A new fund is launched today which aims to be completely in tune with the Government’s strategy of encouraging the growth of young companies, beyond their initial success, as outlined in its recent Industrial Strategy document. GBI City Editor Neil Martin talks to its founder, London-based John Bailye.
The SidebySide Partnership Later Stage EIS Fund (affectionately known by its founder John Bailye, pictured above, as the SBS Later Stage Fund) will invest in later stage EIS companies, ones that already have a successful, or a promising product.
The type of companies who are actively looking for growth capital, and moving to scale up and beyond to full large-scale commercialisation. It particularly likes situations where new technology is being applied to an existing market, building on and growing previous success.
The fund’s fundamental approach is to target more established companies and look for greater long-term returns than others in the sector, by helping them to transition to a fully commercial entity.
New Jersey Technology Council
John Bailye is the driving force behind the fund. An Australian who moved to the US in 1987, he grew a start-up business into a billion-dollar public company with 3500 employees.
He also sponsored and co-founded the New Jersey Technology Council, which provides an exchange for entrepreneur ideas and experiences. It now has over 1500 entrepreneurs as members.
John has personally invested in 14 early stage US companies and five in the UK. He has also been heavily involved in and co-invested in several turnarounds in US private equity firms, and has a track record in this sector which is second to none.
On moving to the UK in 2017, John felt an empathy with the UK Government’s key objective to help more start-up companies scale-up to become significant and long-term businesses.
As John says himself: “ That is what I do, and I have experienced this process in many companies and industries. My aim is to capitalise on the opportunities and environment here in the UK.”
Last year was spent preparing the fund and today sees its official launch and I asked John, what makes his approach different.
“First of all, we invest in companies in tranches, supporting them financially when they need it. Secondly, we recognise that different management skills are needed for large scale commercialisation. We help companies to plan for and implement this change.
“What’s more, our fee structure reflects our confidence in our approach. We do not take success fees until we have earned investors 1.6x investment net of all costs excluding the tax benefits. Remember that the market norm is a threshold in the region of 1.2x investment.
“And, portfolio companies are independently evaluated on an annual basis, so that investors and their advisers are regularly updated with progress.”
As for structure, the fund will not hold more than eight companies at any one time, so that it can devote the time to them that they need.
I then ask John about entrepreneurship in the UK and the fact that in 2018 a record number of new companies were registered at Companies House.
John replies: “In its white paper on the UK Industrial Strategy early in 2018, the Government recognised this, but also that we are a long way down the list globally in growing startup companies into larger scale-up companies. There is a very strong need to change this, for the future prosperity of the UK.
“Based on our experience in the US, our aim is to help the right companies grow from startup to scale-up, and then beyond to what we call ‘grown-up’. Companies that are large scale commercial organisations.
“These companies require a different skill-set as they grow, and this is what we recognise and can help provide.”
So what does John think about the recent Government changes to EIS.
“We endorse the end of capital preservation schemes. We strongly feel that EIS is all about investing in growth companies.
“The introduction of a focus on ‘knowledge intensive’ shows a clear direction from the Government, which again we welcome as long as it is understood that there are other companies that also have great growth potential.”
As for future changes to EIS, John would like to see more successful entrepreneurs, including from overseas, to provide more role models and experience for entrepreneurs in the EIS market.
On the current trends in the EIS market, John says: “Although we are newcomers to the market, we have learnt that advisers are getting more requests about EIS from existing clients than ever before.
“We also hear that more advisers are looking at EIS, as a means to supplement tax efficient retirement planning, as the pension cap limits are reached by their clients.”
So, finally, I ask John how can advisers continue to educate their clients about the investment opportunities in EIS?
“We would hope that EIS is now an established way of adding diversity to a client’s portfolio. After all, they are now 25 years old, and the government has gradually and consistently enhanced the benefits over this time.
“EISA also offers a range of high quality education material, which is extremely informative, and we will go out of our way to help advisers understand our fund so that they know precisely what their clients are investing in.”
It will be interesting to watch how John’s down-to-earth approach to investing will play out, and given his track record, many companies will be wanting to attract his attention.