Our practice is diverse and focuses on critical enabling technologies for research, quality control, automation and scientific workflows, spanning instrumentation and sensor technologies, consumables (the picks and shovels enabling life-science research, analytical testing workflows and R&D) — even training and service providers.

Much like our software-investing colleagues, we prioritize what we call high-quality revenue: predictable and recurring revenue from consumables and services, over one-time product sales.

For our companies, which often have a number of revenue streams, from product sales and service contracts to consumable sales and software/data subscriptions, it can be more challenging to define value, especially on a comparative basis as the revenue mix varies across companies. But we are seeing more and more technology companies implement software-enabled products and services, as artificial intelligence becomes more accessible and as investors and management teams place a greater emphasis on revenue stability, especially in the wake of the pandemic.

Within our portfolio, we’ve always prioritized improving revenue mix as a key value creation lever, in addition to other key factors such as scale, organic growth rate, profitability and customer/market diversification to name a few.

So, we sought to quantify what we knew intuitively: that for non-software technology businesses, revenue quality mix is a meaningful indicator of value, and moreover, should serve as a key lever to help companies increase in value over time.

Based on a quantitative analysis of publicly-traded ITLST companies and our own portfolio, we created a new framework — the Revenue-Quality Podium — to help management teams, investors and industry stakeholders track value creation as companies transition to a higher share of high-quality revenue.

Download the Revenue-Quality Podium Whitepaper here to see our full analysis. 

The post Introducing the Revenue-Quality Podium: How Revenue Mix Drives Value for Industrial Tech and Life-Science Tools Companies appeared first on Battery Ventures.

Background:

Battery’s first step in creating SPT Labtech occurred in 2015, when the team met the managing director of a company called TTP Labtech, then a subsidiary of diversified, U.K. technology company TTP Group. Battery kept in touch with the executive, David Newble, for several years about the possibility of spinning out TTP Labtech—which focused primarily on sample- management and sample-preparation technology for laboratories–and building a larger business around it.

In 2018, Battery announced the spinout of TTP Labtech and brought in executive Patrick Bennett to work with Newble to help build the company.  The newly branded SPT, based in the Melbourn Science Park near Cambridge, grew into a much larger firm offering a portfolio of automation, instrumentation and consumables products for the pharmaceutical, biotechnology and academic-research markets. Some of the company’s products were even used to help sequence the genome of the Covid-19 virus.

Battery’s Impact:

Battery helped the company grow and scale in several ways, helping it create new, profitable workflows in drug discovery, structural biology, sample management, biobanking and genomics. Specific areas of assistance include:

• Recruited a number of C-level executives for the team, including Patrick Bennett, who served initially as CEO and then chairman; David Newble then became CEO and retained that role.
• Helped the company accelerate revenue growth organically and through acquisitions; provided strategic counsel and tactical assistance to help executives flesh out the commercial, and not just the research-and-development, aspect of the business.
• Created a more-efficient capital structure and increased operating leverage in the business.
• Executed an M&A program that resulted in SPT acquiring four companies: Apricot Designs, BioMicroLab, LBD Life Sciences, and Quantifoil.

Outcome:

SPT Labtech was acquired by EQT Private Equity in 2022.

The post SPT Labtech, a provider of instrumentation and tools to facilitate life-science research appeared first on Battery Ventures.

Rebecca Buckman, marketing partner at Battery Ventures, sat down recently with our firm’s newest general partner, Zack Smotherman, to discuss this evolution. Zack–who with General Partner Jesse Feldman runs the newly expanded industrial tech and life science tools practice–shared some insights into his approach to working with companies in our portfolio, trends he’s excited about, and where the practice is heading next.

Rebecca: Zack, I understand that there’s been an evolution and a rebranding of Battery’s industrial technology practice. Maybe you can start by telling us how things have evolved and what’s new.

Zack: Over time, we realized that our legacy branding of industrial technology was not fully representative of all our activities at Battery. We’ve been investing more in the life-sciences market. As a result, we needed to look at how we were characterizing our practice overall.

The areas that we’ve built the practice on—test and measurement and sensor technologies—will continue to be a focus going forward. But we’re also really excited about some environmental and life-sciences investments we’ve made in the last two years.

Rebecca: What specific sub-sectors of industrial tech and life sciences is the team focused on right now?

Zack: In addition to the test and measurement and sensor-technology businesses, we’re looking at the enabling technologies around environmental research, those supporting analytical sciences as well as some more life science tools supporting drug development and genomics. There are some really exciting growth areas in those spaces.

Rebecca: One of the portfolio companies we’ve invested in, SPT Labtech*, makes technology that actually helped sequence the COVID-19 genome.

Zack: Yes, exactly. That instrumentation has been part of the research that’s gone on around the variety of Covid-19 variants that, unfortunately, continue to emerge. We actually invested in that project long before the pandemic—it’s a business that has grown very nicely around core drug development and genomics markets and had some interesting applications in Covid research.

Rebecca: Is there a typical profile of a company that makes a good fit for the Battery portfolio? What do you look for in terms of size, revenue or location, for instance?

Zack: We invest in businesses across both North America and Europe. A significant percentage of our activity is with founder- or family-owned businesses—probably more than half of our activity. From a size perspective, we’re typically investing in companies in the range of $25 million to $100 million of revenue.

We spend a lot of time working with companies on growth strategies, meaning both organic growth and opportunities to scale the business materially through acquisitions. That strategy is a big way that our team helps businesses achieve their growth objectives. We act as an outsourced business-development partner around acquisitions.

Rebecca: What are some of the broader macro trends driving some of these businesses? We talked about Covid-19, but what about the broader societal, economic, or technology changes that are driving growth at some of these companies?

Zack: A few of our recent investments support food safety. Our food supply chain is truly global, and there are many different safety elements that we need to get right as a result. We have invested in businesses that offer both tools and services to ensure food is safely delivered.

Another theme would be climate change–climate technology, environmental technology. We have a business called LI-COR* that is focused on environmental research. And, of course, we continue to focus on drug development and genomics research. Many of our investment themes recognize the need to serve an aging population; there are many opportunities that merge across these spaces.

Rebecca:  Talk more about climate change. What does Battery focus on in this area?

Zack: Historically, some of our businesses have focused on using cleaner technology in manufacturing plants. That would be an example of some of the test and measurement activities we’ve backed. Today, we also have businesses that are involved in field measurements, such as soil analysis or water analysis to measure various impacts of contaminants in the environment.

Rebecca: Switching gears for a minute, tell us more about your background. Where did you start your career? How long have you been with Battery?

Zack: I’ve been at Battery for about nine years. My entire career has been in the finance world. I started with a couple of years in investment banking, and then moved to an investing role at a smaller private equity firm in the Boston area.

I think that trajectory informs the approach that we take with our management teams. We have deep expertise in the markets in which we invest and spend a lot of time researching those markets. But we certainly recognize that we are coming from finance and investment backgrounds and need to partner with strong operators to run the business day-to-day. We take a pretty serious approach to where that line is and where we can be helpful. Certain responsibilities ultimately need to be left to the management team.

We spend a lot of time finding the right people, finding the right companies and then trying to be a helpful partner where we can around the edges.

Rebecca: How do you and the team like to work with executives?

Zack: I think about our role during our investment period as a bridge; we’re here to help that business to scale professionally.

Often, that means supplementing the management team and helping them grow. As we think about growing the business through acquisitions, systems need to evolve across the business, the team and the way business units work together. We have seen many businesses go through that evolution, and draw on that knowledge, as well as on the core market research that we do.

We spend a lot of time developing relationships with potential acquisition targets that can help the businesses scale. Our deal teams serve as outsourced business-development or corporate- development arms of the companies in which we invest.

Those are the two main models we use to help companies grow: corporate development and M&A. At the board level, we emphasize being a thought partner around growth initiatives, taking and applying learnings from prior investments and sharing best practices.

Rebecca: How long do you usually hold an investment?

Zack: Our typical hold period is five to seven years. Given Battery’s long track record in investing in the market, we have flexibility in terms of the hold period. We think about our investments individually and consider what’s best for a particular market. Our bias is to hold longer to grow the business, particularly in markets where there’s strong, long-term demand.

Rebecca: What’s most exciting to you right now about this sector, whether it’s specific to industrial tech or life sciences tools? What’s next that gets you up in the morning?

Zack: It’s an interesting time to be in the market. There’s a lot going on. Over the past two to three years, the pandemic and other world events have uncovered supply-chain issues, for example. What I get excited about is thinking about how our companies are creating the enabling technology to tackle some of the challenges I mentioned earlier.

We were peripherally involved in some really exciting themes around climate research, drug development, food supply chains, robotics, and other markets that are changing the way that products are made and ways in which people consume goods. These companies are different from the high-profile consumer brands that people would recognize, but from my perspective, the work is still very relevant and integral to our daily lives.

Rebecca: Companies that are a little under-the-radar, but still super important.

Zack: That’s exactly right.

Rebecca: That’s exciting. Thank you for taking the time to share your outlook. Congrats on the promotion and congrats on the expansion of the practice.

Zack: Thanks so much. We’re very excited about the future of this practice for Battery.

The post Interview: The Future of Industrial Technology and Life Science Tools at Battery appeared first on Battery Ventures.