Investor Spotlight: Toby Scregg, Calculus Capital
In Planning growth, Raising finance, Rapidly scaling - 3 months ago - 4 min
Investor Spotlight: Toby Scregg, Calculus Capital
Every month we talk to an Investor from our network, who invest in early-stage businesses seeking to raise up to £10m in equity and debt finance. This month we spoke to Toby Scregg from Calculus Capital.
Toby joined Calculus in 2016 and works in the investment team. Toby’s responsibilities include investment appraisal, due diligence, portfolio management and exit. Prior to this, he worked as an analyst at Standard Chartered Bank, assisting in the origination and execution of a range of structured financing, M&A and financial market transactions after having completed the Corporate Finance and Coverage International Graduate Scheme. Toby graduated in Economics from the University of Exeter.
Could you tell us a little bit more about Calculus Capital?
Calculus Capital is a specialist EIS/VCT private equity investor targeting growth businesses in the UK. We launched the first approved EIS fund in 1999 and have gone on to launch 17 further EIS funds. We also manage the Calculus VCT. As an investment strategy, we seek capital appreciation from dynamic, entrepreneurial, growing companies across a multitude of sectors.
How big is your portfolio? And how much do you typically invest?
Calculus currently have £170m of assets under management across 34 investee companies in a wide variety of sectors and across all regions of the UK. A typical deal for us would be a £2m-£5m investment and we look to invest in 6 to 8 new companies each year. Historically we have tended to be the lead/sole investor although we are equally happy as part of a syndicate.
What are the top three things you look at when considering a new investment?
1. Strong management team
The skills and experience needed to found and manage a start-up are distinct from those required to meet the challenges of leading a complex business with the potential to scale to 50+ employees. Identifying individuals with the ability to make that transition is a challenging but crucial component of our investment appraisal process, and a key contributor to value creation on exit.
2. Commercial traction
Calculus look to invest in companies with a proven product-market fit, and historic financial performance is often a useful proxy for this. As a rule of thumb, businesses with £1m+ of annualised revenue begin to look interesting, but this will depend on the ‘quality’ of the revenue generated, with recurring revenues from longer term contracts typically viewed more favourably than one-off product or retail sales.
3. A clear path to profitability
We need to be able to believe in a defensible plan that sees the company achieving profitability without the need for further capital. Calculus is a supportive investor, and will follow on for the right reasons, but further investment shouldn’t be required to execute management’s ambitions.
Are there any companies you’d like to highlight that you’ve worked with?
Calculus has invested in a number of a high performing companies, both exited and still within our portfolio. Active Ops, a SaaS business providing digital operations management software, is a good example. Since our investment in 2014, turnover has grown by 170% and now has customers in over 35 countries.
Any companies that got away that you wish you’d backed?
We tend to focus on investment in companies at the latter stages of EIS/VCT eligibility, which means that we will occasionally miss out on businesses with very attractive qualities but are too early for our investment criteria.
Whilst there will always be cases where, looking back, we would love to have been involved with the growth of the company, hindsight is 20:20 and we are comfortable that our focus on more established businesses mitigates risk for our investors. For every one we miss, there will have been nine compelling early stage businesses which will not have been quite as successful.
What are the big red flags for you when reviewing investment propositions?
- Unrealistic valuation expectations, especially when the company has yet to sell/monetise their product or service.
- Insufficient focus on the company’s current and potential competitive threats. Even with a degree of differentiation, the vast majority will need to respond to competitive pressure as they grow.
- Whilst multiple routes to market can be a positive, it often leads to management spreading themselves too thinly. We’d much rather see a well thought out, strongly evidenced sales strategy with key target markets or customers than a more opportunistic approach that suggests a lack of focus.
I wish I saw more…
We receive 500+ inbound opportunities every year, but fewer than 1% of these are founded by female CEOs. It’d be great to see more of the fantastic female-founded businesses the UK has to offer.
I wish I saw fewer…
Companies claiming to be the next facebook/uber/airbnb of [insert name of unrelated sector]!
What I wish I could tell every founder…
When pitching or preparing investment marketing materials, don’t emphasise the returns that investors can expect to generate: “5.0x cash-on-cash return by year 4”. Focus on presenting the business; where it is and where it’s going.
I would also urge founders to utilise their angel investors. Most of our investee companies have raised at least one round of angel funding, these individuals are often extremely well connected and can make valuable introductions to both additional sources of capital and potential business partners.
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What do you see as the next industry to be disrupted?
We are increasingly seeing artificial intelligence concepts utilised by the business models of prospective investment opportunities and companies within our portfolio. Whilst this certainly isn’t isolated to a single industry, I’ve noticed the technology (particularly machine learning) applied more and more to B2B SaaS businesses looking to drive efficiencies for their clients. Avvio, a cloud-based hotel booking platform provider within our portfolio, has started to utilise the technology to good effect; using data from historic customer interactions and real time responses to tailor the user experience with the platform and drive conversion.
How should a business seeking finance approach you?
Sending through an IM/Teaser to our investment team inbox is the best place to start: firstname.lastname@example.org. Following that, one of the members of the team will give you a ring to talk it through in more detail.
If you are thinking about raising investment for your business and want to understand your options, get some free guidance from one of our team team today on 08081 722350 or drop us an email: G.Enquiries@uk.gt.com