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Scaling up: the perspective of business and investment leaders

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At Innovate 2017, I was pleased to be able to bring together a panel to discuss the conclusions from Innovate UK’s recent report on scale-ups: Scaling up: the investor perspective, which summarised the responses of interviews with 250 scale up leaders and investors.

Image asking the questions: what do business underestimate when looking for investment? communications 84% investors & 46% businesses, Adaptability and resilience 87% investors 58% business, Chemistry 78% investors, 53% business. An Innovate UK logo in the bottom corner.

The panel – investors and businesses

Our flagship innovation event enabled us to have four outstanding panellists:

  • Louise Madden, CEO of Applied Photophysics – a technology firm delivering biophysical characterisation of biomolecules
  • Neill Ricketts, founder and CEO of Versarien – an innovator in advanced materials, commercialising graphene
  • Mark Bryant, Head of Manufacturing at BGF – a patient growth capital investor that has invested £1.3bn in 180 companies
  • Matt Mead, Chief Investment Officer of Mercia Technologies – a listed, evergreen investment firm that supports investments (from the UK’s regions, not just London) right through the start-up and scale-up journey.

Key elements to scale-up success with coloured circles showing: Strong management team, strategy and vision, market demand, skilled workforce, access to finance. Innovate UK logo in the corner.

The key elements to a successful scale-up

  • Neill’s response to this chart was compelling: you need a great team… and a really big market.
  • Matt highlighted the shift from the team in a start-up – one that can get a defensible position in the market to the team in a scale up – one that uses capital to build the right management team.
  • Louise’s view was that it was not just about building a team, but also being prepared for a radical overhaul to get the right team.
  • Mark focused on the role of the investor, in identifying leaders with self-awareness and ambition, and in working with them to develop a business with scale.

Question: which management qualities do investors look for? Passion, Drive, Adaptability, Resilience, Ambition. Showing a group people images and an Innovate UK logo in the corner.

What qualities do investors look for?

The scaling-up report, to me, had a key learning in highlighting the crucial qualities of adaptability and resilience in scale up leaders – two qualities that are rarely mentioned.

Our business leaders on the panel recognised the importance of adaptability.

  • Neill  stressed that these qualities had to be demonstrated, not just talked about.
  • Louise agreed – you have to have belief… don’t change with every bump in the road. Our investors recognised this too, stressing the importance of EQ as well as IQ in the make-up of leadership capability. In start-ups, the focus is on people and relationships… but as a business develops scale, there is a shift to a focus on people and processes.  And that can be a difficult conversation with founders!

Questions: 5 areas of weakness that cause investors to turn down scale up businesses:1. Management team, 2. Return on investment, 3. Adaptability and resilience, 4. Market Opportunity, 5. Communication. Innovate UK logo in bottom corner.

Why do investors turn down scale-up businesses?

  • Louise highlighted the need, in a closely-held firm, to get beyond the operational activity in board and shareholder meetings to have open and honest discussions about direction of travel.
  • Neill pointed out how investors are on 24/7 as my tweet of his slightly unorthodox dress code for a major event such as Innovate 2017 had, in minutes, been commented on by one of his investors. This immediacy can bring results, as Versarien had recently raised £3m in a combined placing and crowdfunding offer in 20 minutes, but also meant that he had to be constantly aware of his compliance obligations as a Director of a publicly quoted company. Investment firms need to communicate with their underlying investors, too, and Matt highlighted the importance of having aligned interests with core, long-term backers.

Responding to scale-up investment questions from the audience

Some interesting questions from the audience gave our panel the opportunity to offer broader insights into scaling businesses.

  • Matt answered a question on what appealed to him by telling how he looked for platform technologies with the potential to cross-over into broader markets for scale.
  • Neill’s response to the Brexit question highlighted the importance of looking beyond the UK and Europe to find demand in large markets including the US and the Far East.
  • Louise answered by noting the opportunities to scale through acquisition as well as organic growth.
  • Mark reminded the audience that an investor’s role is not just to provide capital, but also to offer support so that management teams can continually develop the confidence and capability to execute on an ambitious growth plan.

The hard stuff is the easy stuff

Our report highlighted three areas where businesses underestimated what investors look for in a scale up investment:

  • communication
  • adaptability
  • resilience and chemistry

Our panel confirmed the importance of these topics and gave the audience some first-hand insights from their perspectives as CEOs and investors.

My conclusion?

And my conclusion?  Innovative businesses are often differentiated by their unique technology, but the old adage of human interactions still applies too:  the hard stuff is the easy stuff… it’s the soft stuff that’s the hard stuff.

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