Meet Mercia: insight into the investor

Mercia Asset Management is the latest Venture Capital firm to set up a permanent store here in the Southwest. It was great news for our tech and digital community in Bristol, as Mercia is one of the most active venture capitalists in the UK. But you may have some questions. What kind of companies do they invest in? What kind of investments do they make? Can I speak to the team? So in case you’re not already familiar with Mercia, we caught up with Investment Associate, Adam Watts (pictured right), to ask all the important questions.

First the facts. Mercia has £1 billion under management in private equity, venture and debt funds, but they are primarily an investor in risk-stage companies and manage £800 million in a range of venture funds. Overall, the team operating in the South West of the country invests from £500,000 to £5m first check, from Seed to Series B, and they are trying to build exposures to £10m and above.

Mercia is a generalist investor – some sectors they regularly invest in include Software & Data, Life Sciences, Deep Tech, Clean Tech, and Gaming & Digital Entertainment; Please note that this is not a complete list and some funds have unique criteria. Mercia has invested in the UK (including the South West) for the past 20 years, but opened its first dedicated office in Bristol last November with the ambition to accelerate its presence in our community and ensure we get the much-needed cash injection to take on the stay abreast of our ideas for innovation!

You’ll find the team of three in the newly renovated Generator Building, also known as Clockwise. Adam announces that their office launch party is scheduled for September, “so watch this space!”

Product, market and team

If you’re considering pitching for an investment from Mercia, or any other investor, Adam has provided some insight into the key factors involved in making the investment decision.

Adam tells us: “When I look at a company to invest in at a high level, 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, in instead of ‘me-too’ solutions that only move the button 5-10%.

“When looking at markets, estimates of market size are interesting, but the market trajectory is a more compelling signal for us as an investor – i.e. where the market is headed, what the world could be like in 18-24 months and what the product will look like in 18-24 months. or the company’s service looks like in that world. We want to invest in products and services in markets with high growth potential – with the aim of claiming the new ‘Blue Ocean’, rather than competing and clashing with existing solutions from often better-funded incumbents.

“Ultimately, when assessing management teams, we look for people with whom we think we can build a strong working relationship. Our investments can be held for five to seven years, or sometimes even longer — they’re almost comparable to a marriage (although marriages hopefully last longer) — so you want to make sure you’re entering that relationship with someone you can work well with and have a relationship with. have a constructive relationship with for the duration. Of course it helps if a management team has experience in the sector in which they are active and if they have previously sold a company in this sector, that is great, but it is not a prerequisite for investment.”

Working in the Southwest

It’s always good news for our tech community when an investor decides to settle permanently in the region. Not only does it open up new potential opportunities for startups to access coveted cash, but having an expert around to build a relationship with and leverage their unique insight is invaluable to any business. that wants to grow.

When we spoke to Adam, it immediately became clear how important it is to have a regional focus for Mercia. Throughout its history, the company has recognized the intrinsic value of supporting smaller businesses in local, close-knit communities.

To illustrate why they are so passionate about this, Adam tells us: “Faradion is a good example of a recent regional success story of ours. We first supported Sheffield-based sodium ion cell battery technology in 2010 and secured a £100 million exit in January this year. If we had focused purely on London or the South East, we would have missed that opportunity. Faradion is just one of many examples of outstanding regional companies that we have supported and which have performed exceptionally well.”

Julian Dennard and Rafael Joseph of Mercia, with recent investment Cloud8)

The Southwest made sense for Merica, after a series of investment success stories made here, namely: I-Phyc (Industrial Phycology), an alumni of SETsquare 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 company.

Adam elaborates on what confirmed their decision to settle in the South West: “We were drawn here because we are buying the scale of opportunity that exists in Bristol and the wider South West. The British Business Bank recently released its 2022 Small Business Equity Tracker, noting that Bristol and Bath represent the fifth largest startup and technology cluster in the UK, behind only London, Cambridge, Oxford and Manchester in terms of annual investment value. While there are other financiers in the region, we think the Southwest remains understaffed relative to the size of that market.”

Mercia was also impressed with the sheer increase in investment across the region, 357% from 2020 to 2021. At TechSPARK, Briony Phillips has been tracking this investment, so if you’re curious about more about this extreme growth, check out her regular updates. Adam says the numbers speak for themselves, demonstrating the potential our region has in store, as well as an “opportunity for Mercia to be the local financier of choice, meaning high-potential local businesses don’t have to go to London.” to get funded!”

He continues: “2021 was a record year for UK equity financing with £18.1bn invested – that is almost double the amount invested in 2020. Despite this, regional disparities in equity financing persist and are increasing – in 2021 the share of investment in London-based companies grew by 3%, now accounting for 49% of deals closed Although we do invest in London, our focus remains outside the capital, where there are huge numbers of great companies that can help us help create value for our LPs.”

Doing things differently at Merica

Adam Watts and Julian Dennard of Mercia at the Engine Shed, Bristol – home of SETsquared

Mercia’s values ​​fit almost seamlessly with the general attitude here in the Bristol and Bath technology 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 monthly with representatives from all our funds and corporate departments. This group considers how Mercia can have an appropriate ESG lens when investing in new opportunities, and how we can focus on what we do internally to reduce our footprint, promote equality in all aspects of work and life and good governance to maintain.”

We know that community spirit is alive and well in the technology cluster in the Southwest, and Adam echoes this sentiment: “Venture can be a competitive industry, but I’ve found the community in Bristol and the Southwest to be extremely collaborative.

“Since we launched here last year, we’ve taken that and tried to ‘give back’ where we can. An example of this is through our Investor in Residence partnership with SETsquared – where local businesses and entrepreneurs can book 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 emphasizes the value of connecting with community members in this way: “It was great to see 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 the dialogue open to provide ongoing ad hoc advice or possible funding going forward.

“The community is constantly growing in Bristol in the South West, but it’s small enough to get your hands around and really feel part of a community – this makes coming to work and attending events (like the upcoming SPARKies, which we sponsor) very nice!”

If you want to learn more about Mercia or get involved, take a look at their website and their social platforms like Linkedin. These provide a great introduction to the portfolio companies they have already invested in, and also reveal a lot about the team culture and ethos.

Mercia also runs’Meet the financier’ every Friday where anyone with a tentative interest in investing can drop in and talk 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 company.

A big thank you to Mercia for being one of the fantastic sponsors of The SPARKies this year! Make sure that buy a ticket and join the 500 members of the tech and digital community to celebrate with us tomorrow.

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