In March, Panoramic backed a group of serial British technology entrepreneurs with a £750,000 investment in their business Edesix. Before founding Edesix in 2002, the founders worked together at computer networking pioneer Spider Systems, which was acquired by Shiva Corporation in 1995 and Axon Networks, which was sold to 3Com for $65 million in 1996.
Although the founders have raised capital for previous ventures, this is the first time that Edesix has taken on external investment. Co-founder and CEO Richie McBride discusses why Panoramic’s growth capital investment was the right choice for his business.
Is this the first time that Edesix has taken on external investment?
Yes. Since Edesix was founded in 2002, we have self funded the business through its own proceeds. We accepted £750,000 of growth capital from Panoramic in March of this year.
What funding options did you look at?
We looked at angel funding, mezzanine finance and a bank loan, although debt financing wasn’t particularly well suited to our needs.
Why did you choose a growth equity investor like Panoramic? What is appealing about their offer?
In terms of parity with Panoramic’s offer, angel financing probably came closest. However the angel route involved working with syndicates rather than a single investor and we felt that this meant there were potentially too man masters to please. We felt that it might be de-focusing for the business to keep so many people involved and updated. We wanted to find one single investor with a full range of resources under their roof.
Panoramic came highly recommended from several sources including other investors and companies that they have backed. We met and liked the team – that’s important. They have a hands-on style and a collaborative approach: this is important as we were looking for a professional investor to contribute value over and above funding the cheque.
You’ve raised money before for other businesses that you have built – to what extend did those experiences influence your decisions for Edesix’ fundraising? How did the experience differ this time?
Raising money is situational – you need to be thinking about current market sentiment and how that is changing. You need to tune into who is looking to do what, why and when.
I have raised money in different periods. For example, angel investors are very much influenced by the prevailing tax regime. The current market for angels is buoyant due to the many tax incentives that exist but if they have already reached their investment limit, you won’t get anywhere despite the attractiveness of the investment proposition. So the relevant question becomes how much cash do they have left to allocate in a tax efficient manner?
I have also had experience with early stage businesses at the VC level. Back in the late 90’s, this market was also very buoyant and it was relatively easy to raise capital. However that is no longer the case.
We aren’t an early stage business but in some ways it was difficult to get that across to angels. It’s not what they are used to. As a business in profit, we had to explain our valuation and why it is sensible relative to the risk involved.
What triggered the decision to seek investment now?
The business has grown organically to this point but we operate in a new and emerging market. It really started to take off and we could see opportunities. We needed the extra funding to make the most of these – to access sales in the UK and overseas, and to develop out product range. If you don’t invest at the right time, you can lose momentum and opportunity.
What is the investment going to be used for and over what time frame?
The investment will enable us to increase our reach through enhanced sales and marketing in key markets and geographies around the world. We will be looking to recruit good people to help us achieve this. We have also developed a significant amount of intellectual property and this injection of capital will help us to further develop the functionality of our products, in tandem with the rollout of 4G mobile networks.
How does the relationship work with Panoramic? What do they bring to the table?
We find the approachable – we can explain challenges and issues as we go. We talk regularly and informally about what’s going on in the business and they provide a sounding board on any issues we encounter. David Wilson from Panoramic sits on our board and we sit together at a formal monthly board meeting – this has contributed a rigour that is beneficial to managing the business.
Importantly Panoramic also provide contacts – they are able to make mutually beneficial introductions to their networks and ultimately that means more opportunities to raise awareness of our product.
What are your long term plans and ambitions for the business/where do you see yourselves in a year, 3 years, 10 years?
Our goal is to establish the company as a leading brand in the emerging video technology market. In a year’s time, I’d like to be selling products to more customers outside the UK, in countries such as Canada, Australia and the Middle East. A beachhead in these countries will allow us to expand into other areas.
Ultimately, we will be looking for an exit that may very well come in the form of a trade sale. Our strengths – products and a strong customer following in key markets and our proprietary IP – would tick a lot of boxes for a larger international company. But I have sold businesses before and I know that you cannot run a company to be acquired. You run a business to be successful in your market place and sustainable for the long term. That will clearly improve your chances of being acquired but it should not be the focus. Fundamentally we want to generate a healthy return for ourselves and our investors.