GB Investments talks tech, Brexit, entrepreneurialism and rolling your sleeves up with Deepbridge Capital
GB Investments caught up with Deepbridge Capital to talk about the future of life sciences, how Brexit will change the EIS landscape, and the exciting opportunities ahead.
Deepbridge invests in companies in two specific areas – technology and life sciences – what excites you about them?
‘Technology is a very broad term and I think people can get confused about different kinds of tech, says Deepbridge Managing Partner Ian Warwick.
‘The key thing is that you focus in on sectors where you feel you can contribute. If I don’t feel that the expertise at Deepbridge has something to contribute, then we won’t invest.’
He adds: ‘Ultimately, it’s about getting a reasonable return on investments and that the company meets your specified investment criteria. I know everyone gets excited about the huge listings that we see for multiple-billion dollars, but they are few and far between – although it’s great if you get one. It’s about focusing in on disruptive technologies that you can develop and exit.’
Dr Savvas Neophytou, Partner and Head of Life Sciences, said each sub-sector has its own attributes.
‘Life sciences is also broad, and you have to put it into sub-sectors in order to describe the attributes of each one, in terms of investment opportunities,’ he says.
‘In general terms, about 10% of GDP is spent on healthcare – it’s much more in the US, up towards 20%. Certainly, if you have disruptive technologies coming and taking part in that, it’s very easy to see how you could potentially make some good returns.’
Where does Deepbridge find its investor companies?
Constant scouting and having investments lined up is key to a successful business, according to Neophytou.
‘What makes a good investment house is having that proprietary pipeline. Now we have built a pipeline and a lot of investment opportunities come and find us. We get about a thousand opportunities within any given year. So, for example, we’ll get warm recommendations from people we’ve already worked with and been successful with,’ he says.
‘We’ve broadened our reach – we have a network ‘scouting’ for opportunities not just here but in the US, in Australia, Poland, Germany, for example.’
For Warwick, the type of relationship that Deepbridge has with the company shouldn’t matter.
‘When we talk about deal-flow, we should remain agnostic in terms of relationships, in that we don’t want to be tied, or take a deal, from a particular institution because they feel we should, and we feel obliged to,’ he says.
What are the key criteria you look for in investee companies?
It isn’t just the technology of life science opportunity that is attractive; the structure and support around it also has to attract Deepbridge.
‘One of the first things we look at is the management team, are they knowledgeable and strong?’ says Neophytou.
‘We also look at the areas that they are focusing on, which need to be scalable opportunities. Intellectual property (IP) is also important – it could be existing IP that can be spun out of academia…or IP we think the company can generate. The product or service the company is working on needs to be about providing a solution to an existing problem or disrupting an existing marketplace.’
Warwick says there must be ‘a degree of commercial reality in terms of what you’re trying to achieve’.
‘Ultimately, we’re about generating returns on investment, so we wouldn’t get involved with a service for a parochial area or region, or a medical area which only has 1,000 people who suffer from that problem. We have to leave that to others. The global scalability and the potential to move into multiple vertical markets will drive a more significant valuation ultimately,’ he says.
And what do you think Deepbridge offers that other EIS investment managers don’t?
‘We recognise that for a lot of companies, with the stage they’re at, it’s not just about receiving the funding,’ says Warwick.
‘I think what drives a lot of companies to Deepbridge is that we are actively involved in assisting them in building their businesses. They value the fact that we are a team of experts which can provide the help to leverage their businesses. If you just put the money in, you’ve got a reasonable chance you’re going to lose your money.’
Neophytou says Deepbridge can provide ‘hands-on, operational experience’ and that is what young businesses need.
‘They know that they have our support and we help them overcome many problems they may have. We have open communication with all our companies. We operate in terms of the three P’s in terms of communication – they tell us what progress they’ve made, what problems they have, and the plans in place,’ says Neophytou.
Warwick highlights a company called SurveyMe – which was recently rebranded to Afin Technologies – as a good example of the asset manager’s investments.
‘I sit on the Board because it’s a technology I understand and was involved in prior to Deepbridge,’ says Warwick.
‘I recognised it was a product that could probably get more traction by going to the US marketplace, so we worked together to develop a US subsidiary. They now have an operational base in California because a lot of their clients are in that area. That business has got some good traction, in particular with the US cinema business, but we did initially struggle to monetise it as we wanted.’
He adds that is was a case of ‘rolling our sleeves up with the management – on one occasion I was requested to help so literally went to Manchester Airport and flew out’.
‘And in two days of constant working with the management we agreed a plan of action to pivot the company to the US coupon industry and that’s been very successful‘, he says.
‘We were able to bring that skillset into play and help pivot that company. A passive investment manager would likely have missed that opportunity and not been able to assist the company.’
What are the key attributes that you look for, or that you think make, a good entrepreneur?
Experience, diligence, the ability to adapt, and natural instinct for entrepreneurialism are all key for making a business work.
Warwick says: ‘I like to see business founders who have experienced success during their career, who are diligent, who are willing to go the extra mile and put everything on the line to achieve what they want to achieve. You can’t educate someone to be an entrepreneur; you’re either an entrepreneur or you’re not.’
Neophytou adds: ‘Early-stage businesses don’t move in a straight line, so you need the team to have adaptive intelligence. So, for example, it can be very difficult to move from academia to a commercial set-up – again, this could be where a hands-on manager such as ourselves is imperative.’
And what about your thoughts on the UK EIS market in general?
The Patient Capital Review was a huge shake-up of the EIS industry and Warwick is wholly behind the changes.
‘The rule changes that were made following the Patient Capital Review were significant and something we’d advocated,’ he says.
‘We completely buy in to the concept that a pound invested is a pound at risk, and that there should be a focus on ‘knowledge intensive’ companies. Without necessarily wishing to be, we’ve been thrust to the forefront of the market, with our focus having always been on the inherently knowledge intensive tech and life sciences sectors.’
He says that well-managed EIS are an ‘exceptional product’.
‘Indeed, the EU’s review of such schemes around the globe, in 2017, was that of the top four tax-efficient products on the planet, three of them were VCT, EIS and SEIS, which is quite remarkable for a country our size,’ says Warwick.
‘There’s a dynamic environment in the UK which has been created over the past 20 years. There are incubators in every town in the UK, almost every university has a commercialisation department. We are seeing a greater interest in overseas companies coming to this country because of the access to funding.’
And finally, what about the future, post-Brexit?
Warwick says it looks like the UK is leaving the EU and ‘there’s nothing I can do about that!’
‘The government will have to find ways of filling the gaps left by the funding which has traditionally come from the EU,’ he says.
‘They won’t necessarily want to find that out of their own pockets so they will continue to provide incentives for individuals to provide funding for the kind of businesses we invest in – EIS and SEIS will continue to be increasingly important and relevant.’
Neophytou says there are going to be changes that investors need to look out for.
‘We need to be aware that there are going to be some structural changes that are going to take place and one area we don’t know about yet is what will happen to funding at universities? Is that going to slow down? These are relevant but we are confident as a business that we can find the IP, that we can find those innovators starting businesses wherever they might be,’ he says.