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EIS: The importance of actively sourcing deal flow

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EIS: The importance of actively sourcing deal flow

By Oxford Capital | Sep 11th 2018

Oxford Capital has access to privileged investment opportunities through our network of entrepreneurs, advisers, professional investors and clients with whom we have nurtured relationships for many years. We invest in tech-enabled companies across a wide variety of industry sectors, looking for venture capital, EIS qualifying deals in the early stage market – where a great deal of the product and business model innovation is occurring, but which has actually seen a reduction in recent years in the number of companies funded.

Access to deal flow is essential to our philosophy that quantity leads to quality. Typically, we review over 2000 potential investment deals per year and expect this to be close to 3000 this year. We see 70% of industry deals in our sector (Crunchbase). And we are able to invest in 83% of the deals we want to, partly because are successful at building strong relationships with entrepreneurs; We use the Net Promoter Score framework (an index ranging from -100 to 100 that measures the willingness of customers to recommend a company’s products or services to others) to gauge our interactions. We have a Net Promoter Score of 78 (anything above 70 has been called ‘first class’), taking into account input and feedback from all the entrepreneurs we meet, not just those we have invested in, but also others that we decided not to invest in. (August 2018).  Many of the sectors we consider are young and those working in them form a small community and we know from experience that they not only talk about funders, but recommend them too.

For us, being an active manager is not just about working with our investees to maximise their chances of success (although we do) or being energetic in the market (although we are –  Oxford Capital is the 3rd most active UK VC firm in terms of number of investments made (Crunchbase 2016/17)). It’s also about continually expanding our knowledge base and staying up to date with the latest developments.

We regularly review and refine our internal processes to ensure that we are not standing still and this involves a healthy measure of proactivity, whether or not the investee companies approach us; We follow a ‘top down’ approach, first completing extensive due diligence on the sector / theme, before considering individual companies and each member of the ventures team is responsible for focusing on specific themes.

At the moment, they include fintech and digital health, artificial intelligence and machine learning and an individual team member is tasked with doing a deep dive into each of these markets. They go to conferences, meet with business accelerators and incubators that assist young companies, research and map out the incumbents, the newcomers and the ideas and technology. The intention is for that person to become recognised as being interested in the sector, as well as regarded as an expert in that space. Gaining visibility through speaking at conferences and writing thought leadership pieces in the industry press gives them credibility. It also makes them attractive to innovators looking for funding.

Geographical coverage is also important. We think that the UK is a great place to start a technology business and that’s not just in London. So, as well as keeping a constant watch on the London market, we bring a regular focus to other UK tech hubs such as Manchester, Newcastle, Bristol and Edinburgh.

We work hard to ensure that as many as possible of the deals that are relevant to our investment strategy are fed into the top of our deal funnel. We know that the vast majority will not make it to investment stage and will be weeded out during our due diligence process. But this leaves us with what we want – a high calibre of the best opportunities for our investors.

For more information about the exciting opportunities available through the Oxford Capital Growth EIS, click here.

Awards

  • BEST EIS
    FUND MANAGER
    2013,2012,2010 AND 2006

  • VENTURE CAPITAL
    HOUSE OF THE YEAR
    WINNER 2013 AND 2005

  • INVESTOR OF
    THE YEAR
    WINNER IN 2012 AND 2013

  • MOST IMPACTFUL
    INVESTMENT
    WINNER 2017

  • BEST ANGEL
    SYNDICATE
    WINNER 2018