Mercia Asset Management is the newest Venture Capital firm to set up a permanent shop here in the South West. It was great news for our tech and digital community in Bristol, as Mercia is one of the most active venture investors in the UK. But you may have some questions. What type of businesses do they invest in? What type of investments do they make? Can I speak to the team? So just in case you haven’t been familiarised with Mercia, we caught up with Investment Associate, Adam Watts (pictured right), to ask the all important questions.
First, the facts. Mercia has £1 billion under management across private equity, venture and debt funds, but they are predominantly an investor in venture stage businesses, managing £800 million across a range of venture funds. Broadly, the team operating in the South West invests from £500k to £5 million first cheque, from Seed to Series B, and they look to build exposures up to £10 million and more.
Mercia is a generalist investor – some sectors they regularly invest in include Software and Data, Life Sciences, Deep Tech, Clean Tech and Gaming & Digital Entertainment; note that this isn’t a comprehensive list and that some funds will have unique criteria. Mercia has been making investments across the UK for the past 20 years (including the South West), but opened its first dedicated office in Bristol last November with the ambition to accelerate its presence within our community and to ensure we have the much needed cash injection to keep up to speed with our ideas for innovation!
You can find the team of three at the newly renovated Generator building, otherwise known as Clockwise. Adam lets on that their office launch party is planned for September, “so, watch this space!”
Product, market and team
If you’re thinking about pitching for investment from Mercia, or albeit any other investor, Adam has shared some insight on the key factors that come into play when making the decision to invest.
Adam tells us, “At a high-level, when looking at a business to invest in I always focus on three key areas: product, market and the team. We look for products or services that are 10x better than existing solutions, rather than a “me-too” solutions which only move the dial by 5-10%.
“When looking at markets, estimates of market sizing are interesting, however, the market trajectory is a more compelling signal to us as an investor – i.e. where the market is going, what might the world look like in 18-24 months and how does the businesses’ product or service look in that world. We want to invest in products and services that sit within markets with high growth potential – aiming to claim the new ‘Blue Ocean’, rather than compete and bump up against existing solutions from often- better-funded incumbents.
“Ultimately when assessing management teams we look for people that we feel we can build strong working relationships with. Our investments can be held for five to seven years, or sometimes even longer – they’re almost comparable to a marriage (although, hopefully, marriages last longer) – so you want to make sure you’re entering that relationship with someone you can work well with and have a constructive relationship with for the duration. Naturally, it helps if a management team have had experience in the sector in which they’re operating and if they’ve previously sold a business in this sector, that’s’ great, but it’s not a prerequisite for investment.”
Working in the South West
It’s always good news for our tech community when an investor decides to establish a permanent presence in the region. Not only does it provide newfound potential opportunities for startups to access coveted cash, but having an expert nearby to build a relationship with and tap into their unique insight is invaluable to any business looking to grow.
When speaking with Adam, it was immediately apparent how important having a regional focus is to Mercia. Throughout its history, the company has seen the intrinsic value of supporting smaller ventures situated within local, tight knit communities.
To illustrate why they feel so passionately about this, Adam tells us, “Faradion is a great example of a recent regional success story of ours. We first backed the Sheffield-based sodium-ion cell battery technology business in 2010 and secured a £100million exit in January this year. If we were purely focused on London or the South East, we would have missed that opportunity. Faradion is just one of many examples of outstanding regional business we have backed that have performed exceptionally well.”
The South West made sense to Merica, after having a series of success stories from investments made here, namely I-Phyc (Industrial Phycology), an alumni of SETsquared Bristol and finalist for The SPARKies 2022, Cheltenham-based Enate, Exeter-based data service provider Distil.ai and more recently, Cloud8, a Bristol-based HR technology business.
Adam expands on what consolidated their decision to settle in the South West: “We were attracted here because we buy into the scale of the opportunity that exists in Bristol and the wider South West. The British Business Bank recently released its 2022 Small Business Equity Tracker, which noted that Bristol and Bath represent the fifth largest startup and tech cluster in the UK, behind only London, Cambridge, Oxford and Manchester by yearly investment value. Although there are other funders in the region, we think the South West remains underserved relative to the size of that market.”
Mercia was also impressed with the pure surge in investment across the region, 357% from 2020 to 2021. At TechSPARK, Briony Phillips has been tracking this investment, so if you’re curious to find out more about this extreme growth, check out her regular updates. Adam says the numbers speak for themselves, demonstrating the potential our region holds as well as presenting an “opportunity for Mercia to be the local funder of choice meaning high potential local businesses do not need to go to London to be funded!”
He goes on to say, “2021 was a record year for UK equity finance with £18.1 billion invested – that’s nearly double the amount invested in 2020. Despite this, regional disparities in equity financing remain and are actually accelerating – 2021 saw the proportion of investment in London based businesses increase by 3%, now accounting for 49% of deals closed. While we do invest in London, our focus remains outside of the capital where there are huge numbers of great businesses that can help us drive value for our LPs.”
Doing things differently at Merica
Mercia’s values align almost seamlessly with the general attitude here in the Bristol and Bath tech cluster. Adam explains, “Our regional focus is one of our distinguishing features and our commitment to responsible investing is another. Mercia has an internal Responsible Investment Committee that meets on a monthly basis with representation across all of our funds and business departments. This group considers how Mercia can have an appropriate ESG lens when investing into new opportunities, as well as focusing on what we are doing ourselves internally to reduce our footprint, promote equality in all aspects of work and life, and maintain good governance.”
We know the community spirit is alive and well in the South West tech cluster, and Adam echos this sentiment: “Venture can be a competitive industry, however, I have found the community in Bristol and the South West to be extremely collaborative.
“Since launching here last year, we have bought into that and have sought to “give back” where we can. One example of this is through our Investor in Residence partnership with SETsquared – where local businesses and entrepreneurs can book in a monthly timeslot with one of our team to ask specific questions, or just have an informal chat!”
These ‘off the clock’ discussions can be where the real magic happens, and Adam reinforces how valuable it is to connect with members of the community in this way: “It’s been great to have these open conversations with entrepreneurs, and even where opportunities are too early stage or not the right fit at the time we speak, we like to keep dialogues open to provide on-going ad-hoc advice or potentially funding in the future.
“The community is growing all the time in Bristol in the South West, but it’s small enough to get your hands around and really feel a part of a community – this makes coming to work and attending events (such as the upcoming SPARKies, which we are sponsoring) very enjoyable!”
If you’re interested in learning more about Mercia or getting involved, have a look at their website and their social platforms like Linkedin. These provide a great introduction to the portfolio businesses they have already invested in, and also reveal a lot about the team culture and ethos.
Mercia also runs ‘Meet the Funder’ sessions each Friday where anybody who is tentatively interested in investment can drop-in and chat to one of the Investment Managers about the opportunities available to them. Their weekly newsletter ‘Starter for 10’ also reveals a lot about their values and perspectives as a business.
A huge thanks goes to Mercia for being one of this year’s fantastic sponsors of The SPARKies! Make sure to get yourself a ticket and join the 500 members of the tech and digital community to celebrate with us tomorrow.
