Cambridge Capital Group Backed 10 early stage and growth ventures in 2015, including several exciting portfolio companies
Cambridge Capital Group (CCG) is a members-only angel investment club backing technology start-ups and growth companies in the Cambridge cluster. Established 15 years ago, the group also has a regional dimension through the recently formed Anglia Capital Group, operating in East Anglia, and an international network, CCG International. Struan McDougall, its founder and CEO, tells Numitas what makes the group unique and why both investors and entrepreneurs should keep CCG on their radars.
CCG’s access to the specialist technology markets and its business formula are the group’s trump cards. “CCG provides a qualified deal flow in a specialist market – early stage technology – for high-net worth investors who wish to collaborate as a group of angels,” explains Struan. “They come from diverse commercial backgrounds and don’t have to live in the area, but they have an opportunity to invest in the best of the technology start-ups coming from the Cambridge cluster and East Anglia.
“The private investment club formula has a lot of appeal in the digital age. The members greatly value the opportunity to meet and network face to face with their peers who may have different market knowledge and expertise. They also appreciate the opportunity to engage with the entrepreneurs.
“CCG is a true investment club,” stresses Struan. “We don’t take commissions from companies trying to raise money. Our members pay a membership fee and share a modest ‘carry’ with the team, in the form of a small profit share on each deal which produces a successful exit. This model was set up 15 years ago by the founding members and it continues to work for us.” The standard approach, still practiced by many investor networks, is to charge a commission on the capital raised.”
CCG membership consists of UK business angels (ex-finance, property, and technology professionals), private venture funds (inc. Martlet, Granite), regional co-investment funds (eg CIC, IQ Capital & LCIF) and international members (family funds and HNW investors). CCG has over 60 UK members. The international membership of CCG, which currently sits at 25 (including a number of British expat investors from the Channel Islands), is growing fast.
The CCG model
All members are invited to presentation days, which CCG runs quarterly. “We hold three pitching events in Cambridge and two internationally. Seven or eight companies are invited to pitch at each event. Members decide which companies they wish to invest in. Some companies may attract three investors, while others may secure interest and funding from ten or fifteen of them.”
Each pitch is preceded by a screening process of all the propositions that come to CCG. They are filtered by the CCG analyst according to criteria set out by the members. The shortlist of some 25 companies then goes to a screening committee of members who invite around seven or eight selected companies to pitch.
“Following the event, CCG helps potential investors to make contact with the entrepreneurs, organise follow-up meetings to further analyse the opportunity and provide the business plan. If they decide to invest, CCG facilitates the investment, helping with negotiations etc. It is a collaborative process, where CCG acts merely as a facilitator, also working with other syndicate or lead investors.
“The next stage are negotiations with investors and lawyers who represent them. The investors have the right to make an appointment to the board of the company. In several cases, our members became chairmen of the board of the portfolio companies because they had the relevant sector expertise.”
CCG is proud of its investment record and its successful exits. “On average, our companies take four years to exit, typically taking between three and six years. The average return from these exists is four times capital.”
CCG seeks to invest in high-tech companies with IP. “However, there are exceptions here,” argues Struan. “For example, we invested in a business operating in the music industry which developed a platform that enabled music companies to offer exclusive tickets and merchandise to their fans. This was a first-to-market technology but without an IP.
“We look for companies operating in attractive B2B markets, although they could be niche markets. They should also be able to provide angel investors with evidence that there is a potential interest in their product or service from the market, ie traction. CCG’s other investment criteria include relatively low capital requirements and a location in Cambridge, South East England or East Anglia.”
The high-tech investment landscape is changing
“Cambridge has a great reputation as a technology innovation hothouse. The high-tech investment market is booming, especially with the emergence of the crowd funding platform, but its profile is changing,” reflects Struan.
“Historically, business angels were the gentlemen of a certain age who sat on the boards of companies whose business they understood. Now, many angels are people with funds who invest in a portfolio of companies in different sectors. The VC market is fluctuating, with many groups going out of business. As a result, there is less venture capital money available; with a shortage of funds in the £2-5m range, which VCs were previously able to provide.
“This gap is being filled with co-investment funds, and new ‘evergreen’ funds, such as the £50 million Cambridge Innovation Capital (CIC), established by Cambridge University. Some of the funds only co-invest with angels. For example, the Low Carbon Innovation Fund puts only 50% capital into projects. The other 50% has to come from private investors. Imperial Innovations, the Imperial College fund, which recently floated, has a huge fund at its disposal.”
Expansion of CCG – Anglia Capital Group and CCGI
Anglia Capital Group was created in response to growing market opportunities in the wider East Anglia region. “We have 15 new members in the area and ACG is run according to the same principles as CCG, with quarterly pitching events being held at the Norwich Research Park. However, a new development there is our co-investment partnership with the government-funded New Anglia Local Enterprise Partnership (NALEP) which contributes to our operations in that area and has a co-investment fund. We are a vehicle for bringing the deals to their table – which is a new model for us.”
CCG and ACG work closely together; the members of each group benefit from the deal flow in each other’s areas. “The companies which have recently pitched in Cambridge have also made presentations in Norwich. In East Anglia, there seem to be fewer, although still very attractive, opportunities. They usually come from the agri-tech, clean-tech and health care sectors, as well as from the growing digital cluster.”
CCG International is the latest initiative from CCG. It aims to attract capital from expat investors back to the UK. These include retired or semi-retired hedge fund managers, finance professionals and successful entrepreneurs. “At the moment, we are focused on the Channel Islands. We are also thinking about the Isle of Man, as well as countries further afield, such as Hong Kong and Singapore.”
The charitable face of CCG
“This side of CCG work is a great passion of mine,” says Struan.
During a career sabbatical in the late 1990s, Struan went to East Africa to work on a conservation project in Uganda. “Over there, I saw how far just a few thousand dollars can go, if it’s invested in conservation projects on the ground. When I came back to Britain and started CCG, I wanted to form a charitable trust and encourage investors from CCG and Cambridge angels to put a bit of money into selected conservation projects. This is how the CCG Trust came to life. Its motto is ‘Investors in Wildlife’ and its website is InvestorsInWildlife.com.
“We currently work with three African conservation projects, all of which have a strong element of community involvement. One of them is a wildlife education centre in Zambia, built by an English couple who moved there 15 years ago. The principles of the centre are focused on education, but also on sensitisation to nature, encouraging the next generation to take an interest in wildlife, so they can become future tour guides and conservationists. It also gives them an understanding of the destructive nature of poaching. This project is funded by private investors like CCG, zoos and other foundations.
“The second one is the South Luangwa Conservation Society, which is involved in fieldwork protecting wildlife in the main national park in Zambia. They have a range of teams, including the rangers who do anti-poaching work and people working with the community, for example, helping protect crops from wild animals. These efforts foster the perception that wildlife is a national resource not a means to make quick profit. The third and latest project we are working with is the rhino rehabilitating centre at Mkomazi in Tanzania. The man who runs it is George Adamson’s prot√©g√©e.
“These projects combine conservation, law enforcement and community involvement which is perhaps the most important factor. They can operate with a small budget run by committed founders, employing many local people. They are all funded by private donors, trusts and funds, like the CCG Trust. Despite this, it’s a huge challenge to get people to contribute to these causes as relatively few individuals are interested in wildlife.
“The reason CCG works with these projects is that they’re founder-managed on the ground. We approach them like an angel investment: they present their case to us and we expect a budget forecast and regular reports on how the money is spent. It’s still business, merely charitable business.
“The best piece of professional advice I received came from the founding member of CCG who was an entrepreneur. He told me: ‘You have to add value to whatever you do. If you’re not adding value, you’re not creating anything.’ I would like to think that by contributing to the success of new business ventures and conservation projects in Africa, we are making a truly positive difference.”