Hi Lucius. Thanks for taking the time to speak with Master Investor. Oxford Technology specialises in making and managing investments in start-up and early stage technology-based businesses with high growth prospects. Can you give us a brief introduction to the business and a bit of background info?
Oxford Technology Management Ltd (OTM) has specialised in investing in technology start-up companies in and around Oxford for more than 30 years. The first fund was launched in 1983, and the current fund, Oxford Technology Combined SEIS and EIS fund – OT(S)EIS – is number 14.
One recent interviewee of mine recently referred to the tech startup space as “absolutely the best asset class” to be in right now. Is that a view you’d share?
Yes. The new SEIS scheme transforms the economics of investing in start-ups. It reduces the downside. Investing in start-up technology companies is among the highest risk forms of investment. There are so many things which can and do go wrong. However, the other side of the coin is that when things go well, the gains can be very large.
The tax reliefs are the most generous ever offered and are intended to encourage investors to take more risk. If an investment fails, the tax reliefs mean that the losses are hugely reduced –in certain circumstances to only 13.5% of the original investment. If the investment goes well then all the gains are tax free. This means that one would expect a portfolio of SEIS investments in high risk/high potential return investments to go well.
What makes Oxford – and the so-called “golden triangle” of Oxford, Cambridge and London – so special? Why should investors invest here rather than in the US’s Silicon Valley?
We concentrate on the Oxford area and to a lesser extent London. There are 2,300 science researchers in Oxford, many of them world class, so Oxford is a great place to be for making investments in technology. And there are many other centres of excellence in Oxfordshire including Culham, Harwell, and the Rutherford Appleton complex. There are many scientists and engineers who can provide support to the particular company in question. Having been active in this environment for so many years, OTM is well connected and well-known in Oxford. This means that we are often the first port of call for scientists seeking investment for their start-up companies. In general, we invest only in companies which are within an hour’s drive of Oxford. The reason for this is that although the scientists may be future Nobel laureates, they will probably not have filled out a VAT return, or negotiated an agreement with a US distributor before. We get actively involved to help and we can only do this if the companies are nearby.
The investors won’t get SEIS or EIS tax breaks in the US and they really are transformational from a risk profile point of view. The valuations which US companies are getting at an early stage are very high making it difficult to get big uplifts in valuation. Also the grant funding available to small companies is better here. Entrepreneurs in the US are quite jealous.
Are there areas of tech where the UK has a significant competitive advantage? Are your portfolios naturally weighted towards these areas? Was there anything in particular in the recent Budget that might affect the companies in which you invest – or indeed the individual investors who invest in the EIS schemes and VCTs which you manage?
The Oxford area has fantastic medical technology and so we have found a good number of medical and biotech opportunities, but we also have other examples where we have invested in individual companies that have world beating technology, without the UK being particularly strong in the sector anymore. An example is MPP, which now produces the highest quality metal powder in the world.
The changes in the VCT schemes seem to be making it more attractive to invest in early stage companies – which is what we have always done – so we have not had to make too many adjustments. Fund managers who are used to investing only in profitable, long established companies might find they struggle with the changes.
Can you give us a few examples of the companies you invest in and how they are performing?
OT(S)EIS is now just over three years old, with the first investment having been made in December 2012. And one can now see the effects of the SEIS scheme beginning to show. There are 22 companies in the portfolio and so far there have been two failures. Counting only income tax reliefs (since not all investors have capital gains), the losses on these two investments are £12,300 and £21,000. This compares with potential gains (all tax free!) on two other investments in the portfolio which are doing well, of over £1m and over £500,000. (Obviously nothing really counts until there are exits, but, yes, one can see that things are going well.) Our current portfolio of investments can be found on our website (www.oxfordtechnology.com) But examples include Combat Medical, whose bladder cancer treatment is now in use in some 85 hospitals; Expend, which is going to transform the way in which payment cards can be used and how your expenses will be done – a large number of banks and accounting firms are awaiting the release of their first product and there was a real tussle among investors at Series A which did its valuation no harm; PowerOLEDs, which is developing materials which will be in your mobile phone displays very soon – they can double the efficiency of the screen; and Poïesis, which is our most recent investee and will be taking drugs developed by biotechs for human patients and “translating” them to the companion animal market. The time to sales is much shorter and although the market is smaller it is still very sizeable and the product will already have been de-risked significantly. Come and visit our stand at Master investor and we can give you details on many of the companies.
How do you pick your investments?
We start with the science. All the executives at OTM have science backgrounds and, in the case of the senior executives, experience of having started many businesses. So we invest in companies where there is great science with great commercial potential. Because we are so well-known in our niche, we receive a very large deal flow, and this means that we have a large choice and are able, we hope, to select the best from among the many opportunities which we receive. We also work very hard to support the companies, to help them grow. With our long experience in the area we can often give companies a significant leg up.
You’re attending the Master Investor Show on 23rd April in Islington. Where can readers find you on the day?
Please come and see us on the corner stand – Stand No 74. Here you can get full details of all of our investments to date and how they are doing (both the good and the bad).
About Lucius Cary
Lucius Cary is the founder and managing director of Oxford Technology Management Ltd, which has specialised in making and managing investments in start-up technology-based businesses since 1983. He has a degree in engineering and economics from Oxford University, an MBA from Harvard Business School and was an engineering apprentice at the Atomic Energy Research Establishment, Harwell.
After forming and raising finance for his first business in 1972, he founded “Venture Capital Report” in 1978 and was its managing director for 17 years. In March 1996, he became chairman and reduced his day-to-day involvement in order to concentrate more fully on Oxford Technology Management’s investment activities. Oxford Technology Management raised its first fund to invest in start-up and early-stage technology companies in 1983. By 2016, Oxford Technology Management had managed or advised fourteen funds which, between them, have made more than 100 such investments.
In 2003, he was awarded an OBE for services to business.