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Smartco: THE INVESTMENT CASE

SMARTCO Select aims to nurture Britain's innovators

The guiding principles of SMARTCO Select were forged in the white heat of Sheffield’s steel industry, according to founder Charles Breese.
SMARTCO Select aims to nurture Britain's innovators
INVESTMENT OVERVIEW: SMAR The Big Picture
Screening for success: The process has already found some real innovators.

The guiding principles of SMARTCO Select were forged in the white heat of Sheffield’s steel industry, according to founder Charles Breese.

In a long and illustrious career as a sponsor of emerging, innovative talents he never forgot his time as a trainee accountant working with a dying breed of British metal bashers.

His temporary exile up north provided an antidote to the London obsession with finance and an object lesson on how not to make the best of our nation’s undoubted engineering prowess.

“I was articled as a chartered accountant in Sheffield in the late 1960s. The benefit of that is I saw the back-end of what I call the first industrial revolution,” Breese explains.

“Whereas if I had been articled in London I would have just seen banks and insurance companies.

“I think what exposure did for me is reveal that very ordinary people could have extraordinary skills to produce incredibly complex products, but in Sheffield in those days they were employed by businesses that were poorly managed.”

This was perhaps symptomatic of an era in which hundreds of thousands of manufacturing jobs were lost in the North and the West Midlands. With this began the nation’s reliance on the services sector that saw us rack up a massive balance of trade deficit in the process.

There is no better illustration of this transformation than Sheffield itself, where the giant Meadowhall centre, a mecca to retail, has replaced the forges and steam hammers that once made the area the steel capital of the world.  

Breese’s SMARTCO Select isn’t designed as a time machine to take us back to a halcyon era when we made things.

It is a way of screening to find the most innovative companies, be they in engineering, chemicals or drugs development, although the whole process goes further than simply discovering these businesses; it then pairs them with the investment capital and management to succeed.

The screening tool that Breese uses to find his SMARTCOs is based on his 30 years’ experience working with emerging business that have called on the expertise of his investment firm Larpent Newton. 

There are three prongs to finding a SMARTCO, he says.

The first and most obvious is the firm must possess a disruptive technology that has global applications, meaning it will have export potential.

The business will then have the ability to improve the productivity of customers.

Finally it must produce recurring revenues, or at the very least, have a predictable income stream.

This latter point is important as it means spending that might be lavished on finding and acquiring sales leads can then be re-directed to fund vital R&D. 

That’s the skeleton outline of what Breese and his team are looking for in a company.

On AIM, the former accountant has worked closely with Scancell (LON:SCLP), which is developing a treatment that uses the body’s immune system to treat cancer.

They have also forged relationships with Haydale (LON:HAYD), which is functionalising the new nanomaterial graphene, and AB Dynamics (LON:ABPD), which offers advanced testing for car makers.

SMARTCO Select also has a pipeline of companies that are pre-IPO but are readying to join the equity markets such as Hallmarq Veterinary Imaging, which has produced MRI scanners for horses, with 80 installations around the world.

The blue-print is to plug these companies into sources of ‘patient’ capital; in other words high net worth investors willing to wait the years it might take an innovation to become commercial product.

A tie-up with Asset Match, meanwhile, provides a platform for trading shares in unquoted companies.

And the SMARTCO team also has alliances with, for example, London Business Angels and Ascension Ventures that will provide the flow of SMARTCO opportunities.

“The benefit of SMARTCO Select is that investors can join this flow at a time of their choosing rather than waiting the fifteen years, which can elapse between the founding of a firm and it becoming an established business,' says Breese.

Finally, the FCA-regulated Larpent Newton will provide the regulatory cocoon for organisations looking to set up EIS schemes that makes it more tax and cost effective to plough money into its hand-selected emerging companies.

While the framework makes life easier for the firms heading into the SMARTCO hopper, management is often the difference between success and failure.

Breese points out there three types of entrepreneur:

There’s the maverick who is able to take a business from nought to £1mln of revenues a year.

Then you have the type that might propel the company over the next financial hurdle – £10mln of sales, perhaps.

Few are able to then take the business interstellar, from, say, £10mln to the £100mln mark and beyond, though there are the odd exceptions such as the Bransons and Dysons of this world.

More often or not this sort of business talent is found at the top of the tree at successful blue-chips.

“I like to get this sort of senior figure involved with the team in category one right from the outset,” says Breese.

“It means that moving through those three phases is a seamless process rather than a number of projects.”

In other words it takes less time to get to the ultimate goal.

“You need a toolkit and a group of willing investors who share your vision if companies are going to succeed. I think we provide that.”

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