London is the undisputed heavyweight champion of the UK when it comes to venture capital investment. In fact, the city is packing some pretty serious punches when it comes to Europe, too. In 2019 it received greater amounts of VC funding than anywhere else on the continent.
Venture capital activity grew in the UK by 54% in 2019, with London accounting for the lion’s share of deals (and value). As an asset class, venture capital is hotter than it has ever been. But for investors, how big is the opportunity for capital growth outside of the capital? For one Manchester-based fund manager, Praetura Ventures, the answer is clear.
According to the Patient Capital Review, and research from PMSI Strategy LLP, growing, funding-hungry businesses in the North suffer a shortfall in venture funding of between £700m and £1.4bn every year
London has over 90 venture capital firms. The North has fewer than 10. A recent report from the British Business Bank has seen equity investment in the North increase by over 130% in the past five years. The opportunity for a knockout in the North is there: The Hut Group and Boohoo.com are perhaps two of the most famous examples.
The demand for genuine venture capital in the North presents an enormous opportunity for investors seeking returns from early-stage companies. It’s also a founding rationale of Praetura Ventures, who seek to predominantly back businesses from the North of England.
Praetura was set up in 2011, raising capital and investing in the early stages of business lifecycles. Founded by Mike Fletcher, David Foreman and Peadar O’Reilly, the team floated Preston-based Inspired Energy PLC providing their investors with a 16x return. Eight years later, after investing over £40m in equity across 25 portfolio companies, David Foreman launched Praetura Ventures.
Building on the strong track record laid by the original business, Praetura Ventures’ Praetura EIS 2019 Fund closed in May 2019, breaking the record for the largest ever maiden EIS fund at £15.0m. A smaller, top-up fund closed in January 2020, taking the business’ total raised to over £22.0m in its first year alone.
In its first 18 months, the company has grown to 26 people, with one of the UK’s largest EIS-focused venture capital investment teams. In line with its more than money approach, Praetura Ventures’ portfolio team provides tangible value to the business it has invested in. The portfolio team is comprised of entrepreneurs and business leaders with experience of founding, scaling and exiting early-stage ventures.
“We saw a great opportunity for a firm to break into the market with a differentiated approach,” says David Foreman, Praetura Ventures’ managing director. “The smartest businesses raising money right now are looking for something more than just a big investment on a massive valuation. That’s something we sought to address with Praetura Ventures: giving management teams more than just a cheque.”
That ‘more than money’ approach is in Praetura’s DNA. One of its portfolio businesses, Sorted Group (a business first backed by Praetura in 2013) recently placed 45th in the Financial Times’ 1000 Fastest Growing Businesses in Europe. Another portfolio company, backed by Praetura since its early stages, recently rejected an investment offer from a US VC firm valuing it at £50m.
“We won’t invest in a business unless there’s the opportunity for us to add more than money” continued Foreman. “That could involve support with a company’s go-to-market strategy, helping them to build out their finance function, or even just connecting them to other businesses in the portfolio. We have an unrivalled network in the North, and we want to leverage that when we back some of the region’s most exciting earlystage companies.”
Exclusively investing in EIS-eligible business, Praetura Ventures saw a 1300% increase in support from intermediaries between its first and second funds. Foreman credits the firm’s speed of deployment as one of the reasons.
“We deployed our 2019 Fund in seven months, and we’re on track to deploy our 2020 Fund in just three. Advisers have told us that planning around tax years is important and that their clients aren’t happy when managers take months and months to invest their money. It might take us six months to invest in a business, but we’re usually in the final stages of investment by the time we close a fund.”
Jon Prescott, Praetura Ventures’ business development director, understands the value in forming a partnership with IFAs. “Finding the right advisers to partner with is a critical part of our business,” he explained.
“We listened carefully to what intermediaries wanted from a fund manager and set out to deliver that from the start. Regular, honest and detailed transparent communication forms part of that,” he added. “So does administrative support. For example, all of our systems have been designed from the start to help IFAs manage the EIS process quickly and easily.”
Whilst we’re confident in our ability to raise, investment decisions are changing on a daily basis.