MF: Time to speak to Haatch who are not strictly speaking a new entrant. The partners at Haatch are multi-exit entrepreneurs with 160 million dollars to their name. Three years ago they started their first EIS fund and they caused a stir in the markets by saying they are targeting a 10x return. They’ve now got 46 portfolio companies and a portfolio value more than £400 million. Their first SEIS fund launched earlier this year and was oversubscribed in two weeks. So, you’ve had quite a three years, Fred. You’re one of the founding partners. Why don’t you tell us a little bit more about what Haatch have been doing?
FS: We founded in 2013 off the back of a previous business. We ran in the online retail sector, which we went on to exit to Morrisons the supermarket. In 2018, we launched our EIS fund as an extension of what we were doing as Angels. For the first five years of the business, we made two investments a year as angel investors ranging from £50k to £250k each with great success and landed our first exit from our Angel programme in early 2018. The EIS fund has been growing from strength to strength ever since. So, we’ve just closed our seventh tranche and our eighth tranche is now opened. We launched our SEIS fund earlier this year and we invest in digital companies, so that’s our sole focus. We’re investing in high growth, high risk businesses and we need to shoot for the stars, and we need to continue to perform at the highest level. In digital, this is absolutely possible. We’ve proven it in our angel investments and now we’re starting to prove it under our EIS fund. Our first EIS fund is halfway there at the moment. The future is exciting because over the next couple of years, we’re going to continue to back companies at their earliest stages under our SEIS fund, which is quite unique in this market, then backing them again. The stars of those and new opportunities are in the EIS fund, where our average size cheque is between a half a million and a million now. My aim is to do around ten of those in the next tax year, and then we’re about to launch a follow-on fund, this will invest at a slightly later stage.
I think the follow-on fund is important and one of our biggest learnings as angel investors for the last nine years – and running a fund for the last few years – is ultimately we’re investing in companies that are venture backed and want to continue to raise capital. We focus on companies that are going to generate revenue and have a path to break even, and we’re not interested in investing in a huge loss-making business. But what we do want to do is invest in sustainable growth, but fast growth. So, all our businesses have a target to grow triple digit percentage year over year, and most of our portfolio performed to that. The majority of our Series As and follow-on investments have been led by Tier one VCs, everyone from Index Ventures to Greycroft in the states. Amazon have invested in two of our portfolio companies now, and for us, we want to provide our investors more opportunities to invest. SEIS fund enables our investors to invest in the early stages, EIS Fund is somewhere in the middle and our follow-on fund is going to be Series A and beyond. That’s a bit about how much we’re excited to still be part of this community and still be part of this group. It’s great to be a new entrant now with a follow-on fund. We’re excited about the future for EIS and SEISs, and love to take some questions from you. Martin.
MF: Can I take you back to 10 x because people do talk about that as a target? Is it realistic, do you think?
FS: It’s a great question. Digital is what we’re passionate about, and we see huge returns in digital investments all the time. We see businesses acquired for anywhere from 10 to 100 times revenue multiples or no revenue multiple at all because they’re acquired for IP. We have proven that north of 10 times is possible in angel investing, our first angel exit was north of 270 times. That was a small exit, which turned into a significant result for us as a business. And we’re seeing significant uplifts. Our proposition is investing in businesses that are sub 10 million pound valuation and sub five million pound valuation and creating opportunities that are 100 to 500 million. So yes, for us, 10X is entirely possible and we hope to prove the market wrong over the next few year.
MF: You seem to be moving very fast. You’ve done an awful lot in three years, tell us more.
FS: So I guess moving fast is interesting. We’re on to our 8th EIS tranche now, which is driven by two things: investor demand and opportunities we see in the market. Each of our EIS tranche continues to be oversubscribed, continues to be larger than the last one. Our SEIS fund which we launched earlier this year, was oversubscribed within two weeks, and closed within three weeks. We see a huge opportunity to invest at this stage in the market, and contrary to popular belief, a lot of capital is coming in at this stage in digital companies. So, for us, it’s not just about moving fast, it’s about striking whilst the iron is hot, and we’ve got the demand. We’re seeing thousands of companies a year and we want to invest in the best subset of them. We want to continue to support them. And if we continue to have investor demand we will also continue to invest alongside our own investors. So just over 20 percent of total AUM is always us as partners, investing directly alongside our external investors. Then we continue to grow as a business and would continue to go from raising single digit millions to tens of millions to hundreds of millions.
MF: Tell us about one of the companies you invest in that excites you.
FS: I’m going to talk about a new company which we’ve just invested in from this fund called Plend. Plend is a fintech company founded by three experienced entrepreneurs, one of whom was the founder of Crowdcube, the largest crowdfunding platform in Europe. Plend is helping the 13 million people in the UK that don’t have access to loans to get access to loans. They’re not based on credit scores, but using open banking to provide peer to peer lending so I can lend to people in need of money in a safe and secure way based on their real affordability. It’s tackling where people either don’t have access to credit or only have access to rip off payday loans. We’ve just closed their SEIS round really their seed round, to be honest, we’re about to launch into market. I’m excited.
MF: As we draw this to a close, I want to circle back to each one of you. You’ve talked very eloquently about what you do if there’s just one thing that you’d like to be remembered for. What would it be? So, Mark, you can go first.
MB: Eos advisory would like to be known as a significant impact investor. Invest in the things through your IFAs, your wealth managers in things that mean something to you. And over the last 20 months in the pandemic, we’ve all become acutely aware of global challenges around life science, the importance of science and health care, food, and water security. We know how interdependent the world is and how our economies work, supply chain issues and ultimately, you know the issues around the climate we live in and climate change and sustainability on the planet.
PT: I think from our perspective, we’ve built a very successful track record around angel investing and we want to continue to operate with that very successful model at the heart of what we do. Certainly over the last 18 months, we’ve seen the support provided by many of our angel investors and investor companies become incredibly important to helping those companies really through a difficult time. I think on our side from a fund perspective, what we want to be known for is the ability to build and invest and manage committed capital, EIS funds in alignment with that investor network. I think it’s incredibly important for us that those investors coming in feel that they are aligned and they’re getting the very best that is coming out of our network model and that we can build those two sources of capital in parallel and build the business carefully along that basis.
PB: The one thing I think we’d like to be remembered for being is a great operation focused investor. Raising the capital and investing the capital is probably the easy bit from our perspective along with finding the deals. It’s what we do afterwards that counts. The corporate partnerships, the executive relationships, we have the ability to build out tech stacks, the ability to drive revenues at a fast rate followed by cash flow positivity. So, from our perspective, whichever stage of investment you partner with us on, it’s the operational side of what we do, and the networks attached to that that makes us different and unique within the sectors of consumer technology, digital media, and gaming.
FS: I want a Haatch to be to be remembered or known for the companies we invest in. Ultimately, for me, it comes down to the companies. I think if you back the right companies at the right stages and work with them very hard the returns will come, and your investors will be very happy. We want to back the best digital companies disrupting the verticals they are in. And whether that’s in new emerging technology like the Metaverse or whether it’s in B2B SaaS, or whether we’re delivering groceries in as little as an hour across the UK. For me, it’s about making great investments in incredible founders that don’t have access to capital elsewhere, leading those deals, which I think is very important, making those deals happen and bringing other investors on that journey and working with them very hard to create an exit. Investors will be happy, and the numbers will all speak for themselves.
MF: In closing, can I say, first, thank you to all our participants. I’m excited about what you all offer and just what you’re bringing to the whole EIS market. In closing, Richard, thank you for helping to host this along with GBI Magazine.
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Hardman and Co are an independent research and corporate advisory firm with a wide range of public and private clients, as well as fund managers and administrators. They are particularly interested in working with entrepreneurs and ambitious businesses. Over the past five years they have been publishing research that’s freely available to all investors. Please note that Hardman & Co express their own opinions and provide perspective, but they do not offer investment advice.
