Unknown: This podcast is brought to you by deepish capital LLP.
DBS is authorised and regulated by the Financial Conduct
Authority. Please note that investments discussed are both
illiquid and high risk and won't be suitable for all investors
and should be considered as part of a diversified portfolio. The
content of this podcast should not be construed as financial or
taxation advice. We recommend investors seek appropriate
professional financial advice. Any views expressed may no
longer be current or may have already been acted upon.
Welcome to this latest DPS discovery podcast. My name is
Andrew Aldridge. The purpose of this podcast is bring to life,
the people and the investments behind what DBS does. To that
end. I'm delighted today to be joined by Simon Farrell Jones,
who's fund manager and head of tech at DBS capital. So Simon,
thanks so much for joining us. Great to see. Pleasure, Andrew.
So, with these podcasts, we always like to start the
beginning. It's a good place to start. So could you give us a
little bit of an overview of your background prior to joining
deep edge? Yeah, so I'm a chartered accountant, I trained
with PwC and then went straight into their corporate finance
team. After a few years there, I went into industry and ended up
as Head of Global Corporate m&a For a large 2 billion turnover,
LLC. Okay. First of orient of first foray into VC was in 2000.
And in fact, my first ever investment was a hard tech
investment. So not.com, then, no, no, actually, no, I just
missed the.com Actually just missed that. So, yeah. So when
into VC in 2000,
really started investing in software companies around about
2005 sat on the boards of a number of different companies
addressing different problems and different markets saw to be
honest, The Good, the Bad, and The Ugly, which sort of then
framed my investment thesis over times. And so
I've also along the way had my own businesses, I founded a
niche consultancy, advising VCs and family offices. I've done a
number of turnarounds, for clients. I've also bought and
sold a few businesses.
And then, my last role before joining deep bridge, I was the
head of technology ventures for the development bank of Wales.
One of the most active VCs by volume actually in the UK, in
the tech space. And I was fortunate that in my time there
we we invested in 81 companies with a total deal value of 100
million was that predominantly Cardiff and South Wales based or
was it across Wales? Or it was predominantly across south
Wales? I mean, that's obviously the economic engine of Wales
down there. We did have an office, the bank's headquarters,
actually based in Wrexham, and we had a couple of members of
the team up here. And they did a number of deals, sort of along
the A 55. corridor.
And we brought in a number of companies. So we brought in one
fin tech from Barcelona.
That did become headquartered in Cardiff. So yes, mainly, I
should say, I went, I went to university in Aberystwyth, and
you wouldn't be bringing a business in Barcelona. I can
tell you that.
So, so you obviously joined deep Reg, in summer 2022. Yeah. And
we're delighted to have you on board. Um, can you just tell
people just a little bit about your role and kind of what you
do at a deep bridge and kind of what being head of tackling for
manager head of tech actually means? Yeah, sure. So over time,
we've invested between our seis product and our ES EAS product,
about 120 million in tech companies. We've currently got a
portfolio of about 40, active tech companies. There are all
sorts of different lifecycle stages. So some, you know, some
of the early seis investments are just starting to grow. Some
of them which had been in our portfolio for significant
periods of time, you know, they've got up to substantial,
multimillion pound revenues. So complete spectrum of lifecycle
stages. And then also, it's a really broad church in terms of
the technologies. So, you know, we've got FinTech businesses,
we've got a number of hard tech businesses.
A lot of businesses use AI and machine learning as the sort of
underlying technology to address the problems. But you know, it's
a very, very broad range of tech, I was gonna say even that
even within my machine learning, the sub sectors, it crosses over
it's so diverse in terms of current that the, the exposure
that they've got to get to different sub sectors. So in
terms of kind of your, your kind of initial impressions and kind
of where you've got to with kind of looking at Tech portfolio at
deep edge and what what are you take away so far? I think we've
got a lot of really interesting companies. I think a number of
them have got really strong value proposition. Yes. And
those are the ones that you can see growing quite rapidly
inevitably there are some with challenges, you know, we need to
work hard to help them
reshape their messaging so that their value proposition becomes
stronger, and they can go on and grow.
But yeah, you know,
very favorable, actually very focused. I was asked somebody
recently, they said, Well, you talk about your hands on
investment management style, deep vision, what does that
mean? And kind of said, well, it depends on where the company is
up to and what they need, etc. So but in some cases, it can be
multiple times a day speaking to them, if they've got particular
challenges they're looking at or a particular deal they're trying
to do. So. It's kind of that that reactive kind of approach
in terms of you go where you need it, I guess, in terms of
where that resource needs to be positioned? Yeah, I mean, we,
you know, we could be helping companies to find the right set
of advisors to help them exit, we could be helping them to
find, you know, if it's a business, which wants to scale
quite significantly, helping them with recruitment. So we've
got number of partners who will provide, you know, almost a
complete end to end outsourced recruitment process, if you want
to hire 20 engineers into your software team to face specialist
thing that.
You know, it could be as simple as, you know, just bounce
bouncing stuff off us could be a legal problem that needs sorting
out. You know, it really is very, very varied in terms of
the support and the degree of touch that we have with some of
these companies. There's there's some where we've basically the
basics, as far as me, as a marketeer, goes, you know, we've
held them their logo and things like that, just that kind of
initial stage to get them kind of moving, have that visual kind
of impression. But so, then, looking at companies that we've
gotten, also from your long, illustrious career, what kind of
qualities do you like to see in early stage companies? You're
What are you looking for? If you're looking at a company?
What kind of ticks the boxes? Well, I think, I think the most
important thing, and I've kind of alluded to that a little bit
is the value proposition, it has to be incredibly compelling for
customers if you're going to scale. So, you know, as an
example, we've got one company in our portfolio that will
reduce the processing time for their for their customers from
10, Mondays to 10 minutes. Yeah, you know, that is the kind of
sort of scale of change that you really need to disrupt a market
is wrapped, you know, to make it as I say, a no brainer for your
customers to take on that offering. So that's the first
thing.
The second thing is, you know, obviously, engaged, experienced,
highly motivated management teams. Yep, that's very
important.
The companies need to be addressing large markets, you
know, we're not going to get necessarily extremely large
market shares of large markets, but we need to be able to be
operating in large and growing markets where you'd rather have
a small percentage of a large market than a massive percentage
of a small market. Yeah, absolutely.
The other thing is
evidence of shortening or short sale cycles, and what's referred
to broadly as frictionless onboarding. So if you can
imagine, you know,
you approach somebody, if it takes two years to make the
sale, and then six to 12 months to onboard them as a customer.
Yeah, that's a very painful process in terms of scaling, and
also cashflow in that time. Yeah. And also cash flow. But
whereas, whereas if it takes three months to win a client,
and then five minutes to onboard them, you know, that business
will scale much more rapidly than the first example that I
gave. So that's important.
And then it's a case of us buying in at the right price in
terms of valuations, and then believing that the the exit
landscape in 357 years, depending on the precise times
in the company's evolution that we get in that we believe that
the market will be there for an exit. Yeah, yeah, I guess it's I
mean, that's, that's crucial, right? From day one, we've got
to understand where an exit is likely to come from, obviously
can't have a defined exit. But understanding the kind of route
that I'll take to exit is crucial, because I guess that
depends, that will dictate sometimes how you build a
business or in the process and structure within a business, if
he's going through, if you think is gonna be an IPO or a trade
sale. It'll be dictated by what that looks like. Yeah. And then
the other thing, which we need to consider along the way is,
you know, how many rounds of funding is this company likely
to need, you know, it's a well trodden path to go see laid, see
a Series A, Series B and beyond. And we need to make sure that
when we're funding companies that they're given enough runway
to get to that next value inflection point. So if you're a
company turning over 20 30,000 pounds worth of MRR
we need and you've got aspirations to do a series a we
need to make sure that they go that the revenue is going to
grow to that at that 1 million pound magics boxes.
Yeah, I guess that's, I guess that's part of the Yeah,
understanding where those co funding opportunities might come
from. Yeah, we'll see. I think back in 2021, I think for every
pound of EIS money we put into our Vesti companies or two
pounds came in from from CO funding. So I guess it's part of
that cycle is understanding where those co founding partners
might be the type of people that they will appeal to as I guess,
yeah. All investment managers have their their niches and what
they like what they don't like just understanding that yes,
indeed, indeed.
So prior to joining deep Reg, you'd known deep edge a while
you'd known a few of our investi companies to where you provide a
co funding and work with them, etc.
What was that driver for joining DT bridge? Was it that you kind
of felt comfortable what we were doing instant what we do? I
think, I think, yes, partly, I mean, obviously, I've known you
Ray and Ian for a while.
And when I sat down with Ian, earlier this year, and he talked
me through what he was trying to do with the bridge and his
vision for the future. You know, that sounded very exciting. So
the opportunity to come on board and be part of that was, was a
big factor in my decision to join. Yeah, great.
So what's, what are you looking to achieve in the in the short,
well started the short term, and then the longer term kind of be
on that what's what are the kind of next steps are what your next
step objectives? So obviously, being relatively new to the
business, in the very short term, it's getting to know all
of the companies, you know, understanding their value
proposition, understanding the strength of their management
teams.
And depending on which lifecycle stage they're at, you know, it's
looking to drive either a partial or a full exit for
investors, in those companies where that is a realistic
proposition. And you know, there are a number in our portfolio.
Yep. So that's the short term,
aim.
Medium term, we obviously want to bring in new investments into
the portfolio. So evaluating new blood. So evaluating new
opportunities, and investing in new companies, is certainly an
aim. And then longer term. And this sort of plays back to Ian's
vision from when we met for lunch, back in the beginning of
the summer, is, you know, to help deep bridge to raise
limited partner funds. So we've got
that sort of breadth of we can do the very early stage, seis,
we can do EIS. And then we can do follow on funds when those
companies are ready to take on series A and Series B money. So
that's the sort of longer term plan. That's an exciting
development. It's
obviously at the moment. Yeah, I'm just thinking at the moment,
they haven't joined us yet. But yeah, when this podcast,
hopefully, they will have joined us, but you're recruiting a new
team to come in with a tech team as well. So I think that'll be
that'll be kind of interesting, as I've called it, debrief 2.0,
expanding the investment team, making sure we've got people
such as yourself on board that can help drive that next stage
of growth. Yeah, very much. So. It's good.
I think, you know, at the moment, everything in the world
is about economic turmoil, you know, everything, all the news,
you see, it's all doom and gloom, etc. You know, what does?
What does the market turmoil, the economic concerns, etc? What
effect has that had on kind of early stage companies in the VC
world? Is there anything specific that you've noticed? Or
is it is it kind of business as usual?
I think it's a mixed picture. You know, I think those of our
companies that have these compelling value propositions
are continuing to grow quite significantly, notwithstanding
the economic conditions.
I think, inevitably, we will see,
probably, particularly enterprise scale customers,
taking longer to make decisions sharp, as you know, particularly
if the economic outlook becomes more uncertain.
I think the other thing is that
we're going to have to be more realistic.
We'll certainly see.
You know, we've seen valuations coming down. Yeah, I was looking
at some statistics the other day that was suggesting that, you
know, we're back to sort of 2014 levels in terms of SAS metrics
from, you know, almost half what they were from the high at the
back end of 2020. So I think when companies are coming to
fundraise,
you know, there will be some conversations around valuation
there. Yeah. So, you know, those are all factors that will impact
our companies during the current I guess, impact is probably not
quite as high as if they were a larger firm doing bigger chunks
of money. Is that fair? Or was it or is there kind of
devaluation pressure kind of falling feeding all the way down
at the food chain?
I think it does cascade down the food chain. You know, we've seen
a lot of the quoted tech companies really come off in
2022. And that does affect the valuations which people are
willing to pay to invest in private companies. So ya know,
it does have an impact and interesting and then kind of you
I think it's, it's kind of widely accepted, we probably are
in a recession now or recession is coming. You know, you've
you've, you've seen recessions come and go before, you know,
what does that kind of landscape usually look like for for early
stage businesses, etc, you know,
my kind of take on it is that you tend to see that early stage
companies tend to do which agile tend to do quite well out of
recession, that with the growth phase afterwards, but kind of
during the recession before that growth stages, what kind of
impact does it have?
Well, I think it creates actually opportunity for
investors, you know, if you can get into companies now at
what will be more attractive valuations than we've seen
historically, you know, we we could see a good vintage coming
out of recession.
Yeah, I think,
you know, sort of alluded to it, and, in a sense, in answer to
the last question, you know,
we will see customers potentially taking longer,
you know, we talking to all sorts of peers within the
industry, you know, a lot of people are funding just funding
their portfolio companies, they're not looking to make new
investments necessarily, that could create some great
opportunities if you've got access to capital. So you know,
it, as always, winners and losers, every challenge in some
way represents an opportunity. Indeed, indeed. So within the
kind of the wider tech theme, and kind of on a, I guess, a
more positive note, what, what are the what are the themes
you're seeing in the tech world at the moment, kind of, where,
where we're, where we're founders and entrepreneurs kind
of starting out and kind of Where's, where's money going,
etc.
But we're still seeing a lot of propositions where artificial
intelligence and machine learning are at the sort of very
core of what those companies do.
We're seeing increasing opportunities in cybersecurity.
You know, we've got a space manufacturing business within
our portfolio, that's a very interesting sector at the
moment, the whole sort of space
where we're going in that regard. And then I guess the
other thing, which, you know, in terms of emerging technologies,
you know, I think quantum computing
is finally coming of age.
You know, we see a lot of
mixed reality or XR, augmented reality,
virtual reality. Some of these were kind of heard as almost
buzzwords for quite a while now, but the technology seems to be
getting there. And it seems to be actually AI, for example,
yeah, we've heard about AI for 1520 years, people talked about
it, but actually seeing it working and being adopted is
been quite a new thing is that is that fair is that a lot of
people still seeing some those buzzwords around, but they're
now starting to actually gain some traction? Is that fair? I
think they are gaining traction. I mean, I certainly don't
perceive AI and ML now to be a buzzword now, you know, cyber,
cyber, a little bit quantum computing a little bit.
But ya know, the technology is evolving constantly. So you
know, one of the challenges we have is forward scanning the
technology landscape to identify new opportunities is
interesting. Probably about four or five years ago, I was on a
panel sessions, and that the host threw a load of buzzwords
at us and myself and to the panelists and said, Which of
these do you invest in? And my, my response is that we don't
invest in buzzwords. It's got to be tech that's doing something
for fundamental commercial reason. There's got to be yeah,
there's got to be a commercial reality to it, not just because
it's a buzzword. So yeah. Interesting.
So kind of, you know, we talked about the short term, and that
the longer term, etc, the teams building, and we're establishing
that now, etc.
Where do you see in 12 months time, where do you see the kind
of tech portfolio? Do you? How would you see it look progressed
or kind of what you're doing? You'll be waiting months? And by
then, so kind of where do you see things going? Well, I I hope
we will have made a number of exits. Excellent. That's what
our listeners want to hear. That's good.
Genuinely, I, I strongly believe we can see a number of exits
absent whether those are partial or full. Yep. I mean, there's
certainly conversations going on at the moment around partial
exits. I think we've got to be careful about
taking our investors out too early, too early. So I think,
you know, my view on that would be let's get them a return. And
let's leave them with the ability to get some significant
upside having completely de risked their investment. Yeah.
So I think exits. And I think that's, I think historically, a
few people, you've looked at partial exit as dubiously but I
think when in that kind of format and that kind of
structure. It absolutely makes sense. You know, why would you
take all your money off the table when you can see some
positive upside? Yeah, particularly if you've got your
money back and maybe someone that Yeah, I mean, I, you know,
the apocryphal stories of people getting out
When businesses have listed at a 50 million pound valuation, and
then gone on to be unicorns, so they've 20x from there. So, you
know, you need to be careful about when you exit entirely
from from a tech investment. So I think we'll
hopefully see
all of our companies funded.
And increasingly, I'm hoping that we'll see. Third party.
Yeah, I think this is particularly relevant to the
technology growth portfolio, we'll see third party funders,
alongside us in more of our companies, particularly to the
maturity of the portfolio, you've got a number of companies
now which are at that stage where yes, to be honest, we
don't want to be continued from them. There'll be follow that
money, and it's now your choice to come in.
You know, and I would hope that we're in discussions with
limited partners, 18 months hence about,
you know, that that limited partner fund that we can deploy
series A Series B capital into some of our earliest stage
companies. Yep. So earlier investments and other and other
companies as well. Yeah, absolutely. So we're on these
podcasts we like to think bring people to life. So yeah, away
from the office, you know, you are in the office a lot. But we
are what are your interests away from work? Family?
You know,
wife is keen golfer, so play golf. My daughter's in London,
does that imply that you're not a keen golfer? You do? Because
she tells you, I
think my handicap would certainly suggest that I'm not a
keen golfer. Now I do like playing golf, but my handicap is
not great.
So my daughter is in London. She's not very sporty, she's
more artistic. So I love to go and get sort of do the cultural
stuff with her. My son is very sport. He's actually in America.
so fortunate to get out to see him last summer. And he's back
home shortly. So hopefully to spend some time with him.
You know, he's a tennis player. So obviously tennis features in
my life as well. Yeah. And then just generally a particularly
good tennis player as well, to be fair, but yeah, yeah, he's,
well, he's a lot better than me. And he's a lot better than
right. Yeah, absolutely. That's how I've heard.
So yeah, and then just general fitness, really, and then just
spending time with, with friends, meals and stuff. So
very good. So then the question we ask all of our guests on the
DB discovery podcast is, if you could invite three guests Dead
or Alive and no friends or family who don't upset anybody
to the decrease dinner party? Who would be those guests and
why? Okay, well, I mean, that's a, you know, that's a very
difficult question, isn't it? But
so I think the first person I would invite is James Anderson,
who I think has recently retired from Scottish mortgage
investment trusts. Okay. So, you know, they fantastic track
record, great run, you know, made 4 billion out of Tesla, one
of the first funds to start to look at investing in private
companies, rather than just quoted ones. Yep. Because they
noticed that companies were going to market later, but they
did it properly as well. Which Yeah, you know, and, and great.
Great outlook in terms of, you know, trying to discover where
technology trends are going by talking to market leaders,
World, world renowned universities. So it's a great,
great model for investing in tech businesses. So he'd be the
first person just to pick his interesting second person will
be Winston Churchill fascinate, you know, I would really love
to, to understand what it was like leading a nation through,
you know, what was an incredibly difficult time during the Second
World War. And just what insights on leadership
generally, I think she had and also again, prior to that, as
well, you know, this is a guy that was built born in the
Victorian era, you know, was I mean even, even his life before
he became prime minister was fascinating. And controversial
at times, but fascinating. So So you know, so that that would be
an interesting dinner party. And then I guess the final one is a
bit of reference to tennis would be Rafa Nadal, obviously
fantastic. possibly the greatest of all time, but no real warrior
on the court, but I know from my involvement in the tennis world,
that he's a really good guy off it. One of the nicest people you
could meet so just trying to pick his brains on how he
switches it on for the court for the court and then you know, can
be super chill off it so yeah, so those would be my three
guests for dinner. So yeah, they always say never to beat your
heroes, but I guess when somebody is that nice, like Rafa
then then it's certainly a pleasure.
I also noticed you went for tennis, but not a golfer. That's
excellent one. I think that'd be fascinating guests. So So yeah,
that's, we've got I think we're racking up the guests. We've got
the degrees dinner party now. So at some point, we'll have to go
back through it and actually work out you know, who's who
because there's some fascinating people. So Simon, thank you very
much your time really enjoyed that. So very much appreciated.
My pleasure. Thank you, Andrew. Thank you for joining us. If you
have any subject
If you'd like to discuss in future podcasts please email us
at Discovery at deep capital.com. This podcast was
brought to you by DPH capital LLP, DBS is authorised and
regulated by the Financial Conduct Authority. Please note
that investments discussed are both illiquid and high risk and
won't be suitable for all investors and should be
considered as part of a diversified portfolio. The
content of this podcast should not be construed as financial or
taxation advice. We recommend investors seek appropriate
professional financial advice. Any views expressed may no
longer be current or may have already been acted upon
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