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Brexit and its impact on smaller companies

29 January 2019

VCT investment company managers comment on Brexit, investment opportunities and the latest rule changes.

Uncertainty around Brexit has hit UK markets and raised questions about the UK’s economic prospects, but what effect is it having on the UK’s smaller unquoted companies? Despite a tough year, the average VCT returned 2.7% in 2018 and is up 42% and 163% over five and ten years. Where are VCT managers finding opportunities today and what are their views ahead of Brexit?

At a media roundtable held today by the Association of Investment Companies (AIC), John Glencross, CEO of Calculus Capital which manages the Calculus VCT, Ian McLennan, manager of the Triple Point VCTs, and Rodney Appiah, director of Foresight which manages the Foresight VCTs, discussed their recent investment activity, the potential effect of Brexit on smaller companies and their overall outlook for the sector.

Their views have been collated alongside comments from David Hall, managing director of YFM Equity Partners which manages the British Smaller Companies VCTs, and Jo Oliver, manager of Octopus Titan VCT.

Brexit’s impact on smaller companies

Ian McLennan, manager of the Triple Point VCTs, said: “When it comes to Brexit, the main concern we are hearing from portfolio companies is around people. Tech-related companies in particular often have a significant number of EU nationals in their team. One portfolio company has reported that they have already seen a 50% reduction in job applications from EU nationals after the 2016 referendum result. In time we expect that this will be mitigated by clarity on the rules around EU immigration for skilled workers, by increased immigration from non-EU countries and by up-skilling UK citizens. On a more positive note our healthcare-related investments are anticipating that Brexit will result in more money being spent by the NHS.”

David Hall, managing director of YFM Equity Partners which manages the British Smaller Companies VCTs said: “There’s a difference between the short and long-term effects of Brexit. The current process is just creating short-term uncertainty. That makes any sort of long-term planning more difficult. What we have seen in our portfolio is those businesses who move physical goods across borders step up contingency planning, which in many cases means finding other ways of getting their goods to overseas markets, for example offshore inspections or quality control centres or final assembly outside the UK. These are temporary measures for now but could be made permanent if needs be.

“For those businesses delivering services it’s not quite business as usual, but there is less thought about tomorrow and more about the long term. At this stage the long-term impact of Brexit is unclear, but for those markets outside the EU trading conditions are unchanged so there is less disruption.

“So, the ideal business to invest in is one that doesn’t move goods across borders and has a high proportion of business outside the EU. Generally, this is where many of the growth businesses focus and, in reality, trading within Europe for these businesses also comes with less regulatory hassle.”

John Glencross, CEO of Calculus Capital which manages Calculus VCT, said: “Clearly it would be helpful to have greater certainty. As I look at our portfolio, however, by and large, exporting to the rest of the EU is not an important market. It has always been difficult for small businesses to sell to other European countries. Even pre-Brexit, the US, Asia and Middle East are more important markets. Where uncertainty is biting, however, is in the status of EU nationals who work for UK companies. Their status post-Brexit needs to be settled quickly.”

Jo Oliver, manager of Octopus Titan VCT, said: “Uncertainty isn’t good for any business. However, it does create opportunity for companies that are nimble and adaptable such as early-stage businesses. Many of these are deliberately creating companies that can be global from the start, due to enabling technology such as smartphones and cloud computing. Our single greatest concern when it comes to Brexit is the importance of being able to access talent and the UK continuing to be a leader in innovation and entrepreneurship.”

Where are managers finding opportunities?

Ian McLennan, manager of the Triple Point VCTs, said: “Triple Point has funded several of the fastest growing tech innovators in the UK, including Capital-on-Tap which itself uses cutting-edge technology to arrange finance for thousands of UK SMEs. We have invested in a digital health company which uses artificial intelligence to assist NHS GPs and dermatologists in the diagnosis of melanoma skin cancer. We recently deployed funds into a rapidly growing company that provides an end-to-end software service to apprenticeship training providers and universities.”

John Glencross, CEO of Calculus Capital which manages Calculus VCT, said: “Calculus is sector and region diverse, focusing on finding and backing great management teams working in entrepreneurial companies successfully selling real products and services. Not all of our investments are focused in and around London and whilst we do focus on healthcare and technology, we do also have investments within energy, media, consumer and industrials.

“Three examples across tech, healthcare and other sectors:

  • Weedingtech (West London) - With increasing concerns over the health impacts of chemical herbicide use, Weedingtech has grown significantly and doubled its turnover since Calculus Capital’s first investment in 2016. Users of its herbicide-free, non-toxic weed control foam include municipal authorities in New York, London, Munich, Barcelona and many others.
  • Blu Wireless Technology (Bristol) - Blu Wireless Technology is developing the latest ultra-fast internet and wireless-enabled technology. The company was named by the European Commission in 2018 as a ‘key innovator’ for its contribution to research on 5G networks and in the same year won UK government contracts for 5G trials.
  • Synpromics (Edinburgh) – A world leader in the technology surrounding cell and gene therapy. Its ground-breaking patentable technology provides the control mechanisms that direct the activity of cell and gene.”

Jo Oliver, manager of Octopus Titan VCT, said: “Our focus is on investing in tech-enabled companies with high growth potential across a diverse range of sectors and industries. One example is the AI-powered language learning app, Memrise, which has grown rapidly to more than 35 million users, while another is Sofar Sounds, which hosts intimate music events in cities across the globe every month.” 

Has there been any effect from regulatory changes?

Rodney Appiah, director at Foresight which manages the Foresight VCTs, said: “In a word, no. Foresight continues to adopt a sustainable and pragmatic approach to early-stage private equity investing that focuses on backing UK-wide businesses with proven and defensible business models, steered by strong management teams, operating in large, growing and non-cyclical markets. This approach is tried and tested and has been demonstrated over several economic cycles to be the right one for us and our investors. It has also proven to be a financially successful one with Foresight delivering average returns of 2.9x in realisations for investors since 2010.”

Jo Oliver, manager of Octopus Titan VCT, said: “The recent regulatory changes, enabling the investment of £10m per annum in knowledge intensive companies, is positive for Titan. Most of Titan’s investee companies are knowledge intensive and therefore we can capitalise these businesses from an earlier stage, which enables them to invest in research and development.”

John Glencross, CEO of Calculus Capital, which manages Calculus VCT, said: “The Calculus focus has remained consistent: building diversified portfolios of smaller, UK, entrepreneurial growth companies and creating value for our investors through our multi award-winning funds. The regulatory changes have forced the wider industry to follow the same principles we have followed from day one, twenty years ago.”

Outlook for VCTs

John Glencross, CEO of Calculus Capital, which manages Calculus VCT, said: “Even in the midst of Brexit uncertainty, investment activity remains strong. The UK is emerging as a very entrepreneurial nation, particularly in the areas of technology, life sciences and the creative industries. These industries, by and large, sell globally. The Treasury is very focused on encouraging an entrepreneurial economy and this is helping to support activity.”

Ian McLennan, manager of the Triple Point VCTs, said: “The outlook for the business-to-business software companies that our new Venture VCT invests in remains very promising. Innovation is continuing at a rapid pace and we are seeing a new form of corporate innovation where large, established companies increasingly engage with SMEs and start-ups as a core part of their own R&D plans. Thus, the corporate sector, under constant pressure to compete and improve efficiency, is open to early adoption of new software products that improve data and processes throughout the enterprise whether it is for customer engagement, resource planning or for administration and accounting. Our Venture Fund, with its emphasis on working with corporates to articulate their needs and investing in the innovative companies best placed to solve these known challenges, is well placed to benefit from this evolution.”

Jo Oliver, manager of Octopus Titan VCT, said: “Despite the market uncertainty we have seen continued demand for VCTs this year – our AIM VCTs closed in record time and there is continued demand for our Titan VCT.”

Rodney Appiah, director at Foresight which manages the Foresight VCTs, said: “I think there are reasons to be cautiously optimistic about 2019. Despite some economic and political headwinds, UK SMEs remain surprisingly resilient in what is an increasingly globalised market. We are seeing a growing confidence in the UK venture capital ecosystem, a maturing fintech sector, a reshaping of our high streets and a reinterpretation of the world of work due to the increased use of technology and the disruptive nature of the sharing economy. In that environment, Foresight believe our approach of seeking out ambitious entrepreneurs with proven and defensible business models remains an attractive one for investors.”


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  1. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 354 members and the industry has total assets of approximately £178 billion.
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