Direct Investments

Mercia Technologies PLC: Our first quarter in review

Wow, what an incredible first quarter following our start on AIM as a PLC! Mercia is the result of the right team, the right business model and the right macro factors converging, which has resulted in a new model of bringing capital to highly scalable, technology-centred businesses.

Mercia has expanded greatly in recent months, from its origin as a third-party fund manager providing tax efficient investment to SMEs – Mercia Fund Management (MFM), now a subsidiary of Mercia Technologies PLC – through to our direct investment activity using our own balance sheet (Mercia Technologies) to invest into the growing pot of “emerging stars” that come via MFM. This has yielded a unique investment model, matching investment capital and risk profile with the investment opportunity.

We have been able to take investee companies from start-up right through growth and expansion towards exit – a genuine “soup to nuts” approach for a company seeking investment or for the private or institutional investor seeking to maximise returns.

Our recent listing on AIM in December 2014 has meant we have now been able to rapidly scale this successful investment model, which has been developed over the last seven years.

So what have we achieved in Q1, 2015? Well, in summary:

  • The Board expanded with the valued addition of Martin Lamb;
  • 13 investments were made from MFM via SEIS and EIS capital from our third party funds under management;
  • Five direct investments were made into our emerging stars via our own balance sheet investment activity;
  • Mercia grew to 14 employees;
  • Matt Mead joined us As Chief Investment Officer;
  • Two new investment directors (Peter Dines and Nicola Broughton) joined the team to manage and scale our Life Sciences investment activity and university partnerships;
  • The Share Exchange went live providing early liquidity opportunities to our private investors in our Growth Funds.

Mercia therefore completed Q1 with some exciting new investments in our key technology sectors, which further diversified our portfolio of innovative UK-based technology companies.

We also saw some great additions to our team, helping to further enhance the expertise and support that we can provide to each investee company.

Let’s explore this in a bit more detail.

From seed to growth

MFM, which begins our investment model at seed through to growth, made a total of 13 investments for the first quarter of 2015, from Mercia’s Growth Fund 3 and Digital Fund, both of which were fully invested in their target tax year (2014/2015), with Mercia Growth Fund 4 looking to invest through the tax year of 2015 / 2016. MFM now manages a portfolio of 44 companies and growing, supplying a source of emerging stars to Mercia Technologies which in turn provides the potential of an early liquidity event for the private investors in our Growth Funds.

MFM specialises in tax efficient EIS and Seed EIS investments into highly scalable businesses with technology at their core within our key sectors of: Digital Entertainment & Solutions; Life Sciences; Advanced Materials; Engineering & Specialised Manufacturing; the Internet of Things & Software; and Telecoms & Electronics.

We now receive some 60 business plans a month, which are carefully reviewed by Mercia’s highly-experienced investment team. As we seek investments in sub-sectors against our internal expertise and balance our portfolio across these sectors, benefitting from some 50% of our investments coming from our university partners, we are well placed to continue our enviable growth and unique access to deals.

Exceeding our targets

Mercia Technologies benefits from a team of investment directors who have built, grown and exited businesses within our key investment sectors. We pro-actively seek investments in unpublicised sub-sectors within our target sectors, where we believe we can provide an advantage to the prospective investee and capitalise on an accelerated growth opportunity.

In parallel, we also continue to work with our partner universities to extend our pipeline of university spin-outs, which will further broaden and diversify our portfolio. In line with our expansion plans, we continue to move more deeply into the underserved regions of the Midlands, the North of England and Scotland, as recently demonstrated by a spin-out from the University of St Andrews winning first prize in our Q1 business plan competition.

Q1 2015 alone saw Mercia Technologies invest in excess of £8 million via direct investments from its own balance sheet into five highly disruptive UK technology businesses: nDreams, VirtTrade, Soccer Manager (Digital Entertainment & Solutions sector) and Crowd Reactive and Science Warehouse (Internet of Things & Software sectors).

In all cases, the investments were made was to accelerate the globalisation of these rapidly expanding businesses. These direct investments exceeded Mercia’s original targets for the quarter, taking the total portfolio size to 14 – our emerging stars being a reflection of the high quality of investments within MFM.

A team with extensive experience

Our Board and investment team also expanded along with our portfolio. Martin Lamb, formerly Chief Executive of the Midlands-based FTSE 100 IMI plc (“IMI”), joined in January as a non-executive director on the board of Mercia Technologies PLC.

Peter Dines, founder of spinal and orthopaedic medical technology business Surgi C Group and distribution platform Newtech Ortho, joined as an Investment Director and Head of Life Sciences in February.

Nicola Broughton, who has extensive university technology transfer experience across the Midlands, North of England and Scotland, joined us as Investment Director, University Partnerships.

Matt Mead joined as Chief Investment Officer and board member in May 2015. Matt has over 20 years’ experience in the investment industry and is a seasoned board executive with exemplary portfolio management and exit experience.

Commercialising tomorrow’s technologies

According to a recent survey, the UK is now the most entrepreneurial country in Europe and fourth in the world (moving over three years from fourteenth). It is also seen as a leading place to start and grow a technology-backed business. Mercia is rightly regarded as a source of ‘intelligent capital’ for disruptive, sustainable, technology-backed businesses in the UK.

Going forward, we aim to continue delivering our ambitious growth plans for Mercia Technologies and its portfolio of companies as we position ourselves as one of the leading Investment Businesses in the UK commercialising tomorrow’s technologies.