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VCT Investment and the appeal of deep tech: A Q&A with Foresight Group’s Andrew Bloxam

by | Mar 1, 2024

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In this exclusive interview with GBI Magazine, Andy Bloxam talks us through Foresight Group’s involvement in VCT technology investment and why he believes it’s an exciting time to be investing in the sector.

In this interview we discuss with him the key features of Foresight Technology’s VCT strategy and Foresight Group’s investment approach centred around sustainability, as well as some interesting examples of successful exits.

It’s an interesting discussion which shines a light on why Andy Bloxam is positive about the investment prospects from the deep tech market, as well as the current opportunity tailwinds for investment in this space.

Q: Can you remind us briefly of what Foresight Group does and of your role within the group?

AB: Foresight Group is a sustainability-led, London-listed investment manager with ten offices around the UK and Ireland. We have a range of funds spanning both smaller company investments and larger renewable energy infrastructure.

As the Managing Director of Venture Capital at Foresight Group, I oversee the venture strategy within the smaller company investments team. My main focus is the Foresight Technology VCT (“FWT VCT”) and Foresight WAE Technology EIS Fund (“FWT EIS”) which are managed in partnership with WAE Technologies Limited (“WAE”) as technical advisers. WAE, formerly Williams Advanced Engineering, is the engineering consultancy that was born out of Williams F1 and is a unique partnership in the market.

We are one of the few investors backing early-stage science and engineering-focused companies. Foresight Group has a long-established focus on sustainability-led strategies and our specialist investment solutions are designed to meet a variety of income, capital appreciation and IHT mitigations objectives to help advisers meet their clients’ different needs.

Q: How would you summarise Foresight Technology’s VCT strategy?

AB: Our approach is to identify exciting, early-stage science and engineering, or “deep tech” businesses for inclusion in the strategy. Many of those companies will be developing advanced technology, such as semiconductors, robotics, digital simulation, and immersive reality, as well as instrumentation and tools for use in industrial production or life sciences R&D.

We look for cutting-edge technologies that often originate from some of the UK’s top universities. The reason for this is that it is important for us to find teams that combine technical and commercial expertise with a clear plan for commercialisation and scale. We look for the opportunity to build profitable companies that are going to become valuable to large international acquirers in future.

The problems these companies are solving are often aligned with the UN Sustainable Development Goals. By addressing these global challenges with advanced technology, the companies we invest in are not only creating a positive impact with their solutions but also creating valuable intellectual property that is hard to copy. That IP should be very attractive to a range of large acquirers, and this will create value for our investors over the longer term.

Q: What are the key features of Foresight’s VCT strategy?

AB: Strategically, we’re looking for teams that have clarity of thought and the know-how to commercialise breakthrough technology. As I mentioned earlier, many of these technologies come out of the top universities all over the UK. We also leverage the Foresight regional teams, WAE and our networks.

To meet our criteria, we’re looking for a technology to have a distinct advantage that is defensible meaning that it will disrupt the status quo in a market. It often needs to be at least ten times smaller, faster, or cheaper than what currently exists. We need to be confident there is a route to a potential 10x return on the investment.

These companies are often solving global problems, but we need to be sure they can obtain a meaningful share of a large market. They also need a well-considered plan to scale up whilst pushing towards revenue and profitability, to minimise the investor funding required before becoming a sustainable business.

Finally, we look for the opportunity to invest more than cash, and typically, that is valuable specialist engineering support from our partner WAE. This might range from helping to screen candidates for the engineering team, to creating the strategy for developing intellectual property. It can also include engineering optimisation problems in product R&D, such as using different materials for lower weight, redesigning for better size, and cost of heat dissipation. We can really add value in this way which benefits the business and the long-term investment prospects for our investors.

Q: What is the outlook for the deep tech sector, in your opinion?

AB: In my opinion, it’s very positive. Deep tech revolves around startups or companies based on a scientific discovery or meaningful engineering innovation. It is becoming quite a buzzword, certainly amongst VC investors who are anticipating being unable to get the returns that they’ve seen from software investments previously.

However, few investors have the confidence to invest in deep tech as it often involves hardware technology and a different investment approach. At Foresight Group, we have been doing it for five years so we’re beginning to build a track record as a leading investor at the early stage in the UK.

There are a huge number of global challenges that can’t be solved by software alone. These include such things as climate change and the energy transition, better food production, the future of work, as well as a deluge of data and limitations in the growth of computer processing capacity. These challenges are driving huge amounts of deep tech innovation, particularly in the UK, which has a highly supportive ecosystem.

We’ve seen the government talk about wanting to be a science and technology powerhouse. They have backed that up by making grant funding available for worthwhile R&D projects in deep tech companies. Together with the recent market correction, where we’ve seen valuations of technology companies come down slightly, it could now be considered a good time to be investing and we’re ideally placed to do that.

Q: How is the Foresight VCT portfolio performing?

AB: The portfolio has been performing well as a whole and has been steadily growing. However, when we look at the underlying companies, there are a handful that have suffered somewhat.

That is a product of the fact that it’s become harder to close sales with customers, so growth has slowed. Funding rounds are also taking longer to come together. Of course, other companies are well-funded and still in their R&D phase meaning they are less affected than the more mature companies. However, there are still a few companies that have benefitted from growth in their markets despite the general macroeconomic conditions proving quite tough.

One example of this is a company called Rovco. Rovco is improving the efficiency of surveys for offshore wind turbines using underwater robotics and Al data analysis. Such surveys are needed to build new wind turbines and to maintain the existing ones. This is a problem right now because the UK, and most of the world, wants to significantly increase its offshore wind energy capacity, but the traditional approach of sending large vessels and crews, with very manual survey processes, is becoming a huge bottleneck.

Rovco is speeding up surveys by using robotics and Al, developing smaller autonomous vessels and submarines with Al mapping and data analysis. Its’ technology is solving a valuable global problem, and the company is growing strongly as a result. It’s a good illustration of the sort of company we are looking to invest in as part of our overall portfolio.

Q: What type of investor is the Foresight Technology VCT targeted at?

AB: Most VCTs are considered generalist VCTs, which often means they’re focused on later-stage companies, possibly already profitable, and aimed at paying a steady and more reliable yield. In this case, we’re looking to invest in exciting, advanced technology companies at a much earlier stage of their development, as we operate a growth-focused strategy. The Foresight Technology VCT could therefore further diversify an adviser’s client’s existing portfolio while also appealing to those specifically looking for tax-efficient growth.

This comes as a potential higher risk option, but potentially has a much higher reward.

Q: Lastly, can you give us some examples of successful exits that Foresight has executed?

AB: Although there are no exits as of yet from the Foresight Technology VCT strategy, we have had two very successful exits from the FWT EIS fund. This follows the same strategy and therefore might be illustrative of what could happen in the VCT in future.

One example of an exciting exit is a company called Codeplay who are based in Scotland and make software for Al accelerator chips. Previously the likes of Nvidia have been dominating this sector. Nvidia and its big competitors, Intel and AMD, were all supplying hardware processors, but Nvidia were succeeding in the market as they also offered an integrated software layer which made the Al run more efficiently.

Codeplay effectively created a software layer that allowed the likes of AMD and Intel to compete with Nvidia which led ultimately to several large international technology companies looking to acquire Codeplay and resulted in a great outcome for FWT EIS, achieving a 16x return to the fund.

Codeplay chose Foresight as its investment partner because its software had applications in the automotive space where WAE could make introductions through its existing network. This was a competitive process, but Codeplay ultimately chose us over another potential funder because of that relationship and we see this as a great success.

Another example is a company called Flusso. Flusso was a University of Cambridge spin-out which was developing miniaturised flow sensors, which are tiny semiconductor chips that can measure the flow of air as it travels. Traditionally, these sorts of sensors have been quite large and only had industrial applications.

By shrinking the semiconductors down as Flusso did, they could be used in consumer applications such as car air vents, hairdryers, or a variety of everyday appliances. Flusso had only reached the point of proving that their technology worked, when an acquirer came in and expressed an interest in acquiring this technology. That was a 3x return to the strategy, which is another great result considering FWT VCT only held it very briefly.

These are two great examples which illustrate the types of companies we’re uncovering and investing in within this strategy. We believe that this will benefit the level of returns and long-term value we can and want to generate for our investors well into the future.

Find out more about Foresight VCTs here

Andy Bloxam

Andrew joined Foresight in 2018 and leads the Foresight Williams Technology strategy. He has over 20 years of experience. Prior to joining Foresight, Andrew was a Director at Committed Capital, a technology-focused early-stage private equity and advisory firm. Previously, Andrew also worked at Strata Partners and JPMorgan focusing on M&A transactions and capital raisings for small to mid-cap UK technology companies. Andrew has a degree in Economics from Cambridge University and an MBA from Surrey Business School.

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