08/07/2011

The Cambridge Phenomenon Legal Style

By Modwenna Rees-Mogg, Managing Director of AngelNews

Got it. It’s been rolling around in my head and dancing on the tip of my tongue, but now it has landed on this page! The reason why the team at Taylor Vinters is unique, is its perspective on the world.

The fascinating thing about a company’s DNA is that it tends to reveal itself in all sorts of ways. For example, I think it’s no surprise that Taylor Vinters’ new London office is high up in the iconic Tower 42 in the City of London with panoramic views of London. You cannot fail to see things in the round when if you look away from your desk for a moment your eyes are filled with great swathes of one of the greatest cities in the world and the Shard rising out of the mist across the River.

Taylor Vinters has long been a household name amongst the great entrepreneurial businesses of Cambridge, the heart of Silicon Fen. I think it can be taken as read that the firm’s core competencies in providing legal advice to fast-growing businesses are recognised. It’s client list including ARM Holdings PLC, Domino Printing Sciences PLC, Fiserv; Booking.com, Convergys; easyJet; CSR; University of Cambridge; Babraham Institute; Animal Health Trust; and Merz Pharma, speaks for itself in this regard.

Mention the firm to people in the Cambridge Cluster and everyone has a good word to say about them. A long-term supporter of Cambridge Capital Group, Cambridge Network, OneNucleus, the CBI, the Greater Cambridge Partnership, Cambridge University Entrepreneurial groups and East of England International, Taylor Vinters is very deeply embedded in the leading think tanks and communities from which innovation emerges in the region. This gives it more than just fruitful sources of new business – it gives the firm a view on what is happening now and what is likely to happen in the future.

Thanks to its position and its role as legal adviser to some 100 high-tech early stage businesses and dozens of larger entrepreneurial companies, which have emerged from this hub of enterprise to spread their operations throughout the globe. We thought it would be worth finding out what Taylor Vinters had to say about the fast-growing business market in the UK. And what’s nice for me as a journalist is that they have views and are not afraid to speak their minds.

I met up with Patrick Farrant, head of technology sector and Adrian Rainey, partner recently in Tower 42 and quizzed them about what is going on in the angel world. “The angel world is rapidly professionalising,” Patrick told me, “angel groups are getting more sophisticated in their investment approach and are increasingly co-operating with one another so they can amass the financial fire power to see deals through Series A fundraisings and longer. They are also getting smarter at picking deals which they can finance all the way through to exit if necessary, thus mitigating the stresses that would otherwise come from having to share a deal with a VC at some point.”

“We are seeing angel groups work with like-minded groups outside their home turf and the London/Cambridge link is particularly pronounced. Once two groups have worked on one deal successfully, their appetite to share deals grows considerably. So I am expecting to see more and more investment syndicates expanding to include angels based in more places than one.”

Adrian Rainey, a partner based in London joined the conversation.

“The fundraising and M&A markets are doing well at the moment. We’ve completed 15-20 fundraising in the last year or so and are working on a large handful of M&A deals at the moment for our tech clients. They are either buying or selling, but are definitely doing deals. Firms like Google are particularly but quietly, acquisitive in the UK at the moment, snapping up exciting young tech businesses much earlier in the cycle than you might have seen in the past. This is good news for many of our clients and means that their angel investors, in particular, are seeing the opportunity for exits earlier than they would have done in the past. I wouldn’t like to say that “exit within 3-5 years” for an exciting tech company is now a definite, but it is much more likely than it used to be, especially if you are in the TMT sector.”

Patrick joined in “My view is that you have to be strategic as an investor. The UK, and the Cambridge Cluster is a case in point, has always been great at inventing and getting businesses off the ground, but we’ve been less good at getting our companies to global critical mass. Dyson is like Google (global business, global brand, consumer facing), but it stands out as an exception rather than the norm. It’s more usual for great UK tech companies to be acquired by an overseas giant and then scaled. As a nation, we need to keep the debate open about whether this is the best way for us to go, but it does mean we play to our strengths today."

“We are good at nurturing geeks and men in white coats who have world beating ideas. It’s not necessarily a bad thing economically to allow others who are expert at scaling business to play to their own strengths at the next stage. And don’t forget we are also good at owning global hi-tech manufacturing businesses. There are plenty of examples of this around Cambridge, including ARM and CSR, but the manufacturing itself does not necessarily need to be based on home soil.”

“You have to look at each sector specifically and see how the investment strategy fits with the M&A cycle. Biotech has very different capital requirements to clean tech or med tech, for example. One of the reasons, perhaps, that UK VC has struggled to make consistent stellar returns is that it has had a one shoe fits all approach to timing of investing. But angels should not damn all the VCs - look at the success of Balderton or Amadeus - just like you should not damn really hi-tech sectors – look at our world beating position in semi-conductors.”

“There is definitely a role for new style VCs in the UK tech scene and we are excited about the new ECF’s, such as Passion Capital, which are really combining angel type attitudes with VC levels of capital. Firms like this, alongside smart angel groups such as Cambridge Capital, are looking for investments in places where there is unmet demand for capital in proportion with the funds they have available to invest over a 3-5 year period. I think firms like these are going to be increasingly relevant to the future of our tech economy."

“We are also seeing a lot of new entrants into the angel venture market, if I can coin a phrase. For example one of the long established Cambridge success stories, Marshalls, has recently set up a small corporate venture fund with this angel venture style of investing. This fund will be doing 3-4 sub £1m deals a year.”

Adrian Rainey told me that this maturing and consolidation of the early stage investment market is impacting on the role of lawyers. “Investors and entrepreneurs now want simpler, more straightforward legal agreements. There is a general recognition that complicated share structures do just what they say – make deals more complicated; and they are rapidly going out of fashion. Today’s legal agreements are about avoiding arguments in the future. We are helped by the fact that entrepreneurs today are savvier. Before they reach us they already know what terms such as “good leaver, bad leaver” mean, so the negotiation is more level and we can ensure the agreements are focused on what matters rather than legalese."

“It takes less time to do a deal too, so our fees are cheaper and we can do more work on contingency because it is less time consuming and it has a much greater chance of closing. Early stage investors, take on a lot of unknown commercial risk, but at least we can remove the risks arising from an over complicated set of legals.”

“We are finding that other firms in our peer group are adopting a similar approach which makes a massive difference to doing deals as we all come to the table with similar objectives. It’s much easier to do a deal with a 3rd party if they are being advised by someone who thinks like we do. It means the clients get the win:win of both sides being able to take expert advice, rather than in the past, when the investors might have not taken specific legal advice at all in order to keep down costs.”

As I mentioned earlier, I was sitting in Taylor Vinters’ London office during the interview. Why has a firm with a dominant position in Cambridge decided to expand into London which is chock full of lawyers?

“It’s the Cambridge phenomenon, Modwenna” Adrian told me.“Whether now or later, Cambridge based businesses increasingly find themselves doing business in London. That’s where most of the investment is and where most commercial business gets done. It soon becomes obvious to open a London office. There is also a lot of legal talent in London looking for an opportunity to make their names. As individuals it is harder for them to do this inside a large top 5 firm; they want to join a more nimble firm where they can develop their skills supported by like-minded innovative lawyers. So you can hire great people, who already have a track record of success and who have an entrepreneurial attitude themselves."

“There is a lot of unmet demand for legal services here – the pool is enormous and we can offer something a bit different because we have our roots in Cambridge. We really understand tech clients and can also offer those who do not know Cambridge a route into that market to find IP, partnerships or whatever else they need. Those are our USPs for new clients. For our existing clients we now have a base just around the corner from their own London one, which makes things much easier all round and it demonstrates that we think and act like them.”

The drift into London and the South East for successful businesses is well documented. Some bemoan it and others accept it, but I cannot help thinking that for this law firm in particular, with its roots so well established in Cambridge, that their move is not just a further sign of this trend; it’s a well thought out strategic move that should pay off in spades.