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Grant Thornton Investor Spotlight: Matthew O’Kane, Nexus Investments

By nexusgroup Posted In blog

Matt is a Chartered Accountant, formerly of Deloitte and PwC, and Managing Director of Nexus Investments, a division he helped to start in 2013 for Harry Hyman. A tax specialist, he has sourced the vast majority of NIVL’s 20 existing portfolio company clients, sitting on the Main Board or Advisory Board of a number of the UK’s most promising businesses, and advising some of our most promising entrepreneurs.

Nexus Investments have just launched their EIS Scale Up Fund for investors wishing to participate in Nexus’s next hand-picked wave of companies scaling up in the Data, Digital, Education and Health sectors.

Could you tell us a little bit more about Nexus Investments?

The Nexus Group was founded by Harry Hyman in 1994 and is entrepreneur built and led. Since late 2013, our Investments division have been part of over £40m raised and invested in 20 Portfolio Companies that we have selected, Nexus Investments having arranged £7m of this over 50 rounds from a close-knit circle of HNW and sophisticated/experienced industry investors.

A representative of Nexus acts as either advisor or often board member/advisory board member to our promising companies. Strong paper performance since then means we have now recently launched our first Scale-Up EIS Fund, to enable a wider and deeper pool of investors to invest with us. The Fund’s investments will continue to focus on the Data, Digital, Education and Health sectors. Nexus are committed to finding and supporting only the most meaningful and transformational UK businesses of tomorrow in these 4 sectors, to bring capital and expertise to scale these into leading international brands.

How big is your portfolio? And how much do you typically invest?

The existing portfolio of 20 companies have a carrying value (at 31 May 2018) for our existing investors of over £10.5m based on subsequent funding round values. Our investors historically have contributed between £50k and £500k per cohort to any one investment round, and in some cases over £1m across multiple rounds. We might expect the fund to take a similar approach in terms of deal size.

The Fund will complete in tranches until it has raised £10m from investors, with a minimum investment of just £25k to join the Fund. It is open now for the first tranche from private investors at Scale Up Fund.

What are the top three things you look at when considering a new investment?

1. Mission-driven founder teams

2. Pro-active personalities seeking to make a positive impact, who are receptive to advice

3. Smart business plans with certain beneficial macro-tail winds, and a route to profitability and an exit

Are there any companies you’d like to highlight that you’ve worked with?

All would be worthy of mention, but to pick out just the very first two we worked with, and the latest two: Perfect World  devised and brought to market the first “healthy” UK ice-cream back in 2014 (no dairy, no added sugar, lots of great taste, now vegan – very popular with diabetics etc.); boclips since 2014 have built the world’s largest video library for use in education materials (curated and searchable containing only rich and value-adding educational content such as TED Talks, Bloomberg, Getty Images, all linked to a country’s curriculum and trust-worthy in an era of fake news etc.);  Everpress since 2016 is a platform that enables influencers, charities, musicians and artists (amongst many others) to market and monetise their “brand ” with their social media followers in an authentic way, selling apparel and other products without taking on stock risk; TRUEinvivosince 2016 builds on some of the most pioneering research in the field of Medical Physics to one day reduce the duration and quantity of radiotherapy treatments required by cancer sufferers. Those are just the first two and last two, with 16 more equally compelling examples in our existing portfolio in between.

Any companies that got away that you wish you’d backed?

One always wonders. We saw a very interesting Foreign Coin-exchange business right back in 2013 when I started here, which we liked but wanted larger capitalisation than we would focus on, which we later read went on to win a Virgin Voom marketing award of £250k from Richard Branson. Having said this, I don’t know how it has performed commercially or for its investors in the time since, only that it caught his eye as it had caught ours!

What are the big red flags for you when reviewing investment propositions?

  1. Over-ambitious valuations – usually justified by saying that because last round was at £x valuation, the intervening months must mean a new valuation of £x+20%, or whatever. But have milestones been passed? Maybe the last investors overpaid.
  2. Style/presentation over substance – it is web and PowerPoint designers who are really winning from the London start-up boom! I would prefer less beautiful decks but with more evidence of execution and more “mea culpa”/acknowledgement that most plans have taken longer than expected (as always will be the case). But with proper explanation!
  3. Absence of cautious/ good business/finance/legal people around a Founder – people who can help them avoid doing deals/chasing top line growth on weak foundations. Overlong lists of advisory board / “advisors” in a deck – often from or still with blue-chip brands – but no clear description of accountability,
    or  a “chairperson”.

Our experience is appointing a chairperson is a meaningful indication that a company understands the governance that will be required if to attract later capital so as to scale.

I wish I saw more…

Business plans with a clear(er) breakdown of uses of funds, especially when a 2nd or 3rd follow-on round. Founders often expect too much of existing shareholders and don’t realise each new round is a sales process with people based on this round’s investment proposition. I also wish I met more founders who understand the benefits of a daily or weekly dashboard within their business, that they review, that shows cash, p&l, balance sheet etc., from which to make informed financial decisions. Finance is not “admin”…!

I wish I saw fewer…

Financial terminology mis-quoted – founders often champion “break even” or “cash flow positive” as concepts they expect this next investment will magically bring, without necessarily understanding this needs to be a constant state rather than a temporary event in a single month!

Re-packaging – long-standing small consultancy or service businesses are increasingly expecting SAAS valuations just for showing e.g. 5 years business history and now building a platform for their existing and new clients to (potentially) use more going forward.

Buzzwords – tech businesses putting AI or Machine Learning in their description without clearly understanding how this will work/what it will cost to offer it/ the degree of technical specialisation it will involve.

What I wish I could tell every founder…

Be prepared that you will be in a parallel world to your peers “employed” at established/mature businesses, who will likely be paid more money with more certainty – and that period will last longer than you think. BUT remember:

a) they will not have equity that could outstrip all annual earnings on an exit, even if you dilute down to just 10% at that point;

b) only you will have the feeling of some degree of choice over how you spend your time and energies each week, and get to build something;

c) even if you have not achieved a multi £m exit in 5 or 10 years’ time, your journey should be much more satisfying to look back upon when you compare notes in 25 or 30 years’ time. And remember all of your investors, however large or small, want you to succeed.

What do you see as the next industry to be disrupted?

Identifying new and growing trends is key to producing returns.  Once a trend reaches a tipping point it becomes attractive to many investors. The window of opportunity exists before a trend is obvious. There is still some considerable way to go, in my view, in integrating technology and healthy food and drink into the education system, both nationally and on a global basis.

How should a business seeking finance approach you?

We are fortunate to get a very strong deal flow through referrals from existing portfolio founders, existing co-investors, accountants, lawyers and advisers etc. who have worked with us before over the past years. The best introduction is a warm introduction through a trusted partner. Always try to get a warm introduction if possible.