Funding The North’s pioneering businesses: an investor’s perspective

YFM Equity Partners ?(YFM) is a distinguished investment firm with almost half a century’s experience of backing the Northern England region’s best emerging companies. Their impressive portfolio predominantly comprises of technology and IT services businesses in the B2B sector. The fund’s assets under management totals approximately ￡450m ($498.7m/€458.6m).

Mike Clarke ?is one of the Partners at YFM supporting Yorkshire and the North East’s pioneering companies. We spoke to him about YFM’s investments in the region and his advice to any business looking to secure funding.

Hi Mike, could you introduce yourself?

I am the Deal Lead for YFM in Yorkshire and the North East. My job is to invest. We're typically looking at around ￡20 million a year in just this region, mainly focused on B2B SaaS and IT Managed Services businesses.

Our investment range is ￡2-10 million on day one, but we've got a fund of over ￡450 million, so we're regularly following on into our portfolio with additional rounds as well.?

YFM have got a rich history of investing specifically in the tech industry. What are the benefits of having YFM invest in your business?

We've been investing in Yorkshire businesses for over 40 years now. It's our track record, reputation and the local relationship which founders in this region generally prefer to a London tech fund or even Manchester, who will always be more at an arm's length.

Every fund is effectively selling money, aren't they? It does come down to the people who are backing you. The fact that YFM’s been in Yorkshire for all of that time, and you can look back at a portfolio of tech businesses and speak to those founders, that's reassuring to any founder who's looking for their first investor.

Founders want an investor who is there in good and bad times, when they're facing challenges. That could be a difficult sales quarter, or they've just lost an important member of staff. They want somebody around the corner who can come in and have a chat about it over a coffee and find a way forward.?

You have historically sat on the board of two successful Leeds-based companies, Panintelligence and Force24. How have yourself and YFM supported these businesses?

Panintelligence ?is an interesting business, because they have a really strong history of deep tech consultancy and value-added services, and some very longstanding clients.

We came in at a critical time when they were looking to fully prove out their SaaS offering. YFM's investment helped them speed up that process during Covid. Now the business is over 90% recurring revenue and they're starting to expand into the USA, so they’ve really shifted the whole business in one of the most challenging business environments seen in decades.

Force24 ?have got a great product that was fully developed and had already proven product market fit, offering mainly Mailchimp customers the chance to upgrade with full marketing automation. The founders were already selling successfully and growing very well before we invested. The investment was all about expanding their sales and marketing team and doing what they were already doing, just quicker.

Since we invested, they have tripled the size of their sales and marketing teams. They’re capturing that mid-market between Mail Chimp customers and HubSpot. People are buying it because it’s an email platform that will fully integrate into their CRM, give them additional personalization and automated campaigns.

YFM’s helped them because we’ve got another circa-40 businesses in our portfolio who are all on the scale up journey, which includes building out the management team, the sales and marketing, and all aspects of the business. That's where Force24 was going, from a business led by two founders into a business that was aiming to get ￡10 million Annual Recurring Revenue within three years.

How important is it that companies get the right talent in place to set them off on that growth journey??

Our experience tells us you should hire the best quality people you can afford into the senior positions. When you are at the start of scaling a business, you need to create the foundations. You really need to first focus on the senior leadership team.

Typically, for us, that means getting the best quality Chair, Finance?Director, Sales Director. They're probably the three key hires. Then you build out the team below them. It’s too disruptive to go the other way round where you hire a bunch of people, then bring a manager in who has their own ideas of how they want to shape it with their own people. Often, you need to start slow to go fast later.

Attracting the talent is one half of the story. How does employee retention factor into YFM’s investment decisions?

We believe in investing in businesses that have a positive Impact on their local community and stakeholders, with employees being the most important. Employee retention is a key area for due diligence.?

Getting really good quality management who can hire well and retain that talent is one of the decisions that we make in the first six months of an investment.?

What else do you look for when you're sourcing new companies to invest in?

I spend a lot of my time trying to assess the momentum of a business. That doesn’t boil down to a particular growth rate or KPI, because we invest in businesses at all different stages.

It could be an early-stage start-up, where we need to focus on pipeline and some conversion metrics. We are trying to understand their motivations for buying that product. How much use are they getting from it? How satisfied are they with it and how likely are they to churn??

What we want to see is the product becoming embedded and used every day. If a company can provide usage data and you can see that this is becoming a critical part of somebody's business and is unlikely to get switched out, I would call that momentum.

We're looking for big, addressable markets, where there is a new approach to take some market share. It may be that you’ve come up with something truly innovative, it may be that you are doing some aspect of your product or service better than others, or it’s aimed at a particular niche.?

And what about the people side of things?

I actually want to get on with the people I am working with! The relationship needs to be two-way and I need to feel like they're open to YFM’s support. But equally, the private equity suffers from a bad reputation generally, so it’s only right that we need to demonstrate where we add value and build some trust there through the deal process.?

There's an air of volatility in some of the funding markets at the moment. How are you are dealing with that?

This is a bit of a contrarian view probably. Our part of the market and our region should ignore what's going on in the wider world. A lot of the news about tech valuations is what has been happening in the US on the listed markets. It’s largely irrelevant to Yorkshire scale-ups.

In fact, there’s more funding available now than there ever has been. There's never been a better time for people in Yorkshire to raise tech investment. I would say focus on what you’re doing, the bits you can control and plough on.

We've seen start-up and scale-ups needing to extend their runway on the funding they already have. How would you approach this?

There’s definitely a sharper focus on profitability now than in 2021. Investors aren't going to tolerate huge cash losses perpetually. Investors are much more focused on the test and learn approach before investing in big risky expansion projects. Investors are going to be much more cautious about doing things now, and on a more measured and gradual basis.

What are the top 3 pieces of advice you would give to a founder looking for investment?

Firstly, I would encourage founders to be really open with investors, not just about the successes they've had, but about the mistakes that they've made and lessons that they've learned too. Investors are just as interested in the journey of how you got there and the things that you tried and didn't work.

Secondly, do your own research ahead of speaking to a funder so you've formed your own views ahead of speaking to them about how you fit into their portfolio. How you see yourself fitting into their portfolio is quite important. You might want to be part of a big portfolio where there’s the opportunity to network with a hundred CEOs at big events. Or you may appreciate being part of a small portfolio where you've got a portfolio director like myself who can be much more hands-on and be an active participant.

The third and fundamental one is having a clear plan. We all know that plans don't ever work out quite as you think, but the investor must be really clear about who they're backing and exactly what we're setting out to go and do.

You can have four or five different routes to market and things that you're taking the growth cap on to experiment with. Some of them may work and some of them may not, but that's why you're raising investment.?

If your business is based in North England, looking to secure funding and want to build a relationship with YFM, get in touch with Mike here: [email protected]