British Robotics Scale-Up Fund
You’ve probably had dealings with a robot recently. Whether it’s contacting your mobile phone provider, having an online order picked for you, or even getting a prescription dispensed from a pharmacy, chances are a robot has been involved.
Across the globe, the robotics industry is reaching a tipping point. For the first time, it is becoming cheaper to own, operate and maintain a robotics system than it is to use manual labour. The global robotics industry is forecast to expand from $34.1 billion in 2016 to over $200 billion by 2021, representing a compound annual growth rate of 45%.
What’s bad news for workers could be good news for investors, especially for those prepared to take some risk.
Dominic Keen, the fund’s founder, has launched three SEIS funds since 2016. At the time of writing, British Robotics has already invested in 12 robotics start-up companies. However, as these companies develop and grow they often require additional funding – this is the purpose of the new Scale-Up Fund.
The British Robotics Scale-Up Fund will be the company’s first specifically EIS fund and should benefit from a refined selection of companies capable of further development. However, it is important to note that while previous British Robotics SEIS funds have deployed capital, there is no track record of exits so far and these are still high-risk, early-stage companies.
- A fast-growing sector, capitalising on Britain’s strength in robotics development
- EIS offer targeting robotics companies that have demonstrated market traction
- A minimum portfolio of six companies, not guaranteed.
- Investee companies must have advance assurance
- Targeting 3x return before tax relief – not guaranteed
- Minimum investment £10,000
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The fund is the brainchild of Dominic Keen, a successful British technology entrepreneur who holds a Masters in Engineering from Cambridge University. His company, High Growth Robotics (“HGR”), sources deals for the fund. He began his career in venture capital and in 2006 founded software business mPorium Group. This floated on AIM in 2013 and has a current market cap of £43.95 million (Feb 2019). Dominic has experience both in robotics and in developing early-stage businesses.
Unlike previous British Robotic funds, this offer will predominantly target companies that have already received SEIS funding. Currently, High Growth Robotics is mentoring twelve companies and it is anticipated that the Scale-Up Fund will provide subsequent funding for the top performers from this selection.
The portfolio size is expected to be between 6 and 12 companies, across a range of business sectors from education tools to industrial robotics.
Watch a video interview with Dominic Keen of High Growth Robotics:
The aim of the fund is to make targeted scale-up investments into businesses that have already shown commercial traction. Mr Keen anticipates the majority of investee companies will be sourced from prior British Robotics SEIS funds. However, there is a scope for companies outside of the funds, most likely from Mr Keen’s network of university contacts and industry professionals.
While the investee companies will be at a more advanced stage of development compared to their SEIS counterparts, they will still have to demonstrate several key traits. Regardless of sector, each company should have the potential for rapid growth and a potential exit within three to six years, although this is in no way guaranteed.
Each investee company will be supported by the investment manager and company mentor. As with the SEIS stage, the company mentorship team will look to develop the commercial aspects of the businesses and ensure that capital is deployed appropriately. A six-point plan aims to add extra value over and above the funding itself:
- Financial discipline – the Company Mentor will review spending controls monthly alongside building realistic forecasts
- Efficient operational model – to ensure the startup team is focused on its core area of advantage: non-core activities may be out-sourced and debt can be introduced to maximise the business model
- Commercial management – the mentor will help each company ‘go to market’ nationally and internationally and negotiate commercial contracts and prospect for new leads
- Access to networks – the mentor’s networks and connections should help to open doors for development
- Free office space and workshops – if desired, the companies have access to free office space and well-resourced workshops via a technology incubator in the East of England
- Showcasing and PR – each robot will be presented in a virtual showcase with video demonstrations.
Businesses that fail will be wound up or High Growth Robotics will attempt to sell the IP. However, there is unlikely to be much value in the IP of the businesses that don’t pan out as expected.
There are several exit options, including a stock market listing (Mr Keen has some experience here), trade sale or a sale of the entire portfolio. Exit options and timeframes are not guaranteed.
As this is a new fund, there is no past performance. However, it’s worth highlighting some recent success stories within the sector. Note these are examples only: for instance Fastbrick Robotics is Australian and will not be held by the fund. They should not be regarded as an indication of the performance of future investments in the fund.
Examples of the kind of portfolio companies sought:
Australian Fastbrick Robotics has developed the Hadrian robot. The robot is capable of laying 1,000 bricks per hour or 150 homes a year. It takes its instructions from a 3D CAD representation. The machine doesn’t sleep, eat or take breaks. It’s around 20 times faster than a human bricklayer.
Tethered Drone Systems
One of the biggest constraints of free-flying drones is their limited flight time. However, Tethered Drone Systems have bypassed this concern by designing a lightweight tether which can transmit ground generated power to maintain stable and continuous flight. The technology has potential in a number of sectors such as aerial surveillance, communications and broadcasting. British Robotics has already made an initial investment through SEIS and Mr Keen considers the company to be a potential candidate for additional funding.
Zoa Robotics creates low-cost highly mobile four-legged robots. The robots have been designed to transport materials and inspect unmanned facilities. The team is currently preparing for tests with three industrial trial customers which should begin this year. The company was one of the first investments made by the original British Robotics Seed Fund and Mr Keen thinks it is a strong candidate for the Scale-Up Fund.
Fees and charges
A summary of the fees and charges is shown below. Please see the provider’s documents for more details.
|Full initial charge||3.9%|
|Annual administration charge||See details|
More detail on the charges
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
EIS / SEIS investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
Tax rules can change and benefits depend on circumstances.
This EIS / SEIS fund invests in early-stage businesses which are more likely to fail than larger ones, so you should expect a number of failures in the portfolio.
Specific risks with this offer are as follows:
- High risk of losing capital – By definition, this is a high-risk investment which could result in a total loss, as well as having the potential to deliver high returns. In a portfolio of five companies, one might do very well (although there are no guarantees), but the others – or even all of them – might fail.
- No track record – As this a new offer, the team have not proven themselves capable of winding up a poor investment or capitalising on a good one. That said, the skill sets and resources at their disposal mitigate this concern to an extent.
- Follow-on funding – Investments of this nature often require follow-on funding. The additional funding rounds could carry dilution risk for existing investors.
- Key man risk – Whilst this may be a strength, the offer is heavily reliant on Dominic Keen. There is no investment committee so Sapphire Capital Partners must be able to scrutinise Dominic Keen’s work.
This is undoubtedly an exciting and fast-growing space. Dominic Keen is an experienced operator who is well placed to make the opportunity a success, although please remember there are considerable risks. The investment criteria appear well thought through and there have been some real success stories in robotics to date – although past performance is not a guide to the future.
For investors who can tolerate the risks, this could be an interesting opportunity to gain access to a unique portfolio of robotics and AI businesses.
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Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
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- 20 Oct 2019