Par Equity is a leading EIS technology investor focused on the North of the UK, but with a unique business model. It brings together its EIS Fund’s invested money with additional funding from its network of business angels. Par Equity harnesses the expertise, industry knowledge and network of contacts of these business angels to turbo-charge its investments.
IFA Magazine spoke to Par Equity Partner Andrew Noble, hot on the heels of their most recent exit, Symphonic Software, which delivered a blended return of 8.3x money to EIS Fund investors across two rounds.
Noble started with a quick review of Par Equity’s year. ‘In February, as the pandemic unfolded, there was naturally some uncertainty. But by April it was clear that we were well placed. With a large position in enterprise tech, health tech, and industrial tech, there was, ‘a nimbleness across our portfolio to adapt and take advantage of new opportunities, our outlook was very positive.’
The global pandemic accelerated the digitisation journey for most large enterprises. Noble explained the impact this had on Par Equity, ‘across most of our portfolio we’re seeing accelerated sales cycles, and increased acquisition interest.’
In the quarter to end of September, the average revenues for the companies in the Par EIS Fund increased by 77%. In the same period Par Equity received 8 unsolicited acquisition requests, with 3 more by the middle of October. Symphonic Software itself was sold to a US listed acquirer within a rapid 37 day period, from Letter of Intent to exit on 31 October, Halloween. At 8.3x money it was certainly a treat for investors.
One of the attractions of Par Equity is the breadth of fire power it can provide its portfolio companies. Noble explained, ’Our EIS Fund drives our investment activity, but we also have three further sources of capital to support our companies as they grow.’ As well as the EIS Fund, Par Equity also have a network of professional investors, who invest alongside the fund, on identical terms.
Then there is the Scottish Investment Bank, with whom Par Equity is a tier 1 co-investment partner, and then earlier this year, Par Equity became a partner of British Business Investments, for its Regional Angel Programme, focusing on investments in Scotland, Northern Ireland and the North of England.’
However, Noble credits Par Equity’s success to its underlying investment thesis, ‘There is far more to technology investing than the money. Young companies need the right advice and support at every level. That is where our investor network is so vitally important.’
Par Equity’s investor network comprises of 200 business angels, many of whom want to get involved and help out. Par Equity tries to maximise this interest and expertise as early in the investment cycle as possible. Noble explained, ‘Our best deal flow often comes through this network and we then pull in those with the right expertise to provide supplementary due diligence on these opportunities.’
Noble continued, ‘When we invest, we may invite those with the right industry expertise to act as adviser, or a Board Member to the company, recognising that we need to refresh this position every so often, adding the right people at the right time.’ Par Equity currently has 27 members of the network playing a role on the boards of their portfolio companies. In effect, they are an extension of Par Equity acting as operating partners. Noble concluded, ‘All this means that we offer considerable added value to our portfolio companies.’
By using their network in this way, Par Equity can ‘turbo charge’ their investments, and this is demonstrated in the level of returns they are generating for their investors. Par Equity has now backed 61 companies since 2008, covering 241 EIS qualifying investment rounds, and following the successful sale of Symphonic last month, they have now realised 21 companies. On a blended basis these have registered 3.8x money to investors and a 27% IRR, before any EIS relief. The average holding period of exits is 4.5 years.
The network has worked so well that Par Equity recently launched new initiatives to widen and deepen their pool of available talent even further. Noble commented on this, saying,’ We’ve established an executive search panel with head hunters around the UK, to help us identify further talent for screening and supporting our investments. We’ve launched regional chairs to deepen our presence in cities across the North of the UK, with recent appointments including Hugh Little in Aberdeen and Ronnie Geddis in Belfast. Finally, we’re deepening our ties with some of the best universities in the North to identify emerging talent and to generally increase the exchange of knowledge. Edinburgh University and the University of Strathclyde are two early partners. Early traction across all 3 initiatives has been very positive. We are very excited about this.’
When asked about his views on EIS generally, Noble responded ‘I think EIS is vital to the early stage investment market, and in turn, innovative technology companies, which are suitably resourced, are vital to the future of the UK economy, whilst also addressing the UK productivity gap. A huge number of EIS backed companies are transforming industries. Whilst some jobs are being displaced, many more are being created in highly productive roles.
EIS itself is now over 25 years old, and clearly has the support of the government. Young companies recognise its value, so it is down to the likes of Par Equity to keep supporting these great companies and to continue to deliver good returns for investors.