The first investment from a £50m equity fund to back the scale-up of firms in the Cardiff Capital Region has been made into generative artificial intelligence business Amplyfi.
The region’s Innovation Investment Capital (IIC) fund, which has been financed through the £1.3bn City Deal for the region – which is made of the 10 local authorities of south-east Wales – has a number of other investment deals in the pipeline that could be signed off over the next few months – including a large firm that would relocate from elsewhere in the 海角视频.
The fund is held on behalf of the region by investment decision making entity Innovation Investment Capital Limited Partnership, managed by its regulated general partner in London-based Capricorn Fund Managers which has engaged PwC to provide advisory support including research and sourcing and deal execution.
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Amplyfi’s AI-powered market intelligence platform is used by global clients to better identify and react to market changes. The value of the equity investment has not been disclosed for commercial reasons. However, with follow on investment potential, it is likely to sit around the mid-range of the fund’s deal investment remit of £2m to £7m.
Chief executive of Amplyfi, Paul Teather, said the equity investment would be deployed to expand its AI generative capacity to support its growing global client base drawn from a wide range of sectors from financial services and pharma to defence.
Mr Teather said: "We are really excited about what the money could do for our company. We have a machine learning capability that allows us to extract a signal from unstructured information in the surface and the deep web at huge scale.
“Our machines will do a human life time of reading every 20 minutes. We structure that information and organise it using machine learning techniques and we are able to identify signals within that huge amount of information.
“More recently we have been using generative technologies to allow us to power the automation of insight from those signals. What this investment is enabling us to do is really double down on the use of regenerative AI in order to be able to automate insights generated from our foundational machine learning capabilities.”
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The business, set up eight years ago, is moving closer to profitability. Mr Teather said: “We are not a high burn company, but a very efficiently run organisation. If we wanted to we could easily track towards profitability within the timescale that this investment gives us.
“We are securing the future of the company and giving ourselves choices and using the money to go faster in the development of generative AI capabilities on top of what already exists. We will use it to invest heavily in product and engineering .”
The business currently employs 45 people with around 90% of its product and engineering team based at its Cardiff head office at the 1 Central Square office scheme.
On future recruitment the chief executive said: “At the very least we are probably looking at north of eight people in the coming years, but depending on company performance it could be significantly higher.”
Amplyfi employees maintain a majority equity stake in the business post the investment.
Asked what was positive about being located in the Cardiff Capital Region, Mr Teather said: “It is relatively small and integrated and I have to say I have been really impressed by the way in which government (Welsh) is supporting the identification and development of early stage businesses.
“The SME support infrastructure they have put in place over the last couple of years I think is a really progressive sign. Certainly the academic institutions are world class and we have benefitted enormously from being able to hire people out of the regional universities.
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“I think it is a very collegiate and supportive environment for businesses like ours in the region. There is almost a community sense of pulling together amongst early stage businesses.
“The challenge, such as it is,is distance to market. And one of things we could do better is develop the local market for customers more actively.
“As it stands we do have a small number of customers in Wales, but the vast majority are in other parts of the 海角视频 and the rest of the world.
“We are working across a number of sectors like financial services, pharma, large industrial and some intelligence related in defence, both private and public sector in the 海角视频 and elsewhere.”
Welcoming the fund’s first investment, chief operating officer for the Cardiff Capital Region, Rhys Thomas, said: “The Amplyfi investment aligns with this mandate of backing innovative businesses in many different sectors, encouraging the new jobs and good growth that lies at the heart of our regional economic and industrial plan. We expect further IIC investments very soon, far beyond just the technology sector and the city of Cardiff. These are exciting times.”
A number of other investments, bolstered by co-investments from other funders, could be signed off over the coming months.
PwC partner Rob Asplin said: “There is a real mix in what is a really exciting pipeline we have at the moment.
“There is a whole range of different industries and sizes (of firms) from really quite small to very large. There is one particular potential deal that is well advanced which isn’t yet (firm) based in the region, but would come in. It is quite a large business but would only fall within the criteria of the fund if there are irrevocable commitments for it to relocate within a short period of time and they put lots of money into the region. So, that is one that would be an inbound investment. There is another one that is based in the region which is again a large business but has international divisions and operations.”
He said it was too early to say what form of future exit from its investment in Amplyfi could take.
He added: “The idea is we want this company to grow, flourish and champion the region and increase in size and profitability. If all of that happens that all options are on the table, whether to private equity, industry or whether it becomes listed.
“We have no idea how long this is going to take, it could take 18 months or eight years, we really don’t know. My history of doing this, is that the business and the market will combine when an exit timing is required.”
The fund management fees and what percentage from profitable exits Capricorn and PwC will receive has not been disclosed.
However, they will be within the industry standard of around 2% in management fees and 20% of exit upside.
With other equity funds located within the region like the Development Bank of Wales and a soon to go live £130m Wales fund from the British Business Bank, of which £50m will be assigned for equity, Mr Asplin welcomed the competition.
He explained: “I actually see it as a net positive as clearly competition breeds a better ecosystem, more advisors ,deal flow, insight and relationships. It just brings more noise and money to the region, which is great. It is not a zero sum game as there will be co-investments done as well.
“So the idea that you can have bigger cheques, if for example IIC invests alongside the British Business Bank or whoever, is a positive.”
With PwC having a professional relationship – although prior to this deal never with Amplyfi, with so many businesses, Mr Asplin said that ensuring no conflict of interests was paramount.
He added: “We have an incredibly large and important risk and compliance division which gets involved in what we are allowed and not allowed to do, as we are terrified of any perception of conflict and, therefore, we are very acutely aware of the fact that there cannot be any actual conflict within that. Paul and his team have seen how we conducted ourselves.”
This is the latest investment round for Amplyfi. In 2020 it raised $5m in a round led by Hong Kong-based QBN Capital and supported by the Development Bank of Wales.
On whether the investment, against the backdrop of increasing geopolitical tensions between China and the west, could be viewed negatively, Mr Teather said: “We have not had any issues at all. QBN Capital is a Hong Kong-based fund and not a Chinese fund. It is an incredibly highly regarded organisation run by very highly regarded individuals.”
Lynda Stoelker, Capricorn Fund Managers chief operating officer and chair of the IIC investment committee, said:. “We are in a great position, with a healthy pipeline of potential investments in different sectors.
Amplyfi, as IIC’s first investment, sets a very high bar and we are delighted to be a part of their journey
Welcoming the fund’s first investment Frank Holmes, chair of the Cardiff Capital Region’s Regional Economic Growth Partnership and investment panel, added: “This first investment in Amplyfi typifies the aspiration of the city region’s fund’s focus on innovation led companies seeking to scale their operations, whilst looking beyond the region to attract companies willing to grow here, complimenting existing ecosystems, gaining access to local talent and exporting revenues to global customers”.
On the Amplyfi deal for the region, legals were provided by Harrison Clark Rickerbys, financial from Barford Owen Davies, tax from Bishop Fleming and tech from Squirrel Squared.
Since its launch last November the IIC has engaged with more than 140 firms from across the city region seeking potential investment.