Understandably, we normally concentrate on EIS from the investor’s perspective; so it was illuminating to hear first-hand from a pair of start-up entrepreneurs.
At a recent round-table session generously hosted by Hambro Perks, Alex Sullivan, Managing Partner of GBI and IFA magazines, discussed how we need to divert attention away from the tax efficiencies and benefits that an EIS can bring, and rather focus on where the money goes and how it helps the British economy.
Two key EIS providers, Deepbridge and Hambro Perks, each introduced one of their successful start-ups to give us an insight into the coal face of capital investment.
Deepbridge focus on supporting technologies aiming to provide commercial solutions to real world problems, but try to avoid investing to simply satisfy buzzwords. They say that having previously been approached by many companies claiming to be developing “blockchain” solutions, it was noticeable that many were data-processing tools attempting to jump on the ‘blockchain bandwagon’, rather than creating a genuinely innovative blockchain.
Chainvine – The real blockchain deal
They did, however, find Chainvine – who were genuinely developing an innovative blockchain technology, and were making a practical difference in building a practical business. They had identified a clearly defined problem in the market – and were providing a solution, two key criteria for Deepbridge when committing to investment.
Rajiv Mathur is the co-founder and chief technologist at Chainvine. He used to teach computer science at Imperial College and has worked for big banks and Visa on fraud detection security.
“When my partner and I saw blockchain, we wondered how we could utilise it for enterprise. The focus wasn’t on the consumer, but we wanted to have a huge impact on business.
“Consumers don’t care much about the technology, just its application whereas blockchain is a technology, it’s in the back-end. So consumers don’t touch it or feel it and we use DHCP, which is a protocol for assigning dynamic IP addresses to devices on a network. Does this matter to the consumer? No, but using Microsoft Outlook to send an email really does.
“We wanted to create an application to allow companies to use the new technology in the mainstream beyond the hype and this is what we did. We started by creating a platform that allows any organisation to use the distributed technology without understanding it. You don’t need to understand how the email system works to send an email.
“Blockchain is forcing people to make decisions about which technology to use but Chainvine’s platform is agnostic about the specific technology. There are 8 or 9 mainstream technologies, and we can use them all in our platform and that’s how we are different from the rest of the market. We don’t join any alliances and we don’t want to create a closed ecosystem but encourage the emergence of an open ecosystem.
“Businesses have shelled out billions on closed ecosystems. Where we see this going mainstream is how these systems can interoperate. Our platform allows that and we want to create a super ecosystem that others can join.”
Before introducing his investee, Dominic Perks, CEO of Hambro Perks, spoke of his company’s passion for backing and building technology companies, which now comprise a portfolio of over 40. Hambro Perks’ point of difference from the EIS perspective is that they invest their own capital in these businesses and then have a co-investment fund. They work closely with ideas-led young entrepreneurs, of whom Ollie Povey, founder of Tempo, is one.
“Tempo is an end-to-end recruitment business which disrupts how people hire staff and how others find work. Existing recruitment channels are outdated and unfit for purpose from the hirers’ and jobseekers’ perspectives.
“Our workforce grew up with video and technology at their fingertips and they don’t need to go through a 2 – 3 week process. They need to find the job, apply for the job and get hired and that’s how we connect jobseekers and companies. We have technology that matches traditional CV work experience and a series of platform data about how they engage with the platform.
“What we build is a platform which prioritises or streamlines to see the candidates that they want and vice versa a tailored shortlist of candidates. We use video and a platform to speed up the 30-day process to 3 days in a more engaging and personal way.
We launched about 2 years ago with Hambro Perks and have gone from a 2-man band to pushing 30 staff. We work with 30,000 candidates, 2,500 companies and have placed 1,000 people in work in London.”
What were the businesses like before EIS funding?
Chainvine was self-funded for 18 months before Deepbridge stepped in. They had technology they wanted to develop but couldn’t afford to hire a team, so relied on small third-party suppliers to create code. They weren’t in control and IP was compromised.
The funding allowed them to assemble an in-house development department and, being based in Basingstoke, they weren’t paying London rents. They offered graduate internships and post-maternity positions. Said Mathur: “Yes, it is from a vested interest, but we want to help society a little.”
By contrast, Tempo started from scratch in collaboration with Hambro Perks. 2 years on they have built a big business which has grown from 2 to 30 employees.
Ollie Povey again: “We have found a gap and said ‘Let’s go for it’, and have built a business which is the upcoming name. Without access to EIS funding someone else would have done it and overtaken us or a bigger company in the sector would have done it.”
Apart from the obvious, what’s in it for investors?
“If it goes like we want it to and we are working hard to make sure it does, investors should feel proud that they helped build Chainvine and get real satisfaction that they were involved in something groundbreaking,” says Rajiv Mathur. “There are the financial benefits, and the tax benefits. But there should also be a sense of pride in supporting a business that has the right sort of people and realising that you are as crucial as the team itself.
Povey agrees: “The other thing about schemes like EIS is that it allows investors access to businesses they’re passionate about. They might have a prior understanding of it – they might have an involvement in the traditional HR industry, or they have experience related to it. It’s a market they’re genuinely interested in.”
Dominic Perks echoed the sentiment: “Investors want returns. We like to feel warm and fuzzy and get returns.”
Andrew Aldridge of Deepbridge concurred: “Just like us, clients want to understand what they are investing in and when they know what they are supporting, they become passionate. People understand entrepreneurship in the UK and are enthused about it, but perhaps 10 or 15 years ago it wasn’t seen as a career like now. People can really buy into supporting that.”