As the boss of one of the UK’s leading venture capitalist investors, Simon Murdoch knows a thing or two about taking risks.
Back in 1998 he sold his first company Bookpages to Amazon and subsequently took up the role of vice president Europe for the ecommerce giant.
Murdoch now heads up Episode1, a UK-based seed investment business which was in the news last week after it was named as one of the recipients the largesse of listed venture capital firm Draper Espirit. The money will go into a new £60m fund which will be closing shortly.
As a serial angel investor, Murdoch has some impressive hits behind him including early-stage investments in the likes of Zoopla, which by his own estimation produced a high double-digit return, and LoveFilm, which again was sold to Amazon in 2011.
Murdoch was also an early investor in Betfair and is currently invested in Edinburgh-based daily fantasy sports (DFS) operator FanDuel.
It gives him an interesting perspective on the state of the gambling sector as an early-stage investment proposition. And the verdict is not great, at least as far as anyone interested in innovation is concerned.
It is an industry which – in terms of online – is very static and highly structured and as such it is inherently less interesting to investors such as himself.
“The online gambling industry is seventeen or eighteen years’ old now,” he says. “That’s old for a VC. It’s the same reason I wouldn’t invest in an ecommerce company.”
This reluctance is compounded by the structure of the venture capital space in the UK. Funds such as Episode1 and Seedcamp, which is the other recipient of the Draper Espirit funding, have elements of government support in the form of investment from the British Business Bank which is designed to help fund the perceived investment gap for UK growth companies.
This financial backing clearly comes with strings attached, and although Murdoch said it wouldn’t be impossible to invest the money in a gambling-related proposition, the company involved would likely have to jump through more hoops than most in order to secure the financial backing.
“The government is quite careful,” he said.
The regtech route
Where Murdoch says there is more general enthusiasm is in the area of fintech and its related regtech areas. Current investments include AimBrain, a biometric security company and PassFort, which automates the KYC and compliance process for regulated businesses.
As GamCrowd has noted before, it is these type of regtech and fintech early-stage enterprises that are attracting a lot of see investment interest, particularly in the UK where interest in these areas is extremely high.
“That’s the kind of stuff that is ahead of the curve,” says Murdoch.
It is also, notably, an area which gets much more by way of government support than merely the proxy investment from the BBB. Just last week, the Financial Conduct Authority (FCA) reported on the lessons it has learned from the regulatory sandbox initiative which celebrated its first year of full operation last week.
Among the key findings outlined by the FCA is the degree to which those firms that have had their ideas tested in the sandbox have seen their participation facilitate access to further capital. The financial watchdog said that inclusion in the initiative provides greater certainty and that at least 40 percent of the firms involved received investment either during or immediately following their sandbox tests.
Murdoch concurs that the evidence he has seen in recent years shows that there is a huge amount of innovation going on in the UK, not just in the fintech space, but also elsewhere in the SME universe that is drawing in interest and funding.
This is what the deal with Draper Espirit is intended to help foster and continue. “We’ve known Draper Esprit for many years and are excited to be working with them again,” he said. “As a leading seed fund our role is to find and accelerate UK startups helping them to become the sort of rapidly growing businesses that Draper Esprit want to invest in and grow to global success stories.”