The Oxford Technology series of funds invests between £100,000 and £2,000,000 in high potential technology companies within easy reach of Oxford.
Collectively, our team has invested in over 100 early stage companies and is comprised of staff who each have operational experience in small companies and in helping them grow. As a result, we are an active investor and where appropriate, we will support and help investee companies. This help ranges from helping them find and negotiate with customers/partners, developing commercial strategy to raising further financing from angels, other funds, loans and grants.
Our general aim when faced with an investment proposition, and we receive some 2,000 per year, is to cut to the chase, to apply common sense, and to take a decision quickly, whether yes or no.
Our only general rule is not to have any general rules - so that we try to take each case on its merits, and we are prepared to make exceptions to the few guidelines which we do have.
Our investments can range from small sums of capital in start-up and very early stage science/technology businesses to investments of £1-2 million in growing companies with an established business model and route to market. All, we believe, have the potential to become major businesses. The smallest initial investment which we have made in the Oxford Technology VCTs was £15,000, to provide matching funding for a SMART award of £45,000.
Having made an initial investment we are then able to invest larger sums in subsequent funding rounds. In one case we invested £700,000 as part of a subsequent fundraising of £2.1m. In this case the initial investment had been £100,000, two years earlier.
We try to agree investment terms and complete those investments which we do make very quickly. The reason we try to move fast is that we believe it results in a better business, both for the founders and for us, as investors. Nothing is more damaging for a small business than having to spend 9 months raising capital. During this time, the founders are spending their time having endless meetings with financiers, and are inevitably taken away from what they really should be doing - talking to their customers, motivating their staff, developing their technologies etc. The result is that the business is damaged, even if the investment does go ahead in the end.
We also keep our legal structures very simple. We have usually invested through ordinary shares. The legal agreements are short and simple and typically cost £2,500.
The reason for investing in businesses in or near Oxford is that we seek to be actively involved to help. The scientists in whom we invest may be Nobel laureates, but they may never have completed a VAT return, or negotiated the sale of a business to a US company. We seek to be actively involved, often attending key meetings with customers, and helping to set the sales strategy and pricing. We try not to be the sort of investor who sits on the sidelines requiring lots of information from the investee but never actually doing anything to help. Oxford Technology Management normally charges a fee of £5,000 - £8,000 (+VAT) per annum including expenses for this involvement, depending on the size of the company, and the extent of our involvement.
Where we can be of particular help is in raising additional rounds of capital as a business develops. We have experience of working with a wide range of co-investors, some of them large institutional investors, some business angels who may have particular skills they can bring to the table.
The Oxford Technology VCTs are quoted on the main London Stock Market and between them have about 1,000 individual investors, some of whom are rich. Each time we raise a fund, we write to our shareholders to ask whether they would like to co-invest with us in businesses as they develop, and if so how much might they like to invest per deal. They receive EIS (Enterprise Investment Scheme) tax relief on such investments. As a result we have a file of some 350 investors who like to invest between £5,000 and £500,000 per deal. So when a business in which we have invested seeks to raise additional capital (say £1m) the normal process is that we agree terms with the founders and agree to invest part of this ourselves on the agreed terms. We then contact our investors, and give a brief description of the investment opportunity. To those who confirm their interest we then send a business plan, a shareholders agreement, a deed of adherence (so that they can agree to be bound by the shareholders agreement), an application for shares, and an invitation to meet the management if they wish.
So if you would like us to consider making an investment in your business you should call us or send us a summary of your idea. The summary should outline what problem your business will solve, how you will solve it, how your business will make money from it, how you arrived at this point, how much money you need, what you will use this for and how much money you reasonably think the business can expect to make. For a start-up, the only financial information we require is a simple but detailed cash flow statement which will show how the money raised will be spent and when and from whom you hope to receive the first income. To be useful, the cash flow needs to show all of the salaries individually, and to be as explicit as possible about all the individual items. If the actual people are not yet known then show them by title - eg second software engineer from month 5 onwards. Such a cash flow will immediately explain all the assumptions which have been made, which will be helpful to us and probably to you as well. Do this cash flow yourself - do not delegate it.
A general point to consider when raising capital for an early stage or start-up business is that the value of the business (any business) is likely to increase in jumps, which may be quite dramatic. For example an idea for a new piece of software (eg a better search engine) is unlikely to be worth more than say, £100,000. Once the software is finished and has achieved its first sale, it might be worth £1m. If then it transpires that its particular features have wide appeal, so that sales rise rapidly, it might quickly become worth £100m.
As an entrepreneur seeking to fund the development of such a business, your objective should be to raise just enough capital at each stage to achieve the next milestone, after which the business will jump in value, so that you can then raise more capital at a better price.
In any event, good luck!