JUMPSTART EYES EXPANDED MARKET SHARE FUELLED BY BGF INVESTMENT; We find out how investor BGF is supporting the growth of an R&D tax break specialist firm.
Around 37 per cent of our clients are in manufacturing and engineering, 25 per cent are in IT, 20 per cent in sciences and the rest are in other technical disciplines. We cover about 205 separately designated industries.
HM Treasury's R&D tax relief, like other similar tax breaks throughout Europe, has been very successful. The amounts available to claim through the scheme have grown very rapidly to PS2.9bn in 2015-16, claimed by 26,255 companies.
Judging which projects and activities might qualify for R&D tax relief is the area where most companies need help. The level of knowledge needed for something they don't do on a daily basis is considerable. Like all tax matters, these tax credits are very complex, requiring hundreds of pages of guidance on how to claim.
All of Jumpstart's technical advisors have relevant industry experience and more than 50 per cent are PhD qualified, which makes us different from the usual tax advisory model. We know the technical context of the R&D as well as the tax aspects.
HMRC regards us as a first-tier provider and we meet with them on a regular basis to keep up to date. As the scale of the funding available has grown, HMRC has stepped up its levels of scrutiny. We can point to the exceptionally low level of enquiries (0.7 per cent) into our claims as evidence of quality and our good standing with the tax authorities who are now investigating about one in four of all large company claims.
In 2014, BGF invested PS3.4m of patient capital to help us to grow. We have used it to professionalise the operation, including recruiting a finance director and sales director, employing our own sales force and building a marketing function. We now have 46 people across the UK.
Our aim is to grow from our current turnover of PS4m to get to PS6m-PS10m over the next 3-5 years, and to expand our market share.
BGF invested in Jumpstart in 2014 to support their rigorous growth plans. The market for R&D tax relief claims was growing rapidly and Jumpstart was still one of the smaller players back then, but it was building a strong reputation and was nimble enough to respond quickly to new opportunities.
We instantly liked the culture of the organisation and the founders. They had brought in an experienced team of technical analysts including engineers and qualified scientists to PHD level. They were also investing in the Jumpstart Academy in Edinburgh, which provides training to apprentices.
The company was attracting a strong client base, but the market was pretty fragmented. To address this, they wanted to bolster their sales and marketing activity, and move from an external consultancy model to a deeply embedded in-house team. BGF's investment of PS3.4m helped the management team implement their plans much sooner that they would have done without the funding. They were able to quickly refine their sales approach and expand their team. This gave them the foundation and bandwidth to expand geographically and with our funding they've opened offices in Birmingham and in the South West.
Part of our initial investment included an element of cash out to the founders so that they could personally derisk and focus on the next stage of growth with us as their funding partner. Jumpstart's strategy is to drive value, and realise that value down the line. BGF provides patient capital, which means we don't have an exit time frame.
As the business expands, Jumpstart continues to attract interest from potential acquirers. But right now, the team is focused on scaling the business and growing their market presence. I meet with Scott and the management team on a monthly basis at the Jumpstart board meetings. As a minority investor, we don't get involved in running the business and it isn't my role to define the growth strategy. But having worked closely with more than 30 growing businesses during my career, I can provide a different perspective. There are no hard and fast rules about how BGF interacts with the management teams we back.
BGF initially invests between PS2m and PS10m into a business in return for a minority equity stake and provides follow-on funding to support further growth. The companies BGF backs are privately-owned or publicly listed, and typically have revenues of between PS5m and PS100m.
Jumpstart's Scott Henderson on BGF
BGF's Patrick Graham on Jumpstart
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|Date:||Mar 9, 2018|
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