Mike Clarke, Partner

Thought leadership

As we expand our US presence, how can YFM act as a bridge to the next and bigger fundraising?

At YFM, we are seeing an increasing number of high-growth tech businesses with global ambitions and intentions to expand into North America. Invariably they are asking the same question, “As we expand our US presence how can YFM act as a bridge to the next and bigger fundraising?”

We see the role of UK VCTs as a critical steppingstone on the journey to US expansion and investment. Five years ago, the new business plans that YFM saw were based on generating a healthy profit followed by a trade sale.

Today, we are meeting management teams with ambitions to build globally important companies, and businesses with the SaaS benchmarks that make them capable of attracting the larger US venture investors. These companies are valued on revenue multiples, rather than on profitability and strong growth metrics are key to healthy valuations.

However, not every business makes the grade – a high growth mindset coupled with yearly growth rates in excess of 60% and annual recurring revenues (ARR) of at least $10 million are the minimum targets for companies aiming for US investment interest.

Chris Underhill, Chair at YFM portfolio company Force24, and who most recently raised $14m from Updata Partners for UK-based Adthena, says: “The US VC model has travelled across the Atlantic – high growth, rapidly scalable tech firms with an IP edge only have a limited window of advantage – and to achieve success on the international stage, these businesses need the quantum of investment that US VCs are used to deploying early in the lifecycle of a venture. For many of these scale-ups, a US investor is exactly what they should plan for from the time they look at the first institutional or even seed funding.”

A great example from the YFM portfolio of a company that has made the transition is Manchester based Matillion. Now a global leader in data transformation for the cloud, Matillion was a £1 million turnover business with huge ambition and an intent to conquer the world in 2016 when YFM invested £4 million. Since then, we have partnered with CEO Matthew Scullion to help him follow his ambitions. Today, Matillion has more than 290 employees based across the US and at headquarters in Manchester, is the number one choice for large enterprise customers processing data on Snowflake, Amazon Redshift, Google BigQuery and Microsoft Azure Synapse.

Following YFM’s investment in 2016, Matillion has so far raised three times from US Tier 1 investors and is continuing to grow at breakneck speed. We asked Matthew what factors attracted him to YFM for the original deal. He said “It’s incredibly important to partner with people you trust, have the same world view as you, and you think you will be able to work with. Being a local partner with international reach has been hugely valuable to me.”

For YFM, it is an exciting time to be investing in UK tech and we know that choosing the right partner is one of the most important management decisions to be made. A good investment partner isn’t just capital, we believe that your investor should offer a supportive partnership on the growth journey.

On this journey, the single most challenging aspect of scaling a business that we see repeatedly isn’t the entrepreneurial vision, or the product/market fit, but the creation of a successful sales and marketing team. We asked Ellie Rainey, account manager at Pareto Law for YFM-portfolio-businesses Panintelligence and Force24, what typical pitfalls SaaS businesses face when trying to scale.

“As the business sets up the team and goes through a ‘test and learn’ phase with many of its processes, it’s normal to see inconsistent sales from month to month. That’s why we don’t just place candidates, but a big part of our business is providing ongoing sales training.”

Ellie offers the following advice, “If I was to pick out just three key lessons, it would be: build the value proposition through the product demo (it should never be a feature sell); qualify leads with a laser-like focus on the ideal customer profile and, make sure that your sales and marketing teams are working together in lockstep. This avoids a price-led negotiation by understanding the value of the company products to each user and optimises time to close through your sales funnel.”

YFM Partner and Head of Growth, Victor Christou has first-hand experience of growing businesses into the US from a UK base, both as an entrepreneur and investor. He is optimistic about the opportunity for UK businesses scaling in the US: “US investors are coming to the UK seeking great investment opportunities, that has always been the case for the best businesses. What is different now is that businesses with the right characteristics don’t need to change their template and, as Matillion has demonstrated, a Manchester-based business can now conquer the world with US support and Northern DNA.”

US VC investment capacity dwarfs that available here, and the sophisticated, nimble model they have developed in tech investment on the other side of the Atlantic is perfectly suited to the rising tech stars of the UK VCT scene. YFM is committed to playing its part in making that happen.

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