Clarendon Fund Managers’ Investment Manager Chris Trotter explains how the Northern Ireland Co-Investment Fund and Halo Business Angel Network work together, and how they are still investing during the COVID-19 pandemic

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UK Business Angels Association

04 May 2020

Chris TrotterInvestment opportunities may be more challenging at the moment but that doesn’t mean that investors aren’t looking for them. Like much of the rest of the world, Northern Ireland has been under lockdown thanks to the ongoing COVID-19 pandemic which has presented both challenges and opportunities for businesses in the country. We spoke to Chris Trotter, an Investment Manager at Clarendon Fund Managers to find out more about what they do and how they’re continuing to invest.

Established in 2001, Clarendon Fund Managers has invested in over 85 companies over the last 19 years. A venture capital fund manager based in Belfast, Northern Ireland, Clarendon manages the £30 million Northern Ireland Co-Investment Fund. Chris explains:

“The fund was set up by our local development agency Invest NI in 2012. It was designed to support and encourage private investment in Northern Ireland into high-growth companies. They’re really trying to follow aspects of the Scottish model of public co-investment alongside private investors.”

Accessible to companies from most sectors the Co-Investment Fund is open to any company that’s high growth and high potential.

“Being a Co-Investment Fund, one of the main factors we look for is a strong group of private investors that we can matching against. That really allows us to avoid duplicating due diligence because we know that they have the resources and the experience to evaluate deals. However, they still have to go through a formal due diligence process with us and receive approval from our investment committee. The key things for us is high growth potential and a capable management team.”

Clarendon also manages the Halo Business Angel Network (HBAN) in Northern Ireland which was established in late 2018 and operates alongside the Co-Investment Fund. Sharing more about HBAN Chris comments:

“It’s a program to encourage formal angel syndication. We setup events for high-growth companies to pitch in front of over 80 experienced angels. We put deals to them each quarter for their consideration. It’s got off to a great start with nearly £5 million of business angel investment into 24 deals since late 2018.”

There’s a real synergy between the two endeavours. Talking about the way the two work initiatives together, Chris shares:

“Whenever we originate a deal through HBAN, we determine if it’s a suitable match for Co-Fund. Likewise, if we get approached directly for Co-Fund investment, but there’s still a funding gap, we can then share it with our HBAN network. Co-Fund participation in a deal can encourage angel participation as local investors understand our process and know our investment team. Operating both programmes under one roof is a great model because there’s access to a large investor network with additional Co-Fund leverage for any funding gap.”

Developing relationships with other Business Angel Syndicates and Fund Managers across the UK and Ireland is also a strategic goal for Clarendon. We have well-established partnerships with investors actively considering deals in NI and we are keen to expand this network further.

“Like everywhere else, there’s been a bit of a shock to the entire business environment in Northern Ireland. COVID-19 for some companies has totally transformed or shifted their outlook.”

Like other areas of the UK, Northern Ireland has a thriving enterprise software sector, but is notable for investments in life sciences and medtech.

Chris also notes that consumer products have increasingly attracted private investor attention locally:

“One of those companies is Shnuggle, which designs and manufactures baby products for international markets. We invested because it had a strong grouping of angel investors and a great brand. Co-Fund was able to match alongside that grouping. We’ve actually done fairly well from our consumer goods products and it shows that branding can be important in achieving significant growth.”

When it comes to Chris’ personal interests, he’s drawn to technology thanks to his background as a software developer.

“Any company that uses software in a novel way I find really interesting. Whenever you start engaging with the management team and the CTO, you get a real understanding for how they’ve built this product from the ground up. It allows you to go beyond financial due diligence and understand their vision to scale the product. That is key in venture capital where there’s limited track record. Some of the companies I’ve been involved with, such as Axial 3D, have a really interesting mix between software and Life Sciences. It’s got applications within the clinical environment but it’s totally dependent on software underneath. Being limited to a finance and tech background, tapping the experience of other team members has been vital. Life Sciences has been a real education and thankfully we’ve got Neil Simms on the team who has over 20 years of experience investing in successful exits such as HeartSine and Path XL. That’s an example of where we can add real value in the local ecosystem.”

With much of the world on lockdown at the moment thanks to the COVID-19 pandemic, Chris has noticed an immediate impact on businesses in Northern Ireland and on Clarendon’s portfolio. He reveals:

“Like everywhere else, there’s been a bit of a shock to the entire business environment in Northern Ireland. COVID-19 for some companies has totally transformed or shifted their outlook. There are some higher risk companies in our portfolio where COVID-19 has opened up new markets, particularly around health/medtech and supporting the NHS.”

While the pandemic has provided unexpected opportunities for some of the portfolio, it’s had a much bigger impact on others.

“In the leisure sector, it’s been particularly devastating where a whole market has dried up overnight, and contracts have been suspended. Generally for the whole portfolio, it’s just been incredibly difficult because they are finding it challenging to build a sales pipeline and it’s disrupted their existing customer relationships. It’s more difficult to get their product or services into the customer’s business or into the consumer’s hands. For the general economy, it’s still very early but it looks like we’re going to see significant unemployment increases in Northern Ireland when we’d really just begun to enjoy a real uptick in the hospitality and leisure sectors. It’s really unclear whether it’s going to be a V, U or whatever shape recovery, and still a little bit too early to tell.”

Clarendon has been tackling the pandemic head on, triaging their portfolio and supporting them in any way they can to help them survive. After going through a risk assessment, they’ve been working closely with their highest risk companies, looking at ways to extend their runway into 2021. Despite these difficult times though, the Co-Investment Fund remains open and active.

“We’re continuing to invest in companies that have the right business models. As a co-investment fund we are well positioned to encourage additional private investment and gain access to new deal flow as companies and existing investors seek to reduce risk and extend runways. On the HBAN side of things, we’ve had to adapt like most angel networks.”

For HBAN, Clarendon is adjusting to moving its business online to provide ongoing support for their angels.

“We’re now doing everything via Zoom. The UKBAA has been really helpful in terms of allowing us to understand best practice for how we engage with our angel investors over this period. We’re moving everything online and we’re trying to get pitch materials to potential investors well in advance so that investors are fully briefed and have time to prepare questions. We’re trying to reduce the length of presentations to keep everybody engaged. What works in the offline world may not work in the online world, we’re finding. Instead of having multiple pitches over an afternoon, we’re trying to keep it brief so that it lasts an hour and a half. People just can’t engage the same way on Zoom that they can when in the same room. We’re still refining the model so that we can unlock investment later in the year.”

Find out more about Clarendon Fund Managers by visiting http://clarendon-fm.co.uk.

Want to learn more about angel investing? Enrol in our course The Effective Angel Investor at http://bizangels.thinkific.com.

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