In this customer catch up, we speak with Fraser Lusty, Director at Edinburgh-based Equity Gap, a group supporting and investing in emerging and growing businesses. Equity Gap is particularly interested in assisting young companies that have gone through a pre investment commercialisation process.
Hear how Fraser and his team are helping portfolio companies deal with the impact of COVID-19, why equity-funded start-ups need extra support and how Fathom helps them to make better business decisions.
Fraser Lusty: We very quickly completed a risk appraisal across the portfolio using Fathom and found four portfolio companies immediately at risk; two of them had up to 20 employees. One facing out to retail, the other facing out to the hospitality sector. We were able help them immediately by offering some advice on furloughing staff and the practicalities of going through that. It's been an interesting time and so fluid we're almost reappraising things on a daily basis.
We have been lobbying hard, making a direct approaches to industry bodies and to Kate Forbes in her role as the new Scottish Finance Minister on replicating some of the stuff we've seen from the French and the German governments. Nothing is solved yet, but where we can, we've put in a three to six month runway. Strategies include cutting costs through furlough, any short term measures to boost the balance sheet and encouraging them to shave any non-essential costs as well as stripping back the P&L to the bone.
It was interesting to see that both the French and the German government put out specific ring phase funding for equity backed proposals. So for companies that had had prior equity up to a set level, they are providing some runway to take them out of displacing other companies that may be better suited to the debt alternatives from British Business Bank. I would have thought the government will be under severe pressure to do something akin to that. We'll see, obviously things are changing daily.
We’re okay. We’re monitoring our own situation too but we have always been fairly prudent and we have cash at bank to help us stay on track. We’ve continued to complete on deals, and amazingly in the last couple of weeks four of those to a million plus. The fee income from those provides welcome and additional runway as well. We’re just being open, honest and fully transparent with everybody just now.
A number of companies will have their time in the sun, because undoubtedly how we live our lives and how we do business will change as a result of this pandemic. Everyone is adjusting to the ‘new normal’, finding the right tools to work online. It's proven to be successful so people will just say, "I want a couple days working from home” regardless, now.
We've invoked a couple of bespoke macro solutions in Fathom, offered by your Training & Implementation service, which enabled us to understand what was beyond the normal set up. This allowed us to open up the possibility of bringing in Baremetrics to look at some of the SaaS companies through their non-financial performances.
We’re open to the premise that this could be really powerful in terms of providing a suite of solutions in a simple dashboard format. We remain flexible enough to experiment with how we can use Fathom and all its manifestations, not just the core products but also where we can encourage our portfolio companies to do the same.
What we've been able to do, which is really important just now, is create subsets within the portfolio. So all the life science, all the products, all the SaaS or enterprise companies where there's an element of recurring revenue, we’ve been able to use Fathom for benchmarking. We readily identified who is performing well and here are the fundamentals that are making them perform better and we have been able to apply that to our best practice. They are powerful tools.
We're are asking our investor directors ‘what are realistic, safe KPIs for SaaS companies at the moment?’ We're then benchmarking and applying those 10 metrics to every business. For example, if we're benchmarking on revenue, revenue growth, margin, return on equity, cost-to-income or any other financial metrics relevant to SaaS companies, and one is performing at 150% baseline while the others are only at 60%, we’re investigating why and then sharing with the others. I think that comparison of KPIs in terms of understanding and establishing best practice is where Fathom helps us see what’s working well and if it is replicable.
I think that using Fathom’s benchmarking function for tracking and comparing KPIs across our portfolio is in its infancy yet at the moment, we've very conscious of not invoking additional workload on people because they've got their own fires to fight. So I think there will be an appropriateness to that as we go through the next weeks.
What we're trying to encourage is more than a static KPI dashboard together with the P&L and balance sheet. We're opening up access to more people within the team. So as well as the founders and potential advisors, we're opening up access to our investors directors and non-execs, encouraging them to use the tools for themselves.
Then we’re going back and doing that kind of benchmarking across some other companies and encouraging them to ask “what are the metrics we need to measure more accurately and are these ones relevant to your companies?”
Yes, now that's more difficult. So SaaS Enterprise is easy because the premise of their business model is similar. It’s a little different once you get into a B2C product or a B2B product. We’ll use Flavoury, which is an online mechanism for using spare capacity for craft breweries to then sell online as a package to customers, as an example. They’ve successfully used very clever old school metrics of going out into magazines, the broadsheets and the Sundays to capture them, and then bought digital marketing to retain those customers.
You can't compare that to say a golf wear business. Yes, there's a premium to what they do, but they're essentially different businesses. So I think the benchmarking will work but we might have to be more creative when identifying links to different clients.
But where there are similarities in terms of that approach to customer acquisition or customer retention, I think that we're still learning. We won’t always get that right immediately, but we'll be working on it over the coming months.
We're trying to encourage them to use the tools, giving them a chance to develop their own relationship metrics and on the back of that, we'll establish the link through Fathom to look at the reporting protocols.
Absolutely no-one is giving in. We're suggesting that they ‘bite the bullet’ and put things on hold for three to six months, use the government resources available and keep yourself alive’. Keeping your business alive is more important than anything else.
There have been a few hard conversations around that with people saying "why aren't you backing me?" You've got to understand that if we put a 50K round together, the legal costs of doing that, our time and the disproportionate use of public money through the Scottish Investment Bank, would effectively mean we end up absorbing 15-20K of fees. It doesn't make any economic sense right now therefore we're concentrating on 300K+ rounds just now.
I think that irrespective of the politics in Scotland, there's a much more transparent approach to life from the Scottish government. The daily briefings are very robust and the expertise really stands up to scrutiny. There are a whole raft of positive measures.
We got a major solution recently to protect the rental space so that nobody can be evicted in the current circumstances. So there seems to be a lot more proactive stuff and it's cutting across the political spectrum in a way that I'm not seeing in London.
And going back to my earlier comment, if there was a solution to replicate what's happened in the France and Germany, my worry would be that they would extend this through the known London-based accelerators and the support would not reach the wider regions or nations. To my mind distribution across innovation centres like Bristol, Cambridge, Leeds, Edinburgh, Glasgow would enable the wider ecosystem to equally take advantage of any support available.
We're good. I think that we will be fine. If we don't do another piece of business this year, we've got enough reserve to push out to the end of the year.
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