Gordon Matthew, director of Trend Management Services Ltd, discusses the drivers behind fast growth in the technology industry and what he looks for when he invests in a business.
Tell us about your business and the tech companies you’ve invested in the past few years
Gordon Matthew (GM): At Trend Management, we invest time as well as money in a business. I’ve got a view that money is a fairly easy asset to acquire for a business. Having the right level of experience, an ability to work with the executive team and a capacity to improve them is more important than financial collateral alone.
We’ve worked with two or three private equity-backed technology businesses recently, ranging in size from £6 million to £20 million revenue. And we are also working with two or three entrepreneurial, owner-managed businesses in the telecommunications and managed IT space.
When you invest in a company, what are the kind of characteristics you look for?
GM: We are looking for some evidence that there's a market opportunity to grow that product or service. There should be early adoption and some track record of penetration, or indeed some maturity in it, depending on what stage the business is at. And, most importantly, I’m searching for a management team that demonstrates drive, enthusiasm, knowledge and an ability to actually execute on the plan.
In our survey, we found there was a big focus on three areas for fast-growing AMT companies – technology; using and monetising data; and driving business through alliances. Are these factors you look for as well?
GM: I think monetising data is definitely on its way and is an emerging trend. However, in my experience, it's not an established or indeed core part of too many businesses at the moment.
It will certainly grow. Especially as the Internet of Things develops and more and more data is captured, then you’ll see more and more opportunity to utilise that data to provide some form of service and therefore monetise it.
How do you manage to make money out of that data and, at the same time, maintain the trust of your clients?
GM: It’s a very challenging area. There are clear rules about what you can and cannot do. With that in mind, a lot of the monetisation is going to come from anonymous or trending information rather than individual, specific information. An example of that would be, perhaps, capturing footfall in a shopping centre. That data is very valuable for a retail environment, without it being specific to any one individual. Companies will look at how they can build other types of data using that same model without personalising it and therefore running into security and trust issues.
Where do you see the next phase of disruptive technology?
GM: I'm not a big fan of the term disruptive technology. All we’re really talking about is people using technology to do things better than before. Or using better technologies to solve the same problem in a better and more elegant way. Real-life examples at the moment are the emerging banks such as Monzo, which has built the bank from the technology upwards. It provides a completely different customer experience and quality of service for the technologically savvy generation.
The winners will be those brave enough to look at solving real-life problems by using the available technology from the ground up rather than trying to re-engineer some monolithic solution that previously existed.
However, I don't think there's any sort of silver bullet. I don’t believe blockchain, for example, is going to be a disruptive technology as a standalone. It's going to be about what applications people can bring to market that use that type of technology and how well they can get to market.
When you look at a company, what issues put you off investing?
GM: I view technology companies as businesses using technologies to deliver a service. I look at customer retention; at the ability to cross-sell and up-sell to customers; and how many products or solutions they’ve sold to those customers. And how “sticky” those customers were. If these indictors aren’t in the upper quartile as a technology business, then you're probably going to be on to a loser.
Where do you see the major risks coming in on these companies in the next 18 months?
GM: I tend to view aspects such as Brexit as risks that you can't influence. I tend to park them to the side and not worry about them because you can't necessarily change them.
You need to focus on the risks that you can manage and worry about yourself. For example, if there's too much of your business with one customer or whether are you vulnerable to a technological change. These are clear and present dangers for companies.
Management teams need to focus on areas of risk that are directly within their control, visible, and manageable by the team itself. Otherwise you spend far too much time going round in circles in boardrooms talking about things you can't influence.