entire of Britain continues to rise, London nonetheless attracts the lion’s share.
In opposition to that backdrop, BGF (Enterprise Progress Fund) has sought to fill a spot within the SME finance ecosystem.
Based eleven years in the past, BGF prides itself on being an SME-friendly investor. In offering affected person capital to assist long-term tasks, it usually takes a minority stake within the companies it backs. It has additionally gone out of its solution to be accessible, having made a degree of opening places of work throughout the U.Ok. relatively than specializing in just a few established entrepreneurial hubs. Final yr it invested a document £600 million, up 55 % from the yr earlier than.
As Chief Funding Officer, Andy Gregory explains, from the outset, BGF sought to be engaging to SME house owners who may in any other case have been reluctant to cede any diploma of possession in return for fundingl. “We got down to be a minority investor,” he says. “As such, we’re a junior companion. We thought that may make us a extra engaging supply of capital.”
As issues stand, BGF it has sixteen places of work throughout the U.Ok. and Eire, permitting it to construct relationships with potential investees and companions resembling consultants, finance brokers and banks on a region-by-region foundation. “We discover that having a presence on the bottom is totally essential to the work we do,” says Gregory.
A Query Of Belief
Whereas BGF makes investments on the belief that entrepreneurs will in the end work in direction of some sort of exit, Gregory says there isn’t any brief time period stress. Founders can work to their very own timelines and money in when the time is correct for them. Underpinned by this philosophy, the agency has positioned itself as a supply of affected person capital. An investor that may give its portfolio firms time to develop their merchandise.
All this sounds extremely benevolent – minority stake funding with no stress for an exit – however how does it work in apply? In any case, BGF is in the end in search of to safe returns for its shareholders and that in the end requires a degree when all events can promote up and transfer on.
Gregory says BGF invests off its personal steadiness sheets and isn’t topic to the fund cycle that dictates the practices of many VCs. This implies its timelines are extra versatile. Nonetheless, he acknowledges that exit stays the endgame. “As a minority shareholder, we are able to’t power an exit. Nonetheless, we’ve got to consider the entrepreneurs we work with do wish to exit sooner or later.”
So a specific amount of belief is required and Gregory says a number of effort goes into constructing a relationship with founders earlier than investments are made. Put up funding, it gives value-add assist to assist its firms develop. It is going to, for instance, assist with the appointment of non sexceutive administrators by a nationwide expertise community.
BGF logged 30 exits final yr. Some occurred after holding shares for a comparatively brief time, others have been long term. We had an exit with an funding we made in 2012,” says Gregory.”It was regarded as the correct time to exit.”
A Completely different Mindset
Gregory says BGF’s strategy to funding has been profitable in serving to a broad vary of companies to succeed. However does its strategy – characterised by minority stakes and long-term capital – enchantment to sure sectors?
Gregory stresses that BGF is a generalist investor, however lately it has been placing an rising quantity of emphasis on two sectors the place the supply of affected person capital aligns neatly with the realities of growing and bringing merchandise to market over protracted intervals of time – particularly cleantech and life sciences.
In opposition to the backdrop of Covid-19 and COP26, each sectors are scorching in the mean time. That may change – developments within the innovation financial system come and go – however Gregory doesn’t assume so. “There’s a enormous demand for innovation,” he says. “We’re taking a really long-term view of each cleantech and life sciences “
He additionally sees an actual alignment between BGF and cleantech entrepreneurs, particularly. “We’re a purpose-mission pushed investor. The identical tends to be true of cleantech entrepreneurs,” he says.
BGF has established itself as a big investor within the UK areas and it’s had notable successes. Having initially invested £3 million in meal supply firm Gousto, with observe on rounds taking the whole to £26 million, it has seen the corporate attain the coveted $1 billion unicorn standing.
Because the U.Ok.finance ecosystem develops, it stays to be seen whether or not fairness finance shall be accessible to an ever widening pool of SMEs. Within the present market, BGF sees a spot that also needs to be stuffed.