Neil Martin Talks to Nigel Verdon, Partner at financial technology investor Orange Growth Capital, about a youthful life’s work on the cutting edge of the growth-company sector.
( Please note: in the UK, OGC investments are available to institutional investors only)
Serial entrepreneur and professional investor Nigel Verdon, who founded online platform Currency Cloud, has very firm plans regarding his retirement, which might surprise you. But more on that later. Suffice it to say he is a big fan of EIS and SEIS – not to mention a similar scheme established by London’s Mayor Boris Johnson.
Verdon, who recently became a partner at FinTech specialist fund Orange Growth Capital, is adamant that both EIS and SEIS have revolutionised early stage investing. “The fact is,” he says, “the UK Government gives amazing tax breaks to early stage investors and entrepreneurs.”
“And there are two angles here. Firstly, there’s the investor angle. It’s where I put money into a company – and with SEIS I can get 50% tax relief on my income tax, and if I hold onto it for three years and sell, I pay zero capital gains. That’s an amazing deal, and essential for early stage risk, that the Government is underwriting.”
However, Verdon doesn’t believe it’s always such a great deal for the entrepreneur, because there are numerous restrictions in place to make it a less easy process. “It’s not necessarily so good for the entrepreneur, or for the founders, because of the holdings they are allowed to have, and the issues over directorships and control. These problems can be got around, by structuring things appropriately, but it is just a bit of a pain for the entrepreneur. It’s still good for these people, of course, but I see EIS as more investor-friendly.”
The Upfront Tax Advantage
On the plus side for the entrepreneur, Verdon explains: “For the entrepreneur though, the first £10m of capital gains is only taxed at ten per cent, that’s an incredible thing for the founder of a company.”
Verdon congratulates politicians who back the scheme: “The UK Government has done a great job in stimulating early stage investment,” he says, “and to be honest, they have taken a lot of risk of it. The tax reliefs mean that they have effectively underwritten it. So the option for investors is this: do I pay the Government this tax, or do I put up a bit of my money and use the money I would have paid the Government to invest in something?”
Asked how far the scheme reaches in terms of its impact, or in terms of encouraging more investors to be more adventurous and braver, Verdon believes not. “No, it’s encouraged more angel investors than professional investors. It has very much stimulated angel investing, which is where there used to be an issue in the UK market.”
“EIS is there to get people off the ground. To give companies a great start. Whereas for investment professionals like ourselves, who have totally different tax structures, it’s not so interesting. We represent the next stage, the ones who come after the angel investors.”
Verdon is also complimentary about the efforts of the London Mayor to stimulate the start-up scene in London. “Boris Johnson has helped seed and angel investors by matching their money one-for-one in London. And the UK Government, for all that people criticise it, has really got behind the early stage growth opportunities. This is why there is such a buzz in London, what with Silicon Roundabout and the FinTech scene.”
A Long Short Career
Verdon, aged only 48, describes himself as an entrepreneur turned banker, who turned entrepreneur once again before becoming a professional investor. It was at the start of this year that he joined Orange as a partner.
The fund was founded in 2013 and currently consists of eight professional and 25 industry advisers who operate from offices in London and Amsterdam. The investment portfolio currently includes Zopa, Moni, BUX, Knip and Komparu.
“We’re a specialist fund,” he says, “and we’re not like many of our competitors who do a little FinTech in the portfolio. For one thing, we’re a total specialist which aims to generate a higher return over the ten year cycle of the fund. Mostly, specialist funds tend to outperform generalists funds. And for another thing, the Orange team are all from the banking or advisory worlds. We have all worked in finance for all of our careers.”
Having started his own career as a systems engineer, Verdon worked at Nomura and Swiss Bank Corp before co-founding Evolution Consulting Group. That business, like Accenture, advised leading investment banks on financial technology. Clients included Goldman Sachs, Morgan Stanley, Merrill Lynch and UBS. He sold this firm to a company listed on the FTSE250.
After that he moved to Dresdner Kleinwort Investment Bank as Equities Global Business Development Director. He then advised Dresdner Kleinwort, as a consultant, on the restructuring of the firm’s cross product electronic trading business within the Capital Markets division (equities, rates, FX, credit, listed futures/options and prime broking).
An Entrepreneurial Marathon
Next came a stint at a new venture Verdon had formed called RabbitFX – a foreign exchange and international payments specialist for private clients offering online currency and payments. RabbitFX was eventually sold to Infinity International in 2013.
Meanwhile, Verdon had also established Currency Cloud, which he formed in 2007 and then built up from scratch – hiring a core team around him and building out the management as the company grew. He organised a number of financing rounds from 2008 to 2011, and eventually hired a CEO in early 2012 to take over the reins. Verdon still remains on the Board as non-executive Chairman.
Although, of course, tax relief was always an essential part of the entrepreneurial story, Verdon is clear that it was who he knew that proved crucial in establishing a financial business, especially at Currency Cloud.
“That was a crucial part of building Currency Cloud. I could get trading lines quite easily, simply because of my reputation and contacts – and it’s the same now in my role as an investor in FinTech firms. I can help open doors to people because I’ve known them for many, many years – and that is half the battle when you’re trying to get early traction.
“It also helps to be known by the regulator, and others, so that you really understand that things don’t take two months in regulator timescales, they take nine months.”
Currently, as well as Partner of Orange, Verdon is an advisor to the Dutch based financial App BUX which has pioneered the gamification of financial markets. He is a non-executive of LCJ Investments, a specialist foreign exchange options hedge fund which is number two in the world in terms of its own asset options and asset class.
The inevitable question for Verdon has to be whether he prefers the thrill and excitement of being an entrepreneur, or the more sage-like stance adopted by the professional investor?
“When I was younger, I preferred the rough and tumble,” he says, “but it does take a lot out of you, it’s a different type of stress from, say, a big company, which can also be tough. But I prefer now to leave it to the guys in their 20s and 30s who have got the ambition, and the drive and energy, and are so much more current with technology and what’s possible nowadays.”
“So it’s best to invest and support them, and give the guidance of what I’ve learnt over the years; let them be successful. Because, if they’re successful, I’m successful.”
And the Future?
Despite Verdon’s undoubted success in the corporate world, when it comes to what he might have wanted to do instead of the financial sector, he reveals an insight at what might have been: “So when I retire, I’ll become a professional guitar maker. If you look at Paul Reed Smith (a master luthier based in the US), that’s the sort of career I’d like to have gone into.”
He explains that he’s taught his daughters to play the guitar, and that he builds the instruments as a hobby. So let’s hear it for Verdon, the aspiring guitar manufacturer and oh yes, something in the financial sector. What’s the betting that if he creates a company making guitars, he’ll make sure his company qualifies for EIS tax relief?