Thanks again to those who attended our breakfast seminar this morning on the theme of raising US capital for the UK TMT market. The session, led by Dave Strastny of our Silicon Valley-based US partner firm Centaur Partners, highlighted some of the key attributes that US investors are looking for when assessing potential targets on this side of the pond. Interesting stuff and more and more applicable in the current market.
Perhaps not surprisingly, profitability was not high (or actually even on) the list. Despite the fact that US investors are putting the bulk of their money into second round deals (and so companies with an established market generating revenue), the majority of the investments they are closing are with loss-making businesses. These are, however, loss-making businesses with a great top-line growth profile and, perhaps most significantly, a large total addressable market (TAM) in the UK and overseas.
Another key point was the importance of having at least some key staff members based in the US whether that be CEO, CTO or ANother, as well as senior sales and marketing employees. Dave may have hinted that this is part laziness on behalf of the investors preferring a Palo Alto office to visit, but the need to demonstrate a commitment to the US market is clear and something we have seen in our recent mandates. Both Rivo Software (sold to US investor Kennet Partners) and CSC (sold to strategic acquirer Trimble) had established bases in the US to prove the concept, investments which bore fruit at the point of exit.
Other points included proprietary IP and laser focus on a specific niche, points that you would expect to see on the shopping list of most TMT investors, whether US or UK, along with a proven management team and Enterprise customers.
So, are they just looking for a bargain having been priced out of too many US deals by strategics? One attendee tells me that US investors expect to pay 10-15% less for a European investment than for a US HQ’d equivalent but when you look at the prices paid for some of those US counterparts that still makes the proposition of Silicon Valley investment pretty compelling, particularly if you see your final exit as likely to be in the US – as many do.
Dave wasn’t being drawn on his prediction for when the current bubble might burst but his summing up of “make hay while the sun shines” seems pretty appropriate right now.