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Business models for investment

Taking a look at three of the direct investments we’ve made at Axial, they offer very different solutions to entirely different markets – but where they show similarities is in their ability to scale. By adopting a tech-enabled delivery model each of these businesses runs a fluid user experience that drastically lowers barriers to rapid and far reaching expansion. That’s something we like, and is fundamental to our investment rationale.

If we take a look at each of those three companies we can begin to see how it’s increasingly possible to create a scalable delivery model in almost any industry.

RXLive is a MedTech in the digital pharmacy sector, and our investment into the company was part of enhancing its automation capabilities as the company rode the growth curve. Whilst automating operations is typically a good step toward improving efficiency, it doesn’t in itself facilitate scalability – and it was the underpinning architecture that the founder created at the very beginning that has allowed the business to scale so rapidly.

Creating a business model around a national digital pharmacy license was the primary platform, operationally speaking, that brought down borders for RXLive. Implementing a great UX and logistics function was fundamental to truly leveraging that ‘borderless’ business model, but it was the fore-thought that the founder had in implementing a primarily non-physical methodology for serving clients that opened his store-front to a customer base in the millions.

Outside of the UK, our investment in the blockchain based gun licensing platform ARMM was grounded on a similar ethos of putting the objective of increased safety directly into the hands of an entire nation – not just those people within physical reach of the company’s offices. For transparency and accountability of gun ownership to have significant impact, the user base must be as extensive as possible. And when it’s something as important as gun safety the mechanism for capturing and managing the details of firearm ownership must be as infallible as possible – and this is where deploying record keeping functionality over the blockchain can give all users instant and equivalent access to ARMM’s gun license ledger no matter which state or city they live in. Putting this broad thinking into action allowed ARRM to successfully IPO in the US this year.

Aspiring musicians have trailblazed a shift to digital, and even virtual spheres, across much of the sector in the recent decade. We invested into Shodement when their service offering was predominantly a centralised curation and PR solution for artists from anywhere in the world where those artists lacked the capital and capability to coordinate these functions. That founding ethos has allowed Shodement to bring together artists from multiple continents, and more recently to underpin their core offering with a fintech-for-artists service in order to release royalty payments to even the most fledgling artists. This is a huge shift in the music ecosystem when those royalties would otherwise be locked up in the corporate mechanics that tend not to favour small, independent artists. Again, it’s the accessible, digital delivery model that the founder employed from the outset that has allowed the business to reach audiences as far as Latin America and Africa

Ultimately it’s less about the sector when we look at the viability of an investment proposition, and it’s more about putting innovation and accessibility into action in whichever industry you’ve chosen to make a difference.

The rise and rise of late stage scaleups

Just into the second quarter of the year and 2022 is already shaping up to be broadly a high performing year in terms of investment into growth companies. To put a spotlight on this article, it’s the emergence of the European scale-up ecosystem that has caught our attention.

 

Prior to 2021, a smaller proportion of Europe’s venture investment went to late-stage growth rounds. In 2021 a shift began to take place, with more significant amounts allocated to late-stage funding. Funding for those companies came from equity-led investment firms in the private capital markets and from a number of small-cap public listings where those scaleups could get access to public markets liquidity.

 

Let’s look at the numbers. Quarterly funding in Europe in 2020 ranged between USD$10 billion and $13 billion in each quarter. This trended upward through 2021 when it totalled $24.6 billion in the first quarter alone. 2022 is set to dwarf those numbers with venture investment already up by 21% on an annualised basis. Through our client portfolio alone we have seen offers of co-investment into companies in the EV, battery-tech, medical, and SAAS sectors to give a combined post-money value of more than $300m in private and public capital markets.

 

The six countries that led in scaleup funding over last quarter are the UK at the forefront with France, Germany, the Netherlands, Switzerland and Spain also showcasing support for stellar growth companies.

 

At a global level capital flows into VC backed companies in fact fell in the first quarter, but in Europe the picture was quite different with scale-ups receiving more investment on both an annual and quarter-over-quarter basis.  Europe is a growing venture market with an increasing number of high-performing scaleup companies, and clearly those businesses that prove their revenue model and their market fit are attracting the bulk of funding in 2022. The message is clear, where there’s traction money will follow.

 

Investment commitments continue to chalk up numbers as 2022 fires up.

With both private equity and public capital markets continuing to give access to new capital this year, we are pleased to have been appointed to advise on a London battery-tech IPO, and concurrently concluded on financial commitments into UK real estate. Our domestic and cross-border investment focus for scaleups provides increased liquidity to founders and this Q1 update highlights how supportive the markets are across ever-broad sectors:

  • Energy and Renewables continues to be a focus for our investor network, and this month we are into DD on a SAAS based energy management solution to reduce power consumption, and CO2 output accordingly – seeing great momentum in ethical investing. We expect to see a further allocation of capital into this sector through the year, with some great entrepreneurs presenting their technology to us.
  • Battery technology of varying forms are high on the agenda for the foreseeable future, and as we progress the terms and pricing for a £100m IPO of our client in the commercial battery regeneration space the co-investment interest from both our UK and North American network is overwhelming. More headlines to follow in the months ahead.
  • Many experienced property developers will cite the increasing costs of materials and reducing availability of skilled labour across the industry. And this continues to be the case on both counts. In spite of this the market remains buoyant and this month we concluded investment terms for a 14 dwelling development in Suffolk to be built and sold over the coming 18 months.

Venture building with the small-cap network

Axial Capital recently attended the London Small-Cap virtual conference looking at the benefits enjoyed by scaleups and VC-backed startups when accessing liquidity in the capital markets. With our investment model having a focus on companies in the £1m-10m space across the UK and EU, we were pleased to hear other conference participants across both private finance and equity capital markets tell us they see the same clear horizon for placing further liquidity into growth companies – both public and private.

Equally positive is the conversations we have had in recent weeks on UK/Italy investment in particular, for placing capital into Italian growth-companies, and capturing investment from that market at the same time. This also extends to the public markets, and as we continue to lead on the dual listing of a cross-border resources technology company with a US HQ, engagement with the London-Italy investment base has played a unique part in how we complete this round of financing.

This positive experience is in part due to the flow of impressive startups out of Italy, which we continue to engage with for investment and access to equity capital markets. From CyberSecurity to FoodTech the innovation and energy emanating from across the region is brilliant, with a number of these companies set to be rising stars of 2022.

Going public with VCs

Going public through a special purpose acquisition company is nothing new, but in the US it’s certainly made a big splash in the mainstream in the recent couple of years. And now it’s in vogue on this side of the pond, too.


Special purpose acquisition companies, still viewed as a less respectable way to go public by the more traditional banking society, have been forming and going public at an unprecedented pace this year. As of this month more than 270 SPACs hit the public markets since the beginning of the year, all of these in the US, and at least 20 of these have been used by VCs to channel growth companies such as SoFi and Payoneer onto the public markets.


Clearly, the companies going public are no longer the under-the-radar types. Well-capitalized companies with brand name recognition are among those to go public or to announce their intent to go public through a SPAC.


With SPACs forming and going public every day, we decided to keep track of the companies that had announced they’ll embark on their next funding round via a SPAC takeover, as it’s a valuable bellwether for UK entrepreneurs when looking toward future funding rounds. Traditionally, the pillars of VC investment involve driving rapid growth in a young company and achieving an exit at a many-times multiple of the initial investment. And the pillars of PE investment were to strip out costs of an established company to drive up bottom-line returns and to achieve the same exit – a many-times multiple of the original investment. The public markets offer an alternative.


Whilst an increasing number of scale-up companies are choosing to remain private for longer, by recycling cashflows and handling investment rounds through more private channels, a good number of high growth companies are enjoying the benefits of a public listing – and in the UK that’s increasingly going to include the power of SPACs.


When a scale-up company rolls into a publicly listed shell (the SPAC), there is often already a level of cash in that shell and a further funding round is brokered for the merger – effectively an IPO in a different guise. Whilst the company is expected to perform and to ultimately deliver dividends and incremental value in its share price (translating into an increased market capitalisation), the sometimes high-pressure existence of hitting a VCs exit horizon of 3-5 years doesn’t exist. Ideally the company will flourish and will remain trading publicly with strong growth and increasing market capitalisation, giving the founders flexibility in when and how they may want to realise their personal value in the company – and ultimately to exit at a time that suits them.


Axial Capital advises on small-cap public listings, typically up to £100m of value, and is actively considering investment for proven scale-up companies across a range of sectors. Contact us to discuss your objectives if a suitable funding round is planned for your company.

Cross border investment

Robotics in AgriTech, a MedTech app to support doctors through live procedures, and satellite-based software for real-time monitoring. That’s a snapshot of Q2 funding rounds at Axial Capital. Those three examples are growth companies we agreed to invest into through the second quarter of the year, and in particular with a cross-border angle to the transaction in order to provide greater exposure – and greater market access – to truly enhance the value of the funding round.


One thing the closed borders of the pandemic-world hasn’t been able to stifle is the free flow of information and capital. With our investment focus spanning beyond just the UK/EU, to include North America and the ASEAN regions, the ability for us to invest and to provide access to strategic partnerships in cross-border jurisdictions has in fact become better than ever due to the pandemic. This has become super effective in accelerating the expansion of high-growth companies.


The markets differ in dynamics and investment appetite of course. Where London has a high proportion of scaleup companies trying hard to get in front of VCs, Canada has an active and diverse investment base to support a proportionately higher number of those early stage companies. Where Western EU states have a mature base of investment funds, Eastern EU states continue to produce a pool of world class, scalable startups. This again is where a cross-border focus makes more sense to us when getting behind founders of high-growth companies.


The year ahead might (and hopefully will!) result in greater freedoms to travel and to meet in more personal settings than a video call, which we expect will enhance those cross-border relationships ever further. A positive outlook as the UK Autumn sets in.


Recycling private equity with the public markets

In a season of IPOs, Deliveroo’s market debut made the headlines (for the wrong reasons of course). Following this, the director of AO Appliances offered an appraisal of the broader circumstances around the flotation, noting his view that capital markets are not supportive of entrepreneurship – hence the stock price cliff edge once shares were in public hands.

We see the public markets in a brighter light, noting the number of growth companies that have had much more positive experiences through the public listing process.

On the other side of the transaction is the money that supports growth companies to the point that they are ready for the public markets. Often this is private equity and VC money. This capital is the life-blood of early stage and scale-up companies. To keep that money working in the private markets we see the progression of these growth companies into the public markets as a natural and effective mechanism for recycling capital back into the VC/PE ecosystem.

There is a general view that individual investors are ring-fenced out of the VC space (plenty of crowdfunding platforms are attempting to rectify this – though whether they can provide access to genuinely high quality businesses is another matter of course). There has also been commentary that retail investors don’t get enough access to IPO subscriptions, though this too is being addressed on increasing numbers of public listings. Keeping this dovetail active between private and public markets maintains liquidity in the VC/PE funding pool, and enhances opportunities in the public markets.

We’re fortunate to operate in that dovetail, engaging with private equity markets in funding promising scale-ups, and then taking those companies to an IPO once their market relevance is proven. The equities market remains buoyant this year, and we look forward to seeing the virtuous (re)cycle of capital continue, to support the next wave of entrepreneurs!

Buyout Capital for UK Growth Companies

It was only a couple of months ago that businesses watched beyond belief as revenues dived and forward-looking sales forecasts became merely hopeful suggestions. It certainly remains a turbulent time but activity on both the investment side and the client side is now back at pre-crisis levels. The steep discounts that were being applied to forecasts and enterprise value through March/April when agreeing investment terms are now improving, and funds are again being committed for leveraged buyouts and growth-by-acquisition deals (telling us that deals can indeed be executed over Zoom!).
 
So where is buyout capital generally flowing in the current market? We’re placing capital predominantly into established businesses with positive cashflows, either to fund growth by acquisition, or for management to buy the company they’ve been running, and sector wise it remains quite broad as long as the revenue model involves regular cashflows (eg. contracted B2B service providers, where forecasts are less dominated by direct-to-consumer sales or large infrequent sales). It’s about backing opportunities with stable income, for a degree of de-risking against a still unclear horizon.

Aligned with this is VC funding that is selectively completing on deals now that the position of existing investments is more stable, with funds going to companies that have proven their business model and their market, and can demonstrate rapidly growing revenues.

World-class in access to private equity & venture capital

Policy, infrastructure, education, and general ‘attractiveness’ to private equity and VC investors – that’s a description recently applied to the UK in an international evaluation of funding & investment activity.
 
That doesn’t come as a surprise to me in light of the current levels of both equity and debt funding we have access to for commercial and residential property developers. Notably, the value range has remained as strong as ever, with appetite holding at the £5m+ level for the most part, and a draw toward equity stakes and levered returns giving developers as much choice as ever.

Furthermore, medium-term horizons are being maintained, with capital for the development of operating assets (care-homes and the like) still looking at 3yr+ tie-ins.

Corporates continue to hedge their bets on the forward-looking operating environment inside/outside the EU, with apparent proclivity toward maintaining some degree of presence in the great city of London whatever the outcome. We continue, positively

Investment Round-up

This is a week to cherry-pick, as the number of investment rounds that have completed is significant – which means we can focus those that really piqued our interest. Here are the deals that caught our eye:

  • Equity investment into smaller UK businesses grew by 9 per cent last year. That equates to £8.8bn of new money into our small-business economy
  • Axial Capital joined (and successfully closed) and the pre-IPO round for the September public listing of RXLive
  • A government taskforce has urged Boris Johnson to shed a range of UK regulations on investment to unlock more than £100bn of capital to flow into smaller UK businesses by allowing pension funds to invest in earlier stage (and therefore riskier) growth companies
  • French fintech startup Pennylane has secured €15 million in funding to grow its array of bookeeping and financial management tools
  • Upflow, a Paris-based startup that helps B2B companies get paid, has raised $15 million in a Series A funding round
  • MyYogaTeacher closed on $3 million in seed funding to tap into the in-home fitness industry that gained traction in the past year. MyYogaTeacher’s app streams interactive lessons directly to students in the U.S. from more than 120 experienced teachers in India

Cobots. Your new day-job.

We’re big supporters of the efficiencies of automation, but the human side of me likes to see a future for people in the workplace. In a world of nearly 8bn people we don’t need so many idle hands. Cue the cobots, for augmented collaboration that might make an appearance in your workplace sooner than you think.


Current trends in automation are accelerating the adoption of robotic technologies, down to even the most mundane roles in the workplace (for many that might be something to be pleased about).  The global robotics sector is rapidly shifting its focus toward more accessible robots-as-a-service (RaaS) solutions which can solve the ‘last mile of automation’ problem for medium and even smaller enterprises. Because robots have been unable to usurp humans from that last mile (also something we humans might be pleased about), the focus has now turned to human-robot cooperation.


Unlike the super-human robots of a typical feature film, displacing us from our our jobs (and possibly more than that, if we let Hollywood tell the story) cobots are designed to operate in close proximity to humans, in a direct symbiotic partnership to perform tasks. They are intentionally built to physically interact with humans within a shared workspace. They are designed to augment and enhance human capabilities with increased strength, precision, and data capabilities so that together we can can do more.  In practical terms that allows us humans not only to keep our jobs, but to do them better and with reduced physical and mental stress wherever possible.


Wherever you stand on the subject, the reality is that robots, and cobots, will be with us for the long term and will be the increasingly the beneficiary of investment capital – including ours, as we appraise candidates for investment through the remainder of the year.


July 23rd Investment Round-up

Investment roundup – a few that caught our attention this week in sectors we really like:


– Collectiv Food, the London based direct-to-producer platform that connects food producers directly with customers like restaurants and hotels has raised £12 million in its Series A growth round


– Sales Impact Academy is a go-to-market learning platform providing a continuous live learning solution for management, leadership and revenue operations for high-growth technology companies. This week they took in $4m in funding


– ClexBio, an Oslo based startup developing bio-engineered human blood vessels for transplant secured US$2.2m in seed funding


– Clim8 Invest, an app that helps Brits invest in publicly listed companies and funds focused on tackling the climate crisis, Greentech and Cleantech, has raised £1.26m in growth capital

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