The UK’s innovation accelerator for transport,
NorthStar Ventures has made two financial commitments in recent years to Wordnerds – an SME supported by Connected Places Catapult – and Tom O’Neill of the venture capital firm says individuals represent a company’s greatest asset.
“We get involved with companies at an early stage, so often don’t have huge volumes of data on them to seriously crunch the numbers and compare them to other businesses,” explains the Investment Manager. “Therefore, we have to base our investment on the quality of the team as well as the technology.”
In the case of Wordnerds – a company which uses AI to gain insights from customer feedback, to help improve services – Tom says it has a “really good mix” of sales experience, technology – and optimism.
“When you are investing in a business, you're probably going to be involved with them for at least five years. It is important to look beyond just the technical competence and execution skills of a team, and to ask if you can work with them. And in this case, we could.”Tom O’Neill, NorthStar Ventures
NorthStar Ventures invested £720,000 in Wordnerds last December using two funding sources: the Northstar EIS Growth Fund, and the North East Innovation Fund. This follows an initial investment by the venture capital firm in the SME in 2019.
Today, the investor owns a 26% stake in the technology firm, which currently has £1m in annual recurring revenue from client subscriptions, and aims to treble this figure – and turn a profit – within three years.
Further investment in Wordnerds at the end of last year as part of a £1.6m funding call came from two early-stage angel investors, and Innovate UK’s Future Economy Investor Partnership programme.
NorthStar typically looks to invest in technology focused SMEs based in the North East with revenue; including firms involved in software, life sciences, clean tech and developing strategies for promoting healthy ageing. Around a third of its portfolio are university spin-outs.
Tom adds that SMEs should also carry out a rigorous due diligence process on potential investors, in order to settle on a deal that suits both parties. “There needs to be clear expectations and alignment between the investor and the SME at the start.”
Wordnerds’ Chief Scientific Officer, Steve Erdal agrees. “We spoke with a lot of investors across our two funding rounds – and in particular this latest one – and you have to remember these conversations are two-way.” As a small business, he says, “you are trying to figure out if the investor is right for you, just as much as they're trying to figure out whether your business is something they want to invest in.”
Steve adds that the North East of England has a “really great community of businesses” and that “news travels fast”. In speaking to several successful company founders in the area, “we never found anyone with anything bad to say about NorthStar”.
He adds that Connected Places Catapult helped his company to carry out useful ‘horizon scanning’ exercises and provided feedback on its business proposition. “The Catapult has been huge in terms of getting us to the point where we are right now, and helping us to better understand possible markets,” he says.
“We had some really interesting conversations and they provided us with an arm on the shoulder, to offer an unbiased and unvarnished account of what we were stepping into.”
Wordnerds took part in the Transport Research and Innovation Grants programme – delivered by the Catapult on behalf of the Department for Transport – three years ago to refine its product and explore how it could be applied to the highways sector. It went on to work with National Highways to see if the product could be used to better understand how motorists feel about driving through roadworks.
It built a software platform that explores words in a passage of text, and prioritises comments based on further action – as well as identifying themes of emerging interest.
Tom says Wordnerds’ participation in the accelerator helped to de-risk the investment proposition, and adds that the programme would be of particular use for any angel investor who may not be familiar with a certain industry sector.
Since the latest investment round, Steve says that Wordnerds has built a staff of 25 and is chasing ambitious, but achievable, financial targets. “We're very much in sales mode at the moment; looking to build our revenue to build the technology.
“We've recently expanded to work with financial businesses, and have started working in hospitality – a luxury hotel chain has just signed with us, as they really care about what their customers think.
“The company’s founders have also got to start thinking how we can go about making ourselves obsolete,” he adds. “We chose to follow this path with NorthStar, so that means this business has to operate without us; you can't exit a business if you are integral to it.
“Making sure we have a business that can work by itself is an important next step.”
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Click here to read a profile about Wordnerds’ innovation manager Ruth Erdal.
Read about other investor stories in this series: Bethnal Green Ventures and its funding of Streetwise Technology, and One Planet Capital investing in GT Wings.
