IFAM: You mention the founder and their mental wellbeing. As it happens, we did lots of promotion around that for Mental Health Awareness Week recently. Can you just expand a little bit on how you support those entrepreneurs?
NS: Absolutely, as it is often an area that is overlooked. At a high level and broadly speaking you can split entrepreneurs into first time founders and those who have exited a business before. It’s a general venture capital truism that you prefer to invest in exited entrepreneurs because they’ve done it before and they know what’s coming. It almost doesn’t matter if they’ve been successful or not. In fact, in some ways, if they haven’t been successful and they’ve come back for more, it tells you an awful lot about them. It tells you about their resilience and grit, and hopefully they’ve learnt great lessons. That’s very, very powerful.
In terms of first time entrepreneurs heading out into the unknown, that is where we can really add value because we have invested in so many businesses and there is not much that we haven’t seen before. Many of the growing pains are the same. Being able to offer guidance at crucial points in time is incredibly valuable to the founders, just simply having somebody who might know the answer, who has advised a growing team, and knows what to look for. When times get really tough, we can be there to add support and to help.
IFAM: Looking at deal flow, how does Hambro Perks find opportunities?
NS: Deal flow is, in many respects, the single most important aspect of what we do. The way to make sure that you invest in the best deals is to see as much of the market as you can. So, we spend an enormous amount of time on this aspect.
We see on average 4,000 opportunities a year. The simple truth is that we spend most of our time saying ‘no’ so of those 4,000 companies we would be likely to make investments in only about ten. We spend a great deal of time on triage, does the company meet our criteria etc? After lots of first meetings we are likely to take second meetings with 200 to 300 businesses. Following due diligence that number will drop to the 20-25 that we take forward. From these, we’ll end up doing maybe ten investments.
One other aspect I should add is that it is not just about finding the deals, it is also about winning the deals. The very best founders are often flooded with offers of investment so we need to be very competitive and we spend a lot of time explaining our proposition to founders.
IFAM: Where are the sources of these thousands of companies you see?
NS: Like others, we have significant flow through our website and intro email info@HambroPerks. We go through all of these because even though a lot of them do not meet our criteria, we have invested in businesses that have come to us completely cold and we are proud of this fact. Too much of venture capital is off the back of warm introductions.
Beyond that, in addition to our personal networks, we have access to an established, institutionalised network through Hambro Perks Limited,at the very centre of our group. This has 150 shareholders from all around the world, including many very successful individuals, along with some corporate investors. We see a huge amount of deal flow which they send to us. We also have a data scientist on the team who spends his time researching new companies that are being set up. We have around about 150 portfolio companies across the group along with many exited entrepreneurs who talk to their friends because of the great experience they have had with us and we see many opportunities through these referrals too.
IFAM: Could you share an example of what you see as an emerging winner in the Hambro Perks pipeline?
NS: One company that we invested in at the at the seed stage, PrimaryBid, has recently closed a large round led by SoftBank. The problem that they are solving relates to inefficiencies in public markets. For example, listed corporates issue equity when they want to raise capital, maybe for an acquisition or as happened in COVID, because they need to shore up their balance sheets. Traditionally, they will go to a broker at one of the big investment banks, and they will say we need to issue, say, £500 million worth of shares and we’re going to do it at a 5% discount to the current market price to ensure it gets taken up. The investment bank that brokers the raise will pass that discount to its own big institutional fund management clients.
The problem with that is that a FTSE listed company will have a large number of retail investors and they will not have the opportunity to buy those shares at the discount that the institutions enjoy. So what Primary Bid does is to gather thousands of retail investors via their app, and notify them about the equity sale, enabling them to place orders and participate alongside the big institutions.
PrimaryBid collects all of those orders and effectively puts them in as one of those large institutions and its individual customers can therefore participate in that equity issuance at that discounted price.
It’s a problem that I understood very well because I’ve worked both in fund management of listed equities, and at an investment bank. I’ve been on both sides of those transactions, and the truth is they are unfair. We first met the founding team in early 2019. We loved it and we understood the problem. The investment was made in the summer of 2019 alongside a couple of other big funds. We were smaller at the time, so the investment was led by a couple of brand name VCs. The valuation at the time was around about £15 million. A year later, they raised again at a valuation post-money of about £105 million. And then this latest round by SoftBank values the business at around about £450 million. To be honest, it’s now too rich for us to invest in but it’s a great success story of an amazing team, and a global issue.
IFAM: How can our readers find out more information about you, the EIS Fund, and further opportunities?
NS: They can take a read through our website here and we are happy to provide more information to anyone who gets in touch with us. We are equally happy to jump on a call. Finally, potential investors are welcome to pop in to see us at our office in London. We really like to meet people in person and we think of our investors as being part of our network which is really important to us.
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About Nicholas Sharp
About Nicholas Sharp Nick is a Managing Director at Hambro Perks where his primary responsibility is as head of the Hambro Perks Growth EIS Fund.
Nick joined Hambro Perks from Bank of America Merrill Lynch where he advised on primary and secondary investments and equity capital markets transactions in a variety of geographies.
Earlier in his career, Nick qualified as an accountant with Deloitte and subsequently worked as a Portfolio Manager at Odey Asset Management where he helped manage various funds and institutional mandates. Nick holds an MA In Biology from Oxford University.
