One of the key areas we should address is risk within these investments. Where does that fit within your philosophy and how do you manage risk?
Risk is obviously key, especially within early stage investment management. The EIS sector is high risk too.
Risk management sits at the core of our portfolio construction, beginning at the initial screening of companies that we see through the due diligence process. The central tenets within the portfolio construction are twofold.Firstly,we investearly-fromlateseedstage.We are often the first institutional investor that will come into a company’s round. When we’re building a portfolio for our investors we are taking a small amount of that initial subscription and investing it into maybe three or four early stage companies. Our aim is to invest early and then back progress. As companies look to grow and require more money, if they’re demonstrating that their strategy is working, hitting their KPIs and really growing quickly, we look to follow on. We want to back the emerging winners. Ultimately 60 percent of investors’ subscriptions are going on to the later stage company. From Series A all the way through series C rounds, these are companies that have demonstrated market fit with less risk than those at very early stage. Investors are therefore getting a more blended opportunity with a variety of different investments rather than everything being very early stage. This helps manage both investment risk of progression within each company, but also duration risk of their overall investment. Not every single company is going to take potentially seven years to exit, because if we’re investing at a later stage, hopefully they are reaching maturity much earlier.
As an investor, what are the main challenges that you face?
Challenges are split into two parts; trying to identify and work with these early stage companies and helping shape them to grow in the future. It’s incredibly difficult and takes huge amounts of effort and hard work from our management team. On the other side it’s trying to manage that dynamic between the adviser and the investor and ultimately the investment timeline to build these companies. These are early stage and are going to take a while to build and develop products to be of sufficient value to then build out. There is a tension between EIS tax relief and building high value quality companies for the long term. In EIS, this three year holding period to ensure qualification often dictates an exit time horizon that’s shorter than it actually takes to build valuable large scale businesses. Managing that dynamic is a key challenge that we encounter on a daily basis. It’s one that we manage by educating advisers and investors. Our risk management and portfolio construction challenge is helping to ensure that that’s managed across the investment table.
In terms of the last 12 months and the pandemic how has that affected the business or were there specific challenges you faced as investors?
The initial shock of lockdown affected the UK as a whole. Within our portfolio, there was a lot of nervousness amongst entrepreneurs and founders; concerns around how this would affect businesses, how could they respond to the challenges and about cash flow. That’s a key central tenet when we’re making investments, to ensure that these companies have got strong enough balance sheets to at least see themselves through a rolling 12 month period. The founders that we backed have been incredibly resilient. They’ve really adapted to the challenges in the way their businesses operate, often making them more efficient through the impact of Covid-adopting technology and reducing unnecessary overheads.
Much of the portfolio is much stronger because of Covid. They have become leaner and more focused on what they’re doing, rather than allowing it to become inflated. So it is a huge challenge for everybody. It’s been incredibly wearing, having to have zoom calls for hours on end but we’ve discovered that our portfolio and our founders are incredibly resilient. They have adapted and met the challenges head on.
What about the importance of the Oxford cluster in terms of supporting new businesses?
Yes, the Oxford clusters are very hot at the moment. I think the Oxford/AstraZeneca Covid vaccine has helped draw attention back to this. We are central supporters of the tech-enabled businesses that sit within Oxford and the surrounds. We are a key supporter and we are very well networked in with a lot of the other early stage supporters within the universities and other VCs in the area.
What about Oxford Capital in terms of business, do you feel you have changed over the last 12 months?
We’ve had to change our working practices, we’ve become a fully digital organisation and we’ve embraced that. We’ve recruited new staff and increased our headcount and we’ve moved to a hybrid working structure, similar in many respects in terms of what’s been happening with our portfolio. We have looked at better ways of working, so using technology to improve what we’re doing and really becoming a much more efficient business overall. The learnings that we’ve taken on internally can then be shared with our portfolio companies across the board. We have different companies at different stages in their growth and not all of them want to have to learn the hard way. By sharing our experiences across the portfolio of what we have been doing and what we have learnt about what other companies have
About Oxford Capital
Oxford Capital invest in unquoted securities, which are classified by the FCA as a Non-Readily Realisable Security (NRRS). As such, these products may only be marketed to limited categories of investors, relating to knowledge, experience or financial situation. If an investor decides to pursue any investment opportunity after your personal investment recommendation, they will be investing in an unquoted company. Capital is at risk and investors should only invest if they can afford to lose their capital. Investment is of a long term and illiquid nature. It can be difficult to value and to sell unquoted investments. Any tax advantages associated with investing are based on current legislation, are subject to change, and depend on the individual circumstances of each investor. Sole responsibility for suitability of the investment for an investor lies with the investment adviser.
