Alex Davies of Wealth Club interviews Dominic Keen

Alex Davies, founder of Wealth Club, interviews Dominic Keen

LONDON 24 October 2017. Dominic Keen sets out the investment objectives of the British Robotics Seed Fund.

Alex Davies: Hello I'm Alex Davies, Founder of Wealth Club, and today I'm with Dominic Keen of the British Robotics Seed Fund, also now sometimes known as Britbots. Hello, Dominic.
Dominic Keen: Hello, Alex.
Alex Davies: First can you tell me about the British Robotics Seed Fund, what exactly is it and what is its aim for investors?
Dominic Keen: Sure. I guess I believe that robotics and automation is likely to be one of the significant themes in the global economy over the next five or ten years, and so the Fund really looks to back relatively early-stage businesses which are riding along this global trend, with the target of generating large returns for investors from being in robotics at a relatively early stage.
Alex Davies: So this is a reasonably new fund. What's your experience prior to this?
Dominic Keen: My early career was as an engineer and then I moved into professional investing, working with an early-stage venture capital fund which invested in software and semiconductors. And then about 10 years ago I started my own software business which floated about four years ago now, and has been worth around 60 or 70 million pounds on the London stock market, so I have experience both as a professional investor and as an entrepreneur who's got significant exits in the past, and I really look to bring those sort of skill sets into the Fund's investment portfolio.
What sort of companies are you looking for? There's obviously the robotics element of it but are there common themes in the companies you choose?
Dominic Keen: Robotics is a fascinating area because it's really moving into almost every sector and vertical, potentially has the ability to be transformed to some extent by robotics and automation, but I guess the things that we really look for are experienced founders who take a sort of pragmatic view to building the companies. We want to find things where a small team can make a really really big difference, and also looking for areas where the business don't require an awful lot of capital to get somewhere down the line. So there's a lot of interesting businesses which are starting to emerge in this area.
Alex Davies: How do you find these opportunities?
Dominic Keen: I get a pretty good deal flow coming across my desk simply because I am a specialist investor in robotics and I've got quite a good network in this area, so a lot of young robotics and automation businesses in the country tend to come and sort of pitch me, and I'm seeing three or four companies a weeks. So we're getting a good view on the landscape and the potential deals.
Alex Davies: So you're one fund down, could you give me a flavour of some of the companies you've invested in so far and why you chose them?
Dominic Keen: There've been some really exciting companies in the first portfolio, so we've got a couple of traditional robot platforms, if you like, so there's a four-legged robot product called ZOA Robotics which effectively moves materials around construction sites or places which have uneven ground. We've got a very interesting drone company called Tethered Drone Systems which effectively has a drone on a wire, which means that the drone can stay up in the air almost indefinitely and do a whole variety of sort of surveillance and broadcasting tasks from up to 300 metres in the sky.
There's also a lot of activity in the area of artificial intelligence for customer services, so providing chat bots and human equivalents for sort of question and answers. Some interesting companies in terms of component elements for robotics, their control systems, and then also an interesting deal which I actually did yesterday was a company which creates systems for kids to learn about robotics in schools, so provides educational content and robotic content for learning about robots. So a really really broad selection of companies from actual robots at one end to some of the sort of infrastructure and supporting type companies at the other end.
Alex Davies: There's two things we hear about all the time now, AI and robotics, so is there a kind of a bubble there with money just pouring into these things?
Dominic Keen: I think all the sort of evidence shows that the global economy over the next decade is really going to be transformed by some of these developments in automation and robotisation. It's a very significant theme and some of the winning companies of the future are being born now, so it's a great time for investors to come into this space and get some exposure to these companies.
Alex Davies: Exits, clearly you haven't had any exits yet but what sort of time frame are you looking for and how are you going to exit these companies?
Dominic Keen: In terms of the exit, we'll be really looking at that after the three-year maturity period of the SEIS investment has come through. There are a number of potential options. Obviously route A for every company is to either look for a significant trade sale or even an IPO. In some cases that might be a more pragmatic exit which is involved in taking the technology that has been developed in the company and bolting it into some other format, or even potentially some secondary sales where some of our portfolio companies go into secondary investors and provide an exit route there. So I think we're looking at an exit window of between three and eight years for the whole portfolio. Probably the bigger exits will take a little bit longer to come through, but investors should be getting their money back in that kind of time span.
Alex Davies: What's the expected return?
Dominic Keen: Basically the reality is that some of the businesses won't succeed. We work very very actively in the businesses, spending three or four days a month with the companies, so we're expecting a good number of them to get money back plus to the investors, and there's likely to be one or two real stars in the portfolio who could deliver really sort of significant returns, so we need to balance that all out. We're looking at sort of three times plus on an initial investment in the portfolio.
Alex Davies: We'll have to emphasise, this is very high risk stuff, these are very small companies.
Dominic Keen: Sure.
Alex Davies: And potentially all of them could fail, but as you say, you could get one or two that could do exceptionally well and you can make many times your money back.
Dominic Keen: Yes, and I think it fits really well into the SEIS wrapper because the investor gets a lot of protection just from the tax gearing that's involved in that, and as you say, the potential for building some really really big home-run companies in this area is significant.
Alex Davies: Thanks very much, Dominic. Before you go, perhaps you could just tell me, I'm going to invest in an SEIS this year. Why should I invest in yours?
Dominic Keen: I think what we offer investors is a really exciting combination of exposure to this very, very significant global investment theme of robotisation and automation whilst at the same time de-risking it in kind of three ways. Firstly by having a portfolio approach so that an investor gets their investment spread across a range of different types of companies in different sectors, and secondly obviously the SEIS wrapper gives a lot of tax protection for the investor, and then finally we mentor and work closely with all the portfolio companies to quite a large degree to really bring our expertise to bear on the companies and help de-risk the overall portfolio for the investors. So on one side, very very high growth potential and returns, with quite a lot of activity to balance out the downside risk for investors.
Alex Davies: Dominic Keen of the British Robotics Seed Fund, thank you very much.
Dominic Keen: Thank you.
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