Value Added
Jonathan Richards
28-Jun-07
Bruce Macfarlane, co-founder of MMC Ventures, talks to ‘Angel Investor’ about the contribution his business can make to new companies and the benefits of a highly-maneuverable organisation.
There’s tranquillity about the MMC Ventures office tucked away off High Street Kensington. Cross the threshold and you encounter a far from the madding crowd serenity.
Founder director Bruce Macfarlane set up the venture capital company – which specialises in early-stage investments – seven years ago with colleagues Allan Cockell and Alan Morgan. Previously, he’d been a lawyer then an investment banker at Merrill Lynch for 15 years – latterly as Managing Director, followed by a move to Bankers Trust as a Partner.
He characterises MMC culture as ‘low -key’ and ‘non-extravagant’. He’s even been known to change the office light bulbs; you get the feeling that this is all very hands-on.
How did he come to set up MMC? ‘It started as a loose network of individuals investing on the side. We all had day jobs and no time to do due diligence or legals. In the end, we wanted to create a highly professional engine room of full-time experts who would take care of all the deal screening, due diligence and post investment support.’ The result was MMC.
Case study: Neoss
Area of business: A mould-breaking dental implant system for replacing missing teeth.
Profile: Co-founded by Neil Meredith, Chair in Biomaterials at Leeds Dental Institute – ‘the most commercial academic I’ve ever met’, according to Macfarlane – and Swede Fredrik Engman, a former senior product developer at the market leader, Nobel Biocare.
Background: Market growing strongly (over 20% year-on-year growth) and Neoss itself now growing at over 100%. Attractive margins in excess of 60%; Strong patent protection; Key regulatory approvals already obtained; Commitments from several well qualified distributors obtained in key market.
Date Invested: Q2 2003, Q2 2004, Q2 2005 ,Q4 2005 and Q2 2007
Amount Invested: £12.5 million
Macfarlane is very clear about the company’s raison d’etre. ‘We don’t invest if all we can offer is money,’ he says. ‘We need to add some other kinds of value.’ Such as? ‘We are, for example, able to offer our portfolio companies high level introductions to potential partners and customers.’ The company can point to being able to access a wide range of backgrounds, from management consultants to entrepreneurs; board directors of large corporations to City financiers.
‘There is one point of contact here, it makes things faster for everyone,’ says Macfarlane. ‘Decisions are made quickly.’ He continues: ‘Fast growing companies are our focus. We look to work in key sectors – healthcare, financial services, technology and business support.’ He avoids biotech companies because they require ‘a bottomless pit of capital’.
Access to MMC experience and investments divides into two distinct commercial options. The MMC Co-Investment Fund is for the ‘passive’ investor with no time involvement required after the initial decision to invest in the Fund. Attractive Tax Benefits are offered and every investment receives EIS tax relief. (This means the maximum that an investor is risking is 48% of their initial investment). Many investors take advantage of up to the maximum EIS benefits of £400,000 each year. A minimum investment of £50,000 is required here. ‘However, investing solely for tax reasons is a bad motive,’ says Macfarlane. ‘We look to invest on commercial merits and the tax benefits are the cream on the cake.’
MMC Syndicate is characterised by Macfarlane as being for people who ‘like to meet management teams and kick the tyres.’ The Syndicate membership can be broadly broken down into three groups of individuals: financial and professional services partners; leading businessmen (including three recent FTSE100 CEOs); and successful entrepreneurs.
In all ventures in which MMC gets involved, they demand the right to nominate the chairman. ‘We’ll find the right chairman,’ he says. ‘If we don’t have someone immediately obvious then we’ll network and find someone appropriate.’
Macfarlane acknowledges and highlights an ‘understanding gap’ when it comes to companies getting involved with venture capitalists. Almost paternally he explains: ‘We often need to walk budding entrepreneurs through every stage of what’s going to happen.’ He’s very specific about what he looks for in a business – ‘traction’ is the key. He likes to see individuals who’ve committed everything to getting their businesses going (obtaining a second mortgage for example) – a concrete manifestation, if you like, of their belief.
The ‘bubble’ days of ‘no strings’ deals, are over. Any would-be entrepreneur who does not recognise that he will need all kindsof help is simply naive,’ he says. ‘MMC seeks to strike the difficult balance between close support for the entrepreneur and insistence on meeting agreed milestones and targets.
Away from the obvious buzz of incubating and developing businesses, ultimately, the whole issue of exit has to be broached. ‘We’re always looking for an exit,’ he notes. ‘Typically we look for it within a 3 to 7 year period.’
The added value that MMC can contribute to new businesses is something to which Macfarlane is keen to return. Unusually, the company makes a point of encouraging – indeed insisting on – ‘annual strategy away days’; this is where all aspects of the business can be discussed and key objectives and targets set away from the confines of the office. It’s a technique that has, according to Macfarlane, ‘served the company and its investors well’.
One experience he’s currently clearly enjoying is that with HIV diagnostic company, Delphic. ‘It’s the only business that can do real-time HIV testing,’ he enthuses. ‘It’s a world leader and has just won a major global contract.’ At investment MMC appointed as Chairman one of their Syndicate members, a former FD of Wellcome, ‘thereby giving a small company the benefit of a seasoned FTSE 100 finance director’.
What keeps him going? The VC business can be punishing – long hours, endless meetings, and a bottomless pit of business plans. ‘It’s hard to do this well,’ he acknowledges. ‘One of the real buzzes for me is seeing new things – all the time.’
The MMC approach appears to be working: their returns are among the highest in the sector. Gross returns to MMC investors are approaching 30% to date.
