Julian Dennard, fund principal at Mercia Asset Management, leads the investment firm’s business in the South West. He spoke to South West Tech Daily about the region’s many opportunities and the growing strength of its tech ecosystem.
Dennard moved to the South West in 2006 to manage the South West Ventures fund, which was one of the first generation of regional venture capital funds. That gave him his first taste of the South West’s potential as a hub for fast-growing technology businesses.
“We focused on early-stage technology in and around the South West,” said Dennard. “It was around the same time as [the tech incubator] SETsquared was established, so we worked closely with them and saw many of the most exciting university spinouts around the region.
“It was all very early and quite nascent, but even then it was incredibly powerful and we backed a number of companies around the South West. The region was brilliant as an entrepreneurial hub for people and companies, but lacked capital.”
"The region was brilliant as an entrepreneurial hub for people and companies, but lacked capital.”
The fund stopped investing in 2008 and Dennard managed the portfolio until 2016, when he joined Mercia. Although he initially managed funds in the Midlands for Mercia, he never stopped believing in the strength of businesses in the South West and, after the pandemic struck, put together a case for Mercia to revisit the region.
“My sense was that nothing had changed in the South West. There is still no one with a presence in the region. The idea was that if we established ourselves, we would see some incredible opportunities. To do that, we needed people and capital.”
That vision became a reality last year, when Mercia recruited two people and opened an office in Bristol. “We were effectively able to point people and capital at the region,” he said.
Since opening, there has been no shortage of opportunities, which is testament, Dennard says, to the strength of innovation in the South West.
“We’ve got more deal flow now than we can possibly cope with at present,” he added. “These are some really good quality companies raising capital. We are looking at a range of opportunities in life sciences, in deep tech and in software. If you consider the environment in the South West, it really reflects Mercia’s strengths and therefore is a good fit for us.
“However, you can’t just land on the ground and expect things to happen. You have to build presence, a reputation and then hopefully the deal flow increases. Over time, you will start to invest more heavily and provide us a case for expanding our business in the South West further still.
“Whilst there are a lot of quality companies and investment opportunities, I would still classify the investor base in the South West as thin. That said, it’s definitely improving.”
"I would still classify the investor base in the South West as thin. That said, it’s definitely improving.”
Mercia brings the capacity to invest between £500,000 and £6.5m as an initial investment in South West companies, and is comfortable to co-invest alongside other investors.
“A growing number of companies are starting to look for those bigger cheques, which is a sign that the region is starting to grow up,” said Dennard. “You’ve got for the first time a ladder of capital that goes from seed to Series A or B. For me it appears that it’s all starting to come together and we, as a business, are keen to play our part.”
What do Mercia and Dennard look for when backing founders and their businesses?
The most important factor is the team. “Each case is different, but the common factor is the quality of the team and their ability to execute on the plan”. “We also consider the strength of the opportunity; we’re looking for businesses with defined products that are targeting markets where there is a global opportunity.” Mercia is a supportive investor and spends a long time getting to know the business and the executives and if necessary supplementing the team with non-executive directors or a chair from within our own network.
"We’re looking for businesses with defined products that are targeting markets where there is a global opportunity.”
With the British Business Bank announcing that it will launch a £200m fund in the South West in Spring 2023, Dennard is confident the region will go from strength to strength – and that the new fund will play a big part in the regions development.
“It will be tremendously positive for the region,” he said. “There is a ladder of capital, but it’s quite thin. There aren’t enough co-investors today. The new SWIF fund will only be additive to the region and means companies can raise capital without going up to London.
Whilst the South West can survive without it, it will certainly thrive with it and therefore help fund those businesses that really deserve it.”