MF: Welcome to Paul Tselentis CEO of 24 Haymarket. You are a highly successful investor network, and you are very well known in the venture capital world. You recently launched an EIS fund so can you tell us about the approach and why?
PT: If we begin with a bit of background on the network as we’ve been building this very carefully over the last 10 years. We have at last count about 120 members spread across offices in London and Edinburgh, with a combination of a huge depth and breadth of business experience that runs across industry verticals and across functions within the business.
We have a huge amount of experience as a big investor, in early-stage venture and growth equity investments. We have a solid emerging track record of realisations for our investors with the BPI ratio of about. 4x, loss rates hovering around 10 percent and a realised multiple of money and IRR around 2x and 20 percent, respectively. And then finally, we’ve had a recent first close on our first EIS fund which will be investing alongside and in alignment with this network over the next 12 months to. Moving on to our investment thesis, this has obviously evolved over the course of time and as we have developed as a firm that focuses on opportunities that we believe are underserved by institutional investors, and that tends to be equity ticket sizes starting at one million and up to five million. So probably in traditional parlance, the series A markets putting between one and three million into play.
We have a strong focus on a curated deal provenance, from our investor network as we’ve invested very extensively over the last decade, with partner firms and more recently, our proactive research-led efforts. From a thematic approach, we are looking across five key verticals where we expect 80 percent or so of our investment over the next two to three years to go respectively to digital health care, cybersecurity, supply chain logistics, professional services, and legal tech.
Just to finish off a little bit about our EIS fund proposition, I think there are two elements that are distinctive in what we’ve launched. The first is that it is an aligned instrument, so it isn’t investing in different deals to what the network are doing. It’s coming into the same deals on the same terms. There is a contractually pre-defined allocation mechanism that determines when and where the fund is going that removes any sort of scope for subjectivity. I think the other element that many of our early investors in the fund have found very compelling is the ability to provide direct investment rights and this is two-fold. The first is a top-up rights in the event of excess capacity in any deal. And then secondly, we allow underlying investors in the fund to take up their underlying pre-emption rights and future runs before we can collect with other capital sources. And I think both of those are reflective of the deal-by-deal heritage and the technology that we built around servicing the same deal by deal investing.
MF: You also talked about the alignment between the network and the fund. Can you expand on that?
PT: What you want to avoid with managing different pools of capital is the scenario where we’re using one pool of capital to get on to one stage and using another pool of capital to follow on in those particular companies.. I think that gives scope for huge conflicts of interest, and we want to avoid that. So, while we’re managing multiple pools of capital from that, from a deal perspective, the company is seeing one investment. And the allocation of that investment between our pools of capital is standardised so on every eligible deal our network gets 50 per cent and the fund gets 50 per cent of the allocation. We have a predefined quality control criteria. For example, it’s a new deal at least 10 members who have previously invested in that company need to be investing in that, and the fund can only match the commitment by those individuals and in the follow-on deal, they need both the existing investors to be kind of coming in and taking out their pre-emption rights, as well as validation from a small cohort of new investors. So, we feel that that the combination of giving a set allocation on every deal to the fund at the same time is kind of defining what behaviours are set.
MF: Last question then. Can you give an example of one company that you invest in that you are really excited about?
PT: I think from an investment thesis point of view, a lot of our focus over the last 12 months has been going into the supply chain disruptions because of COVID. I think the company that I’m probably most excited about of all our more recent businesses is one called Circular, which is blockchain based traceability as a service provider to its industrial manufacturing plants. The market is in the tracking of electric vehicle battery components, which obviously are being mined, many of them lithium and cobalt in conflict areas, in the DRC. The components are being sent to China for smelting and processing and then being on sold to original equipment manufacturers here and in Europe and in the U.S. That has ramifications from both a tracking of carbon emissions from an ESG perspective and knowing where those materials come from, as well as general supply chain management. And so, I think the point Mark was making earlier is we’re seeing, even though we operate on the profit, there’s a great intersection of profits in ESG and purpose.
Continue reading article…
