Beyond the Capital with Leeds-based investor YFM Equity Partners

YFM Equity Partners Image credit: YFM Equity Partners / UKTN

The Leeds tech sector has grown rapidly over the past five years and for Mike Clarke, partner at investment management firm YFM Equity Partners, that growth trajectory is set to continue.

“My general sentiment is that the next probably three years are going to be a really exciting time for Leeds tech,” Clarke tells UKTN.

For several years, Leeds has had some of the fastest scaleup growth in the North of England. In the year up to September 2022, Leeds-based tech startups secured £288m in venture capital investment.

Clarke says the local tech sector is “supportive” but “still fairly early” in its maturity compared to other regions. There are many startups in the up to £500,000 revenue range in Leeds, with a “handful” of scaleups above £1m revenue, he explains.

Clarke adds that while Manchester may have a higher volume of startups and scaleups than Leeds, this makes it easier to get to know the businesses in the area before making an investment.

And for Clarke, “Leeds is the real hotbed” over places like Sheffield and Newcastle due to the city’s tech “community”.

Yorkshire’s ‘hotbed’

YFM Equity Partners, which is headquartered in Leeds, was set up in 1982. It began with an office in Wakefield, and has expanded to have a presence in Leeds, London, Manchester, Birmingham and Reading.

Most tech investments come from YFM’s venture capital trust fund, which currently stands at approximately £350m. The venture capital trust fund generally invests anywhere from £2m to £10m at the Series A stage.

It also operates an £85m buyout fund for cheques as high as £15m into firms with an EBITDA between £1m-£3m.

This summer, YFM Equity Partners anticipates the close of its Buy Out Fund 3 around the £80m mark.

Tech consultancy firm Resulting IT recently secured a £9.3m investment from YFM’s Buy Out Fund 2.

In all, the Yorkshire-based investor has more than £550m in funds under management. Despite a funding downturn caused by rising interest rates, soaring inflation and uncertain economic landscape, Clarke says YFM continues to see healthy flows of capital.

“We raise most of our money from SME owners exiting their own businesses,” says Clarke. “There’s no slowdown in appetite from them, to be honest, so fundraising at the moment has been pretty buoyant.

“Whereas I know others maybe have struggled a bit more because of pension funds and things. We’ve found actually the opposite, there’s still quite a lot of appetite out there.”

Marketing tech

Clarke sees marketing tech as a key growth area for Leeds, with the YFM partner pointing to independent marketing agencies moving from traditional offerings like SEO or PPC (pay-per-click) to more custom in-house solutions like marketing automation software.

“That’s quite an interesting area with the economy as well because in a recession everybody’s looking to maximise their return on investment on things like marketing spend.”

Force24 is an email marketing platform similar to Mailchimp that raised an undisclosed amount from YFM investor in 2020.

AI drug discovery startup Biorelate, cloud integration platform Matillion and contract software Summize are other companies to obtain financing from the investor.

Elsewhere, Clarke anticipates Yorkshire attracting more scaleups, health tech companies and firms in the data and analytics spaces.

Beyond the Capital, an interview series with tech investors and venture capitalists based outside of London, is published monthly. Last month UKTN spoke with Northern Gritstone.