Talking to GBI Magazine, Paul Munn, Managing Partner at Par Equity, highlights how his team have managed to deliver successive years of growth for investors in a time of economic uncertainty by offering innovative investment solutions.
Par Equity are an early-stage venture capital firm based in Edinburgh that backs innovative high growth technology companies in the North of the UK. The VC firm utilises a hybrid investment model that combines discretionary managed funds with the expert knowledge and reliability of their ‘Par Investor Network’.
Paul discusses how his team fuses expert knowledge with a focus on an untapped northern market to allow Par Equity to navigate the economic downturn and optimise returns for investors at a time when many are struggling to get off the ground.
Paul also highlights how Par Equity’s ‘Knowledge Intensive Fund’ has been launched as a way to adhere to the company’s own investment philosophy as well as provide more certainty around tax year end investment for investors and, advisors.
GBI Magazine: What do you put Par Equity’s successive years of positive growth down to?
Paul Munn: “First and foremost, it’s about being in a great place with a lot of opportunity. We are an EIS investor in the north of the UK – Scotland, Northern Ireland and then in the north of England, Newcastle through Leeds, Sheffield, Manchester to Liverpool. All these areas are within easy reach for us as we are based in Edinburgh, and it is a high touch model when you’re working in the early-stage company space.
“There are some fantastic businesses in the north of the UK. What people don’t necessarily realise is that the economic zone that I’ve just described is the eighth largest country in Europe, if it was a country in its own right, so it’s a massive opportunity and massive space.
“There are some very, very high-quality research institutes and universities. There are 16 universities in the UK that are deemed as world class in research and development, but eight of those are in the north of the UK so they’re a fantastic source of spinouts and technologies. At the heart of that we are starting with 14 years of track record that attracts both investee companies to us as an investor of choice but also, we attract capital from investors. That’s been another feature of our growth.
“What we’ve been doing is recycling exit proceeds from successful businesses that we’ve been invested in, and we see that money coming back into Par Equity from our investors who are very pleased with the outcome. That’s seen us grow overall almost three times in terms of the money deployed over the last two or three years.”
GBI Magazine: Why have Par Equity chosen to focus on the north of the UK and what benefits has it given?
Paul Munn: “I think it’s important to recognise that investing in these early-stage companies is a high touch market, it is a local and regional base where you need to involve the network. You want to know the companies that are coming through. You want to be close to them in terms of giving them support and help and then ecosystem begins to feed off itself so there’s cross-fertilisation between companies and investors.
“It’s about capital as well. Our focus in the north and the advantage it gives us is that we are one of the few players who are focussed on that region. Something like 85% of the VCs in the UK are London based and for whatever reason they’re not particularly minded to travel.
“What we have is a very target rich environment here where we are well known. There are also scale ups here. The ecosystem has developed over the last few years and there are 50% more identified scale ups in the north of the UK than there are in London. So that gives you a mismatch between the available capital where the VCs are and where the opportunities are. What that gives us is something that we can focus on and build on our own presence, reputation, network and reach.”
GBI Magazine: What is the knowledge intensive fund and why was it launched?
Paul Munn: “Par Equity has run its EIS fund for several years alongside our Par Investor Network which is made up of about 220 high-net-worth and sophisticated investors. What we’ve found and what we’ve been listening to is the market demand for a knowledge intensive fund. So, we’ve just launched the fund which will co-invest alongside the existing evergreen EIS fund.
“They are based on the same strategies and are targeting much the same companies. Par is really an investor that is focussed on deep tech, IP rich opportunities that fit the definition of knowledge intensive from HMRC. It’s a fund category that fits our investment philosophy and it’s really driven by convenience. What we hear from investors and from IFAs is that they want the certainty when it comes to tax planning. That’s the key to the knowledge intensive scheme. By investing there, people have greater certainty of outcome, and we can manage our investment process in a much more structured way.
“What we did in the past was try and produce opportunities and manage them to an end of tax year deadline. We’ve done that successfully, but it is quite labour intensive and not ideal, necessarily, from the investee company’s point of view. Having the Knowledge Intensive Fund works well here and also gives the investors and the IFAs what they want, which is access to the best opportunities at a time that suits them – with certainty around the tax position.”
GBI Magazine: What has been the impact of the general economic downturn on Par Equity and its portfolio companies?
Paul Munn: “I’m pleased to say that it’s been minimal – from the investee’s point of view, the two areas they would point to is access to talent and supply chain issues. When you’re trying to grow a small business and an early-stage business, people and product are the main things that you focus on. We’ve certainly seen hardware-based companies experiencing issues with components and shipping delays driven by the economic downturn and the war in the east.
“From a Par point of view, we are sitting in high demand, IP rich companies where the pricing of those really hasn’t seen any impact. There is still the demand from the clients and from trade buyers and investors to access that technology. It has not been reflected in some of the scare stories that you’ve seen from the large tech companies, which are largely consumer focussed, such as Netflix. We are not in that market and to some extent we are insulated from that economic downturn. In fact, in some ways we’re helping address the issues by producing better ‘go to market’ strategies with faster and cheaper products, which is what people are looking to invest in.”