'What I look for when investing in a software and technology business'

With the pace of M&A and private equity interest in the channel increasing, BGF investor Harry Jones opens up on what he sees as valuable in a potential software and technology investment.

Culture

An honest, transparent culture is key. It's important to be candid about what's gone wrong as well as what's gone right, to learn from failure and be collaborative. In management teams, I look for a balance between conviction in the mission and openness to other points of view. We're looking for confidence, but not arrogance.

Relentless improvement

Technology is never ‘done' so the best software businesses are continually evolving and improving and this is reflected in the way the engineering team works and interacts and with the rest of the business. Of course, we look out for best practices around development, deployment and product management, but I also want to see the product improving with every release as the business learns more about its customers and its market.

Scalability

We generally look for businesses that operate in the cloud with a software-as-a-service (SaaS) model - unless there is a good reason not to do so. If a cloud-hosted platform has been well built, then it should be scalable and capable of growing fast. Ideally, customers can buy the product ‘off the shelf' and be up and running, maybe with onboarding and training, within weeks - with minimal need for bespoke development.

Data-led

Every tech business has different divisions: you don't want them to become siloes. The divisions have to be integrated throughout the development process, with a data-led approach from the top. That said, I also believe building great software is as much an art as a science. You must use data to inform decisions, but you can't let it override common sense, instincts and flair.

Agility

As well as having a great product and a great team, a business has to be willing to pivot if things aren't going to plan. I look for businesses that take risks in a calculated manner and are quick to change course if things don't work. Being agile also helps a business take advantage of unexpected opportunities - many of these have been thrown up in the tech sector by the coronavirus pandemic.

Magic dust

In the software industry, competition for talent is ferocious. Software businesses have to be realistic and pay competitively, but they also have to offer something else that attracts staff to their mission - I call it the magic dust. It's important to have a purpose and clarity about the problem you are solving because techies are often purist in nature. Yes, some are mercenary about pay, but mostly they just want to build something really cool that solves a problem.

Overall, we're excited about backing any business that is embracing technology to make a positive and tangible impact on the environment. Offering solutions that not only reduce our carbon footprint but also measure these savings through specific and relevant data are valuable. At BGF we are placing huge focus on Cleantech - we have already backed several companies aiming to transform the energy sector, from developers of hydrogen fuel cells to next generation lithium-ion batteries. Although we recognise that there is still much more to do if we are to make the net zero agenda a reality, it's hugely inspiring to see the scale of the impact technology can have on working towards tackling arguably the greatest challenge of our time.

The key for any business looking to attract investment is to start having conversations with investors as early as possible. Even for companies which haven't considered investment previously, but have growth ambitions, a strong management team and a plan to deliver, we'd always encourage an exploratory chat as it could be the key to unlocking your business' potential.

Harry Jones is an investor in BGF's Manchester office. He has invested in a number of software businesses such as DriveWorks, Celerity and Unique X.

BGF is the UK's most active growth capital investor. As a minority, non-controlling equity partner with a patient outlook, BGF's investments are based on shared long-term goals with the management teams it backs.