Ahead of the inaugural Cambridge Independent Business Awards, being held on 26 September, editor Paul Brackley speaks to Paul Hughes, managing director, life science and technology, at BDO, which is sponsoring the Scale-up of the Year category.
Paul Hughes was drawn to BDO by its desire to invest in the life science and technology community in Cambridge.
And, after a career spent in these sectors, he knows a thing or two about the challenges and opportunities before them.
Paul arrived at the accountancy and business advisory firm in June following more than five years at BIOS Health, the Cambridge-based neural engineering therapeutics pioneer, where he was chief operating officer and chief financial officer and helped the company secure significant funding, scale and expand into the US.
Prior to that, he spent more than six years at Allia, advising businesses and delivering its Serious Impact support programme for impact entrepreneurs and ventures.
“I’ve always worked in the tech and life science sector and I love that it’s a very dynamic set of industries. They are constantly evolving,” says Paul.
“And I’ve always really liked working with a variety of businesses simultaneously.
“At BIOS I loved every second of being in the depths of the start-up world. One thing I maintained was always working with others – Cambridge Enterprise, the Judge Business School and other start-ups.
“BDO wanted to invest in Cambridge and create a focused activity on the life science and tech sector. They were making significant investments like bringing Richard Watson on board who had been a partner and head of tax at one of the ‘Big 4’ in Cambridge and who himself has been working with many leading tech and life sciences businesses in the city for a number of years. And for me it was very clear that they were committed to doing this long term.
“So for me it was about how I can help BDO build the support for those kinds of businesses, which I love working with.”
That support takes many guises.
“Most people will think of us as accountants,” acknowledges Paul. “And we do have a lot of accountants. But we have five core areas of our business.”
In addition to tax, audit and assurance, the firm offers business outsourcing services, providing resources such as payroll and accounts preparation for those who cannot afford, or do not wish, to handle that in-house.
“The fifth area is ‘advisory’ and this is everything else,” explains Paul. “What we’re here to do is help you understand your business and make the right decisions to help you grow it.”
This can include support for mergers and acquisitions, fundraising support, due diligence and ESG (environmental, social and governance) matters. BDO also works with businesses on their people and talent – their structure, how to compensate and how to evaluate boards.
“It’s about advising a business and their key stakeholders on how they can optimise and grow in a strategic and tactical manner,” says Paul, whose role is managing director of life science and technology.
“BDO is full of experts. I don’t consider myself to be an expert. But I am highly experienced. Having a level of experience over – I hate to say this – decades, across multiple life science and tech sectors, puts me in a fairly small group of people. And I understand the challenges that come through,” he says.
Paul started his career as an accountant at home computing pioneer Sinclair, which he acknowledges “lots of people today won’t even have heard of”, before moving into agritech investment banking in New York. In 2002 – long before there was such focus on the field – he co-founded TMO Renewables, a cleantech and biofuels technology developer.
“Start-ups and scaling business go through very similar growth trajectories and understanding that, and being able to apply that to different industry sectors, comes from experience,” observes Paul.
“We’re trying to match experience from people like me, coming from industry, with businesses in the ecosystem rather than trying to sell services.”
While companies at their earliest stages are unlikely to employ the service of a big accountancy firm like BDO, Paul says his door is very much open to all.
“What I’m really interested in doing is establishing relationships,” he says. “I’m very happy to invest my time and our experts’ time into those businesses in the hope that they may want to continue to work with us as they grow. I’m always hungry to learn about new businesses and if I can help them, I will.”
Here’s a statistic that may surprise you: BDO has 8,000 people in the UK, across 18 offices, including its site on Cambridge Business Park.
“In all of our locations, there are experts in their fields and people like me who are sector experienced and focused.
“We have all kinds of expertise. It means I can work with clients and look at, for example, how you price a product. I can get someone from our commercial due diligence team to have a chat.
“We have lots of scientists and engineers to assist people. If someone wants to us to help with R&D tax, we have PhDs in physics and computer science who can help evaluate and optimise that work.
“And we have people who have worked in industry who bring that experience across. If, for example, you are thinking of expanding globally, what are the 15 things you need to know that you don’t know today?”
From local resources on the ground, to a global network, Paul says BDO is able to make connections.
“For a lot of Cambridge technology and life science businesses, the holy grail is to expand in the US and go public in the US if they are that kind of business.
“We are an affiliate of a global business that has more than 115,000 people and we are in 166 countries, with 1,776 offices. If someone is interested in an IPO in the US, we have a Boston team that can work with life science companies. We have a UK team that can help with all the preparation, so we have real breadth and depth.
“If you want to start selling your medical device in Australia, we have a team that can help you with that. We are able to connect people on very focused pieces of work but also very large strategic pieces of work, that require not only multiple sets of expertise, but require geographic diversity as well.”
That global network of expertise could prove invaluable to a scaling Cambridge business.
But are the city’s life science and technology sectors in the good shape we assume them to be?
“In the broadest sense, yes,” replies Paul, reassuringly. “But they have a number of challenges. It used to be known as the valley of death because of the dearth of funding around for A-round businesses.
“Covid retracted a lot of capital and we haven’t come out of that yet. In life science, unless you have real traction, then it is really difficult to raise an A round at the moment. There have been exceptions, like Healx, but they’ve already got products in the clinic.
“If you are slightly earlier stage and your runway is quite short, if you go out to market now you’ll find there are a lot of VCs with capital, but they are sitting on a lot of dry powder – meaning capital they haven’t yet deployed out of their venture funds.
“First-time funds that have recently raised are really challenged by the issue of not being able to raise a second fund, because they haven’t exited enough businesses to prove their thesis on why the fund should be working.
“So a lot of newer funds are not deploying into new businesses, only supporting their current ones. It’s becoming a real problem.
“But there is plenty of early-stage capital – seed funds, for example.
“Overall, there are plenty of great businesses in Cambridge and there is a pipeline of great science coming out of the university, and a pipeline of second, third and fourth-time founders that really helps validate those newer businesses. But the challenge is around the A-round.
“A lot of money is focusing on artificial intelligence, quantum and, to a lesser extent, on climate – there’s still a lot of early capital there. It means there is less capital to go around other businesses.”
The previous government acknowledged some of these challenges when it announced the Mansion House reforms in July 2023. Those reforms are still awaited but are intended to help the financial services sector to unlock capital for our most promising industries and increase returns for savers.
The measures will be aimed at increasing funding liquidity for high-growth companies by reforming the UK’s pension market, and strengthening the UK’s position as a listing destination.
“The problem with pension funds investing is they still have the same objectives – they are risk-averse and want returns of 5, 6 or 7 per cent. They are not looking to take wild bets on early-stage businesses,” observes Paul. “So in my mind, there is a question on how much that will really benefit particularly the early-stage technology businesses.”
But there was some positive news last Thursday, when the government announced the extension of the Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) scheme from 6 April 2025 by 10 years to 5 April 2035, to encourage investment into new or young companies through tax-relief incentives. There remain other challenges though.
“People are still concerned about the tax situation. There are a lot of challenges on initiatives like R&D tax refund, which many early-stage businesses really rely on.
“There was a point about two years ago where capital was just being thrown at stuff, and there was a bit of an AI bubble. What we don’t want to see is a boom and bust. We want a steady stream of suitable capital.
“Deals are out there for sure. But we will see some more failures because companies are running out of capital and their normal sources won’t invest. So it’s on an edge. I don’t see a decline coming any more but I haven’t seen that real uptick.”
Paul would like to see the London Stock Exchange and its junior Alternative Investment Market (AIM) open up more.
“We need to see that because people need the exit,” he says. “I’m sorry to say the AIM market and the LSE itself is not really a route for many, particularly in the life sciences. They can be for some tech businesses. But the markets are not freely open yet, so they’ll have to raise more capital on a private basis.”
The statistics back that up, with the number of firms listed on AIM dropping 30 per cent since 2015, with 78 cancellations last year alone.
The approximate £500,000 cost of an IPO on AIM, not to mention estimated £200,000 a year in fees and costs, put it out of reach for many.
And the 44 per cent drop in average daily trading since 2021-22 indicates many investors are putting their money elsewhere – not least in technology stocks overseas.
So are we doing enough to keep high-growth Cambridge companies here and out of US ownership?
“The brain drain has always existed – back in the 70s there were academics going to the US for great opportunities,” notes Paul. “We’ll always have that challenge.
“As a starting point for many of these businesses, it’s important that we have the funding and resources within the academic system, not only to keep the ones we have but to encourage global academics to come here. Cambridge itself has always been incredibly good at that.
“But they need funding to do that and we know that’s been challenging over the last few years. Hopefully the government will do something to address that.
“We should never say to an entrepreneur ‘You shouldn’t sell your company. You should stay a Cambridge company’. I think that’s unfair. They have to do what’s right for them, for their team, their stakeholders, their investors.
“The challenge is what we can do to keep them here.”
What would Paul’s recipe for that be?
“Firstly, we need to ensure the tax system is the number one in the world for supporting entrepreneurial ventures. We need to make sure our ability to compensate people to remain here is equally as attractive, so that means making sure our EMI scheme remains super positive, and Business Asset Disposal relief – all these kinds of things.
“A better capital market here would encourage people to stay – and making sure that we have more investors capable of larger transactions.”
But the lure of the US market, and its 345 million-plus population, will always be attractive, Paul adds.
“If you have a product applicable to US government contracts you have to have a US company. The US is incredibly good at enforcing that. But do we want to force people to stay here under regulatory pressures? We should be incentivising rather than using a threat.”
BDO is acknowledged as a scale-up expert and, appropriately, is sponsoring the Scale-up of the Year category at this month’s Cambridge Independent Business Awards.
For Paul, scaling is not about growing revenue – that’s a “result of scaling”, he says.
“Scaling in its core sense is about how you change your business’ attitude from a one-to-one process – that is one salesperson to one customer – to selling widely to numerous customers. It might be one salesperson to 500 customers. A lot of that is process development, manufacturing and distribution.
“At BDO, when I talk to people about scaling, the conversation I really want to have is ‘Where are you going in the next two or three years and what do we want to think about so the growth is smooth?’.
“You can’t keep looking at tomorrow – you have to look further down the road.”
BDO already has a substantial business in Cambridge, but even more people will be joining the likes of Paul and tax partner Richard Watson at the Cambridge office.
“We are trying to take a different approach, which is helping people to look long-term at the growth of their businesses and address future challenges in advance rather than being reactive.
“For anybody that always wants to talk to me, it’s always confidential. I want to engage as early as possible – and not just because somebody needs us for a problem.”
If you want to talk to Paul, you can find details at bdo.co.uk/en-gb/locations/cambridge.
BDO is sponsoring Scale-up of the Year at the 2024 Cambridge Independent Business Awards, being held on 26 September at King’s College. Visit cambridgeindependentbusinessawards.co.uk for more.
This post was originally published on here
