Describing itself as the most active investor in the UK, it was set up in 2011. Mr Graham joined the following year, having previously been investment director at Sigma Capital Group, and having started his career at Deloitte.
He had been intrigued by the then-nascent firm combining the excitement and fast pace of the start-up sector but with the copper-bottomed backing of deep pockets. “It’s a fairly rapid growth story – but it’s been a very enjoyable one to date,” he has previously said.
Can you characterise BGF’s activity in Scotland last year against the backdrop of the pandemic?
Despite the pandemic, 2020 was an extremely positive and active year in terms of investment activity. The portfolio of companies we support performed remarkably well considering all the challenges in the market, which is a huge credit to our management teams. The fact that our companies have strong balance sheets, bolstered by BGF funding, meant that they could capitalise on opportunities that arose.
Merger and acquisition (M&A) activity was particularly prevalent, and our Scottish and Northern Ireland portfolio alone made around eight acquisitions in the second half of 2020. We also continued our strong run of positive exits, notably with the partial exit of our investment in M Squared Lasers, which generated an extremely healthy return.
In terms of new investment, as I said in January, BGF invested £37 million across Scotland and Northern Ireland in 2020. This involved more than 12 growth businesses which was very pleasing and one of our strongest years of new investment to date in the region.
My team places a lot of emphasis on building relationships with the founders and management teams that we back, which could in theory have been more difficult to sustain given the inability to meet in person. However, like others, we made use of video platforms to stay in touch and we also benefited from the fact that, across pretty much all of the new deals, we had already been building relationships with the management teams pre-pandemic.
You also said you anticipated a strong pipeline and robust M&A activity this year, and have grown your investment team. Can you explain more about your outlook for BGF’s Scottish operations this year?
We’ve already had a strong first half, having completed four new investments to date this year across a range of sectors and stages of business, all with really impressive growth and exciting plans ahead.
For example, we recently completed an investment into Odro, an early stage but rapidly growing business providing a video platform for the recruitment industry. Most recently, we invested into Bella & Duke, the fast-growing premium raw dog food business. Our pipeline remains healthy with two or three further potential deals at advanced stages.
I am quietly confident that our operations in Scotland and Northern Ireland will continue with the current positive growth trajectory seen in recent years. We continue to see positive momentum and growth across our existing investee companies, particularly as markets start to open up.
M&A activity continues to help drive growth as well as the businesses being agile, adapting to and capitalising on changing business and consumer buying habits. For example, our portfolio company The Paint Shed has scaled its e-commerce platform alongside its physical store presence to benefit from the shift to online.
How does the recent ScaleUp Week: The Business Plan initiative feed into your ambitions and help address “critical challenges” as the country recovers economically?
BGF is celebrating its tenth anniversary this year. Milestone birthdays are often used as an opportunity to look to the past. However, we didn’t want this milestone to turn into navel-gazing.
That’s why we organised ScaleUp Week, a series of virtual events to examine the ecosystem for growing companies. We have identified numerous proposals, aimed at a range of stakeholders from government ministers to private sector organisations to business leaders, which we believe will put the economies of the UK and Ireland on a sound footing for the coming decade.
These proposals include expanding the sum of private capital available for equity investment in scale-up companies. To survive and thrive, scale-ups need financial fuel. This expansion can be achieved by removing barriers that prevent pension schemes from investing in unlisted equities, and by incentivising institutions such as insurers and sovereign wealth funds to invest more in scale-up businesses.
BGF was earlier this year named the most active investor in female-led scale-ups by the Scale-Up Institute. What more can be done to encourage a better gender balance and diversity overall in entrepreneurship?
One of the key take-outs from ScaleUp Week discussions was to make the investment industry more representative of wider society.
To realise the power of untapped entrepreneurial energies, the investment industry must do better at engaging with unrepresented groups. This means employing more women and more people from black, Asian and minority ethnic backgrounds.
BGF is already taking a lead but there is more still to be done. Inclusive hiring policies, workplace practices and thoughtful language are crucial. Proactive measures will be increasingly expected of companies to avoid unconscious bias in the workplace and to prevent discrimination, whether intentional or not.
Scale-up companies need support, and the investment industry is well-placed to provide it, provided investors themselves heed the call and make their own teams and practices representative of the societies in which they exist.
BGF chairman Stephen Welton recently said he would like the organisation “to play the role of the stock market for private companies”, while there has been criticism of the way private equity can treat such firms. How crucial and unique is the role BGF can play in accelerating scaling businesses?
In 2021, BGF is looking to surpass the level of investment made in 2020 by backing even more high-potential, high-growth companies. PwC research released in 2020 determined there are more than 21,400 small and midsized companies in the UK alone that are potential targets for BGF investment.
These are businesses that have outgrown the kind of early-stage funding available for start-ups, but have not yet achieved the scale of large, listed businesses. They also include the thousands of companies that may be over-indebted as a result of the pandemic. BGF believes that equity funding must be part of the solution to meeting these companies’ needs.
What is the biggest challenge currently facing BGF?
The biggest challenges facing BGF are the same challenges that are facing society at large. How do we create a more inclusive world, how do we meet the challenges of net zero, how do we make sure the next generation is equipped with the skills to meet the demands of the future, how do we make sure businesses have access to funding that will enable them to thrive?
If some progress is made in the directions we have signposted in, for example, ScaleUp Week, then scale-up businesses and the societies they benefit will be put on a far more stable footing. The companies that BGF exists specifically to support are a tremendous source of growth and innovation; any help they receive ought to repay itself several times over in the impact it could have on the world.
What’s been the most important lesson you’ve learnt in your career, and who do you admire in business?
Surround yourself with people that are more capable than you, that you respect, but most importantly that you also can build a good relationship with. Without the relationship piece then the job in general is just less fun and that bit harder. I thoroughly enjoy my job, and the key driver of that is the people I have the privilege to work with.
Sir James Dyson is always someone I have admired as he completely turned a market on its head with a unique vacuum cleaner design, and is now doing the same again with other products and markets. And Nike founder Phil Knight is someone I admire – as a keen runner, I thoroughly enjoyed reading Shoedog, which charts the story of how the global shoe business was formed and transformed the sector through innovation coupled with sheer determination.