funding the future WINTER 2013 journal 30 years

Social security Entrepreneurial spirit Nuts about Brazil How Sir Ronald Cohen is finding Unperturbed by the state of the Fundraising in ’s private funding for global social causes economy, start-ups are on the rise equity industry is at an all-time high Introduction Contents This year the BVCA celebrates its 30th anniversary. This issue of the Journal is the first in a series of events to mark the occasion 33

The BVCA has grown hugely and securing jobs and growth is since its founding in 1983. Starting essential. Honing a coherent message with a base of 34 we now have over on responsible capitalism, and 500 members. Thirty years ago highlighting the role of social impact the average UK deal size was just investing, will also be crucial parts £273,000. Now it is closer to £8m. Our of the discussion, as will the role 10 members invested £190m in 1983. of the industry in creating returns In 2011 this reached £18.6bn. Funds for pension funds on which many under management were less than workers rely. “has the ability £200m; that figure today stands at The normalisation of private equity more than £200bn. is an eminently achievable goal. The 26 to adapt and For all the increases in size and importance of de-mystifying the activity, the industry, at its core, has industry can be seen in the tendency thrive, even in the not changed. It is still about buying for regulators to view private equity underperforming or struggling as a risky and exotic asset class. We most tumultuous businesses and improving them, have never been, and should never of times making them more efficient and be, opposed to sound and intelligent creating value. regulation but it must be rooted in an ” But we now find ourselves in understanding of how the industry the midst of a very challenging operates. Our continued dialogue environment. UK GDP expanded just with regulators both domestically and 0.9% in the third quarter of 2012 over internationally, helped by our sister the previous quarter according to the organisations in other countries, Office of National Statistics, against a has led regulators to consider the backdrop of sluggish growth rates in ramifications of their proposals on the the Eurozone and the United States. industry and the economy at large. This year seems likely to be another The past 30 years have taught us News Crunching A meeting of minds Media savvy where economic power and vitality that private equity has the ability to 04 Private equity news, 20 the numbers 33 The combination of 42 ’s Chris Davison shifts from the developed to the adapt and thrive, even in the most including updates on Basel III Comparing and contrasting the Seatwave and Atlas Venture has considers the future of media developing world. tumultuous of times. What was once rules and the Kay Review characteristics of entrepreneurs proved a ticket to success relations in private equity This is not a council of despair, but a small corner of the investment in and Silicon Valley a call to action. The rise of developing community is now a mainstay of Financing Necessary evil or Bringing economies creates new competitors, corporate Britain. Private equity has 10 the future A brave new world 37unnecessary risk? 45ABL into but it also delivers new customers and excelled over the past 30 years and Sir Ronald Cohen discusses 23Heralding the arrival of Why Forex is the most liquid mainstream lending new opportunities for partnership. will continue to do so as it funds the social investment, education and the Alternative Investment Fund and volatile market in the world The growth, evolution and Emphasising the impact private future for generations to come. the works of Schubert Managers Directive at the moment increasing attractiveness of equity and has Asset Based Lending in the real economy in creating Mark Florman, CEO, BVCA Tracking changes A new morning Thirty years old and 15 Assessing the growing 26for Brazil 38still going strong Guest columnist burden of regulations for the Forget soccer, sand and samba. With the BVCA entering its fourth 46 James Quinn on private private equity industry São Paulo’s greatest appeal is a decade, we celebrate its growth, equity general partners and Reserve your copy of the BVCA Journal. Editor Barnaby Simons Creative Director Ben Barrett Art Director David Donaghy To guarantee that you receive your copy booming investment market impact and achievements investors in the public markets Picture Editor Johanna Ward Publisher Georgina Beach Production Director John Faulkner of the next edition, please email A break in the Managing Director Claire Oldfield CEO Martin MacConnol Rob Hammond at [email protected] 16 clouds The most bankable Playing to the crowd To advertise in the magazine, please contact BVCA Journal is published on behalf of the BVCA by Wardour, 5th Floor, Drury House, 34-43 Russell NACUE’s Hushpreet Dhaliwal Thanks to social media, Leon de Bono on +44 (0)20 7420 1853 or at 31 European market 41 Street, London WC2B 5HA Tel +44 (0)20 7010 0999 www.wardour.co.uk [email protected] argues the financial crisis has Concerns over the Eurozone are is becoming encouraged entrepreneurship leading investors towards the UK hugely valuable to start-ups

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News Trekking tech country London’s ‘Silicon Roundabout’, officially known as Tech City, has been a welcome discovery for the Government. A short taxi ride from Westminster and close to the AIFMD former Olympic park, the site is billed as Britain’s answer to Silicon Valley. But in response to a number of tech edges closer clusters emerging throughout the UK, the BVCA has developed a major study entitled In December the European Tech Country. Using a series of cluster Commission published the Delegated case studies from around Britain, the Acts for the Alternative Investment Fund report hopes to shift greater attention to Managers Directive (AIFMD), setting technology clusters beyond London. out much of the final detail of how the HM Treasury offices in Westminster The case studies featured in the report Directive will work in practice. suggest how the Government can ‘tune’ The delegated regulation itself is subject these existing clusters to achieve higher to a three-month scrutiny period by the regulations have been a long time in performance, without having to submit European Parliament and the Council, coming but now that we have them, we to the temptation of chasing headlines or but it is unlikely that either institution will need to move quickly with HM Treasury wasting public money. reject the proposal. Areas covered include: and the FSA towards full implementation It is also thought that the methodology • Conditions and procedure for the of the Directive by July 2013 and put an developed for this study can provide a geographically remote, or they may not fit determination and authorisation of end to the uncertainty that has been means to identify, analyse and improve a traditional definition of clustering. Alternative Investment Fund Managers shrouding the industry for too long.” other technology clusters around the The BVCA believes that the (AIFMs), including the capital The European Securities and Markets Government’s high visibility, yet light- requirements applicable to AIFMs Authority (ESMA) has also released The whole country is rich touch, approach to Tech City is highly • Operating conditions for AIFMs, consultations covering the key concepts commendable. However, as we have including rules on remuneration, conflicts of the AIFMD and types of Alternative “with technological activity engaged with members and their portfolio of interest, risk management, liquidity Investment Fund, although there is to be companies around the UK, we have been management, investment in securitisation further guidance on remuneration and in a wide variety of forms reminded that the whole country is rich positions, organisational requirements, third countries. ” with technological activity in a wide rules on valuation In the UK, the Treasury is yet to release country. There is an abundance of variety of forms. • Conditions for delegation its own consultation on how the Directive non-London businesses that are every We believe that we can learn from how • Rules on depositaries, including the is to be implemented, although the bit as innovative as those decamping these agglomerations formed and where depositary’s tasks and liability FSA has now published the first of two to Tech City, but are denied the same they are today. With the same attention • Reporting key requirements and papers outlining how the Directive will international exposure. currently placed on Tech City in London, leverage calculation. be transposed into UK law. The second This lack of recognition can have a other parts of the UK have the potential to BVCA Chief Executive Mark Florman consultation and policy statement will be number of causes: clusters may be in develop into, or expand their reputations, said: “The Commission-delegated issued by the FSA in February. unfashionable industries, they may be as global centres of excellence.

News in brief

London leads the way , coming just PE embraces ESG oto initiatives are being embraced have established dedicated ESG professor Mike Wright and of 15 years, found that while London has been named the behind Tel Aviv. Private equity has received not as a catalyst for achieving teams and those who continue University of Leeds professor companies will often have higher start-up capital of Europe in a It also has the highest yet another endorsement of environmental and social to be sceptical of such initiatives. Nick Wilson has found amounts of debt following a

new study by Telefonica Digital proportion of female tech its environmental, social and istockp / y h change, but in reducing costs that private equity-backed private equity , this is and Startup Genome. entrepreneurs in Europe and corporate governance (ESG) ett and minimising risks instead. PE-backed companies companies are no more not the cause of failure. More The Startup Ecosystem Report boasts the most experienced practices with the publication There are words of warning, no more likely to fail likely to fail than other important was the ability of

2012 discovered that London entrepreneurs of any European of PitchBook’s 2012 Private rap g hy: however, as the report observes In what is one of the largest comparable businesses. companies to manage cashflow g has the second strongest hub, with an average age of Equity ESG Survey. The an increasing divide between studies of its type ever, a piece The study of about one million and service debt rather than the oto

start-up ecosystem outside almost 36. publication notes that ESG p h those private equity houses that of research by Imperial College companies, over the course size of the debt itself.

4 BVCAJOURNAL BVCAJOURNAL 5 news

Busting the myths of Kay Review reaction In July 2012, Professor John Kay The Government also endorsed the European venture capital published his much-anticipated review of proposal, recommending clear minimum UK equity markets and its impact on the standards of behaviour for all investment long-term performance and governance of intermediaries to ensure that they are UK-quoted companies. committed to acting in the best long-term In his November response, Vince interests of their clients. Cable, the Secretary of State for Business, The BVCA is committed to playing Innovation and Skills, welcomed the its part in this process by promoting findings of the review, in particular the transparency in the industry through the need to reverse the short-termist culture ‘Walker Guidelines for Disclosure and in the equity markets and restore trust Transparency in Private Equity’. and confidence in the investment chain. Furthermore the Government aims to The Government announced it will encourage a better alignment between look at reforming corporate reporting pay and long-term performance. to be more focused on forward-looking The BVCA has long championed strategy, including the ending of the private equity ownership model mandatory quarterly reporting and in this regard, providing, as it does, reducing the excessive focus on short- strong alignment of interests between term earnings. management and investors.

The European venture capital industry with the relative immaturity of the has undergone significant change in the European VC sector, explains the past decade, yet negative perceptions difference in performance. Both have continue to frame the industry’s image. been improving rapidly in recent years. Banking union aims In January, the BVCA published a report The third complaint, and possessing entitled European Venture Capital: Myths the most cultural significance, is the deadline of 1 January 2013 for agreement and Facts, which used empirical data to belief that Europeans fear failure more on the legal framework of the proposal. demonstrate that the reality is somewhat than their US cousins, which harms The initiative contains two separate different from the popular narrative. entrepreneurship and venture capital. regulations: the first confers supervisory Written by Ulf Axelson and Milan The report finds no evidence of a stigma authority on the European Central Martinovic of the London School of surrounding failure: a previously Bank (ECB) to monitor the health of the Economics, the report takes three of the unsuccessful entrepreneur has at least as region’s banks; the second modifies the most common complaints about European high a chance of getting financing for a role of the European Banking Authority VC and puts them under the microscope. new venture in Europe as in the US. in this process, as it had previously been The first concerns the idea that US Given how important start-ups and given the brief of assessing the versatility venture capital firms are more likely small businesses are to the European of the EU’s banking sector. to hold successful exits than their economy, it is vital that a clear and The overriding aim of a banking European counterparts. The report found accurate picture is given of the venture union is to break the vicious cycle that US and European VC houses have capital market. Myths that the report has between bank and sovereign weakness approximately the same likelihood of an identified can cause very real harm to – a key feature of the crisis that has IPO exit, though Europe underperforms future growth. plagued the Eurozone in recent years. the US in trade sales. As Richard Anton, former Chairman oto Should agreement be reached on The second misconception concerns of the BVCA and a partner at Amadeus proposals for establishing a so-called the determinants of success between the Capital Partners, writes in the foreword to ‘single supervisory mechanism’, the

US and Europe. Venture success has the the publication: “The sooner we can dispel istockp / y h EU Commission envisages the ECB same determinants in both Europe and the myths that unnecessarily hinder ett The intricacies of the banking union subsequently wielding its authority and the US. However, with the experience of venture in Europe, the sooner venture proposals continued to dominate the directly recapitalising troubled banks.

venture capitalists and entrepreneurs will have the chance to prove what it is rap g hy: political agenda in Brussels, as members Furthermore, the creation of a common g a key factor, the larger pool of repeat genuinely capable of helping European of the Council and European Parliament deposit protection scheme is a likely oto

entrepreneurs in the US, combined business to achieve.” p h struggled to meet the overly ambitious eventual outcome.

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BVCA welcomes easing Encouraging more of Basel III rules savers to support high The announcement in January by the corporate bonds could count towards Basel Committee that the first ever global capital buffers. growth companies liquidity standards – to be implemented The new compromise broadens the list via Basel III – would not only be less of corporate bonds that can qualify, while draconian than originally feared, but also deeming some equities and secure would also be enforced in 2019 (four years mortgage-backed securities acceptable in later than originally planned), should be this regard. welcomed by all who are striving to help The BVCA has long advocated the this country return to economic growth. relaxation of capital and liquidity rules for One of the central pillars of Basel III banks at a time when small businesses in involves the new “liquidity coverage particular are finding it especially difficult ratio” – a plan to increase the liquidity of to access debt finance. assets held by banks to shield themselves Financial stability is necessary but, from market panic. While this is certainly alone, not sufficient if the world is to essential, the compromise found in the return to the path of economic growth. original agreement on Basel III two years This new compromise strikes a more ago erred too much on the side of caution, balanced tone that should help give banks as only government bonds and top-quality the confidence to start lending once more.

In August 2012, the Financial Finance Bill 2012 offered welcome Bank of England Services Authority (FSA) released a and expansive amendments to EIS consultation paper outlining proposals and VCTs, the recent moves by the FSA to ban the promotion of unregulated would have the potential to undercut appoints new Governor collective investment schemes (UCIS) this positive policy change. and close substitutes – including The BVCA recommends the FSA The appointment of Mark Carney, Venture Capital Trusts (VCT) and the focuses on improving the regulation of currently Governor of the Canadian Enterprise Investment Scheme (EIS) – financial advice, rather than banning Central Bank, to succeed Sir Mervyn to ordinary retail investors in the UK. the marketing of products to certain King as the next Governor of the Bank In the response it submitted in of England was widely welcomed by all November 2012, the BVCA made sides of politics. Carney’s responsibility the case that it was fundamentally Ensuring that the UK is over Canada’s growth trajectory through inappropriate to include EIS and VCTs “ the crisis has been praised and the BVCA in the scope of this consultation, given attractive to investors is of supports all efforts aimed at helping the the vital part that venture capital plays paramount importance British economy to recover. in supporting the growth of SMEs at a Carney will take up the role from July time when other sources of finance have categories of investor. VCTs do not fit the” 2013 and will remain head of the G20’s all but dried up. FSA’s description of a new alternative Financial Stability Board until the end Curbing the accessibility of EIS and to ‘traditional investments’. They are of 2018. The Financial Services Bill, VCTs would be bad for investors, bad for listed vehicles, subject to stringent

currently under Lords report stage, is y businesses and, most importantly, bad financial, governance and regulatory intended to make the Bank of England for the economy. requirements and standards.

responsible for ensuring the stability of g ett hy: With economic growth so fragile, The FSA is expected to publish financial systems and make provision for ensuring that the UK is attractive to its policy statement, setting out the g rap the Financial Conduct Authority as an small businesses and investors is of finalised rules and guidance, in the h oto

independent business regulator. p paramount importance. While the second quarter of 2013.

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Financing the future Chairman of The Portland Trust and Big Society Capital, Sir Ronald Cohen is on a mission to change the way we finance social causes. Barnaby Simons discusses the future of education and social entrepreneurship with the BVCA’s founder director

What is society’s biggest issue? Could a stronger education system Q Across the world, unemployment Qbetter tackle these issues? Aamong young people is a major Certainly. Every child has the problem. The percentage of jobless people Apotential to develop in a more under the age of 25 is about a quarter in positive direction with the right the UK and 50 per cent in Spain. And a guidance. I recently encountered an number of issues that have long plagued Israeli entrepreneur in the teaching society are now exacerbated by the crisis. profession who has developed several For example, unemployment is impacting approaches that are leading to higher on homelessness and increasing the re- attainment levels. offending rates of released prisoners who Many of the children in the schools can’t find paid work. that she deals with come from poor 2012 All the traditional issues of those in backgrounds and don’t have anything to society who have been left behind are eat. You simply can’t learn on an empty obinson

R being brought into starker focus. At the stomach, so the first thing she did was

ill centre of these problems are broken to create a cafeteria in every school. The

hy: B hy: families and a struggling education sector. results have been startling. There are so many demands now for I was very fortunate to be taught by an g rap charitable giving that social investment is excellent History teacher. My school did h oto

p much needed. not have a stream for Oxford University

10 BVCAJOURNAL BVCAJOURNAL 11 PRIVATE EQUITY PROFILE

There are so many not enough money to tackle them in a “ successful manner. demands now for Philanthropic grants generally haven’t enabled social organisations to achieve charitable giving that scale, because they are often one-off social investment is lump sums that don’t provide long-term stability. By shifting to the social giving much needed approach, closer to the venture capital or private equity model, people can make had been in continual decline” since the significant impacts on society as well as end of World War Two and I thought that, raise big money. Momentum is building. through innovation and creativity, one Whether I look at the US, , Israel, could inject dynamism and job creation Canada or the UK, there are people across into the UK economy. I came to the UK as the whole of society bringing their skills a refugee and I felt a great debt to the UK, to the social entrepreneurship arena. It’s which had been so kind to both my family beginning to feel like entrepreneurship and to me. did in the 1970s; a wave building that is My efforts today inspire me because going to be of considerable size. they’re very similar to my efforts 30 years ago. I’m trying to do for social More information: bigsocietycapital.com entrepreneurs what I was lucky enough to do for business entrepreneurs, which was to provide them with the resources necessary to achieve their ambition. Out of office What is your favourite piece of music? What defines the modern Away from work, how do you There are many pieces of Qsocial entrepreneur? like to spend your time? music that I absolutely adore. Social entrepreneurs exist across I love film, theatre and going I particularly love Schubert’s Athe whole of society. The social to the opera. I’m fortunate Sonata in G – it’s such an sector itself is representative of people to divide my time between emotional and pensive piece with a whole spectrum of skills that London, New York and Tel of music. you find across society, and what unites Aviv where there is always What is your philosophy in life? them all is a desire to improve lives. plenty of culture available. When I was knighted, I had to However, what unites the new social I also enjoy playing tennis. create a motto. Together with I graduated with the idea of putting How did your time at Oxford entrepreneurs is a desire to improve I’m not as good as I’d like to the help of my family, I chose “ Qshape your career? lives on a really big scale. be but I have resigned myself ‘Courage, Compassion and something back into society, rather The most notable thing about my We’re back to the 1960s in terms to the fact that certain skills Tenacity’, which I believe all sit Auniversity education was the values of idealism. In a similar way to the are lacking for me to become at the centre of a successful than just making money. This is that I left with. During that period, vulnerability that my generation felt a brilliant tennis player! career and life. something that has endured there was the campaign for nuclear because of the atom bomb, today’s disarmament and an idealistic view generation feels vulnerable because of ” about what society should be able to do the environment and the gaps in society applications, but Mr Farley took it upon for citizens. So I graduated with the idea between rich and poor. himself to train me for the entrance exam. of putting something back into society, This idealism, underpinned by a sense Had I not met him, I would not have made rather than just making money. This is of great vulnerability, is what’s behind the it to Oxford. something that has endured throughout social entrepreneurship movement. oto Although education must address the my career. problems in society, it is often individuals After studying at Harvard Business What stage is the movement within the system that make the most School, I came back to the UK with the currently at?

x / istockp / x h Q difference. Certain people have the ability concept of venture capital. The idea Governments have come to accept to inspire and nudge us into the habit of attracted me because it was a way of Athat it’s a necessity now to look at

aiming high. I learned this at a young creating jobs at a time when the UK had rap re hy: the way the social sector deals with g age and, 10 years after I came to the UK, I three million people unemployed. The social issues. In this era, there are too oto

became President of the Students’ Union. position of the UK as an industrial nation p h many issues to be tackled and there is

12 BVCAJOURNAL BVCAJOURNAL 13 sponsor’s article

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1112-010 BVCA ad.indd 1 16/11/2012 13:13 BRIGHT FUTURES

body of student enterprise societies, working at more than 80 universities and 50 colleges. The coming generation is seeking to A break be enterprising, looking to break free of old paradigms in a way that previous ones have not. As a result we will undoubtedly see a generation of ‘entrepreneurial types’, who will go into big business, small business or even set in the out on their own. Some may even decide to pursue all three routes at different points in their careers. But if young people are to choose entrepreneurship, what are the skills clouds and knowledge we need to equip them with to allow them to excel? Many have bought into the vision of ‘becoming your Hushpreet Dhaliwal, CEO of NACUE, own boss’, but what are we doing to says the time is now for a generation prepare them for the entrepreneurial age that we have told them they could of young entrepreneurs succeed in? Firstly, their entrepreneurial success Before 2008 the aspirations of young hinges on their ability to have confidence people leaving UK universities centered in themselves and in their products or largely around becoming city-dwelling, services. Increasingly we are seeing the corporate high-flyers. This was a societal rise of entrepreneurs who are able to norm, an understanding that university clearly and confidently communicate education would and should result in this the problems that they are seeking sort of success. to solve. This self-belief, combined It is clear now that the financial crisis with developed communication was quite possibly a critical catalyst that skills, is critical for getting buy-in would forever alter our perspective on from supporters, investors, suppliers growth and entrepreneurship in the UK, It was as these notions crumbled that accelerate their learning and increase and customers. leading to a profound and far-reaching our attitudes toward career development their exposure to new opportunities Secondly, we need to encourage young cultural shift. The adoption into fundamentally changed, and we saw in through a broad range of personal career people to work on genuine problems and mainstream entertainment of parallel a collective effort, by development activities. While some have understand that the development of real entrepreneurship-focused TV shows like government and others, to enhance turned to entrepreneurship through products is subject to iteration. To Dragon’s Den wasn’t just designed to feed entrepreneurship as a career prospect. necessity, many more see it as an achieve this we need a resilient a morbid fascination for watching people Today young people, understanding opportunity. This trend is supported by generation and a supportive culture that perform (or fail) under incredible the lack of opportunities facing them, are growing organisations like the National encourages them to understand that pressure; it was in fact a cultural increasingly abandoning the pre- Association of College and University failure is a part of the journey – James symptom of a country bubbling with determined paths that once defined their Entrepreneurs (NACUE), a membership Dyson famously only succeeded after the budding entrepreneurs long before 2008. career destinations. Their trust has been Heralded for many years as the broken and now they seek to own and financial centre of the world and an icon dictate their futures. This trend has been of the service-based economy, London augmented by the harsh economic understandably inspired millions to reality facing the jobless under-25s. When the crisis came we pursue the ‘city life’. But this aspiration Once upon a time the aspirations of our y wasn’t to last. When the crisis came, we most talented young people were steered “ were shocked to discover that we were by the businesses with the slickest g ett hy: were shocked to discover fragile, that we were not infallible, and marketing campaigns. Not so any more. g rap that our futures held no guarantee of Enter entrepreneurship. h oto growth, jobs, or prosperity. Students are doing all they can to p we were fragile ” 16 BVCAJOURNAL BVCAJOURNAL 17 “ 18 validation validation customer on focus and lean operations Keep  next at building the right support support right the building at next other. complement each perspectives and skills members’ which in teams, through developing cross-disciplinary market to ideas take and problems work on to complex communities student our encourage we can collaboration through sport; asolo be needn’t internet the of age the in Entrepreneurship problems? common solve to people Start-up to scale-up – we should look look should –we scale-up to Start-up other with working about what And prototype. 5,127th his of development ” we can to support this career choice. choice. career this support to can we that all do to entrepreneurship, of vision the on people young our sold having duty, our is It like. look might world fairer and abetter what explore to us forced and collapsed models trusted and known when 2000s, the in momentum true gained that shift aculture from needed. support critical the businesses their give to finance necessary the securing in successful most stories. success few first their acquiring and solve, to seeking are they problem the communicating clearly on resources and energy their focus should They validation. on customer focus and lean operations their keep to marketplace. the in ideas good truly the for around go to capital enough is there that assert often will investors though pain-point, greatest the is This £80,000. and £20,000 between sums sums, larger need entrepreneurs young when comes then issue real The accessed. be can amounts small these where understanding is hindrance greatest sectors notwithstanding), but the of money (capital-intensive injection first the gather to ways certainly are afew. There name to universities and colleges at programmes regional and competitions, scheme, Loans Start-Up the loans, student re-purposing family, and friends from borrowing – finance access can person ayoung which via routes of plethora a are There finance. airtime: most the get to seems that feature in mainstream media. entrepreneurship, of realities harsh the with complete stories, their and models role entrepreneurial of range diverse a that ensure to how consider also must We help. for asking at better get to people young our encouraging simply is doing be we should what schemes; mentorship formal create to need the of made often is much Too models. role and mentors of role the consider also must we skills, soft and perspectives assets, cultural on focus actions previous the While businesses. growing sustainable, develop to want who those for infrastructure The coming generation will benefit benefit will generation coming The the be will that businesses these is It is entrepreneurs young to advice Our for entrepreneurs barrier the Finally, BVCA JO URNAL

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18 June 18 June 13 June

2 May 2 May 15/01/2013 15:27 crunching the numbers

London vs Local start-up examples Silicon Valley facebook While nearly all high-growth global explosion of technology start-ups have entrepreneurship. historically emerged from a London has become the appletwitter handful of ecosystems such as most successful start-up n Silicon Valley, this trend ecosystem in Europe, Airb b appears to be over. With a producing the largest output of google quora number of new start-up start-ups in the EU. We explore ecosystems established around the make-up of entrepreneurs the world, there has been a in London and Silicon Valley. Education London entrepreneurs are the most experienced and Dropout vs Master+PhD % London oldest in Europe. 9 The average ages are: 10% London has the of entrepreneurs 1:2.5 London highest proportion 3% Madrid are women of female tech 35.98 entrepreneurs in Europe 7% Moscow 27.9 are serial % Berlin Paris 3 33.21 56% entrepreneurs % Moscow 7 Berlin 31.86 Type of “They are more motivated to build a start-up great product than change the world” 34.12 years old The average age of a Silicon Valley entrepreneur

Local start-up examples Web % Mobile 73% % a Moshi Monsters 42 17% 25 are serial entrepreneurs of entrepreneurs source funding Tweetdeck through angel investment

ng Web/Mobile LLUSTRE + Consulting 25% Software Source: Startup Ecosystem Report 2012 – produced by the Startup have lived in Silicon Valley 7% Genome and Telefonica Digital Wo Moo.com 3% 20 BVCAJOURNAL BVCAJOURNAL 21 sponsor’s article

A brave new world

advantages awaiting in the wake of the current regulatory tidal wave, such as (i) the launch of a European brand recognised globally (similarly to the UCITS brand established over the last decades), (ii) the creation a level playing field eliminating much of the onshore-offshore arbitrage currently swaying potential investors one way or the other, and (iii) the procurement of additional structuring tools ensuring maximum flexibility. The one directive heralding Putting the latter principles into a year of change practice, Luxembourg proposes to overhaul its existing common limited With roughly half a year to go until the partnership regime while concomitantly Alternative Investment Fund Managers creating an entirely new special Directive (AIFMD) must be transposed regime (société en into national law at the level of EU commandite spéciale), or SLP, allowing for Member States, 2013 promises to be an an increased level of contractual freedom. exciting year. Much remains to be done. At the heart of such tax transparent Currently only the Netherlands has SLP will be its limited partnership adopted legislation for the transposition agreement as a guiding document for of the AIFMD into national law with limited partners, which will take a two other countries having submitted similar form as the one known in other draft legislation for such implementation established fund jurisdictions. (Germany and Luxembourg) and a The background for such innovation number of other member states having is twofold: on the one hand it will allow launched the consultation process, an alignment with its Anglo-Saxon including the . counterparts, and on the other hand In addition, the so-called “Level II” it aims at counterbalancing certain implementing measures taking the form structuring constraints applicable of a regulation directly applicable in to the managers of AIFs. A greater all Member States were released mid- harmonisation of accounting practices London Representative Office December 2012 with relevant industry would also be a further positive side effect. and stakeholders’ feedback slowly Therefore 2013 is poised to usher in a forthcoming. A final verdict on the user- new era in alternative fund structuring, Ms Camille Bourke friendliness and overall practicality of management, marketing and fundraising. 14 Devonshire Square such Level II measures is still outstanding. The additional regulatory load must be EC2M 4YT London One thing is clear: the AIFMD, arguably viewed in conjunction with the marketing Tel: (44) 20 74 56 98 03 the most momentous piece of legislation opportunities which a European passport to rock the European private equity and may offer to private equity and venture Email: [email protected] venture capital fund industry for years, capital houses alike, with the latter is here to stay for good. But increased most likely benefitting from certain regulation, as encountered on a global alleviations once the proposed Regulation

y scale and so prominently evidenced by on European Venture Capital Funds has the Dodd-Frank Act in the US, is not been passed.

hy: g ett hy: necessarily a bad thing. Instead of exclusively focusing on the Camille Bourke, Partner, and g rap legal straightjackets, fund initiators and Adrian Aldinger, Associate, at h oto

p managers should consider the potential Arendt & Medernach

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A new morning for Brazil Samantha Pearson examines the recent positivity surrounding the Brazilian investment market y hy: g ett hy: g rap h oto p

26 BVCAJOURNAL BVCAJOURNAL 27 foreign affairs

Only ten years ago Brazil’s private investment in the oil start-up Barra the country’s equity market is set to equity industry was in such a bad state Energia Petróleo e Gás in the same year. experience a flood of investment over that fund managers in São Paulo still Carlyle also invested US$1.2 billion the next few years. refer to the early 2000s as the terrible in Brazilian health-insurance broker “This is always important for private “nuclear winter”. Qualicorp in 2010. equity,” says Mr Gonçalves. Not only does it The election of Luiz Inácio Lula da Meanwhile, others have set up regional make it easier to unload investments, it also Silva to the presidency in 2002 left many funds. One of Rio Bravo’s focus areas, for allows private equity firms to float their convinced the country would default on example, is the country’s fast-growing companies and continue to manage them. its debt. northeast region, says Luiz Eugenio “It’s about divestment, but also co- Meanwhile, international markets were Junqueira Figueiredo, a partner at the existence,” he says. still reeling from the effects of the dotcom firm and vice-president of the Brazilian bubble. Some funds simply returned Association of Private Equity and Venture investors’ money and left Brazil, vowing Capital (ABVCAP). never to come back. “Investments in private equity in 2012 Sporting chance However, the reversal in the industry’s will be a lot higher than those in 2011,” fortunes in Brazil has been dramatic. says Mr Junqueira Figueiredo, who spoke When Rio de Janeiro won the “It’s not a question of Fundraising by private equity and at the BVCA Summit in October. bid to host the 2016 Olympics investing in football or venture capital firms last year reached “The meeting came at a particularly in 2009, thousands of people stadiums, but there are many an all-time high for Latin America of opportune moment for the market and piled on to the city’s beaches in services that could offer good US$10.3 billion, according to the Latin showed that there really is a great deal of a frenzy of celebration, waving opportunities,” says Luiz American Private Equity & Venture Capital interest in Brazil,” he said. flags and hugging each other. Eugenio Junqueira Figueiredo Association (LAVCA). However, while the large-cap market Many Brazilians saw this of Rio Bravo. About 79 per cent of that investment, or is becoming overcrowded following the moment as the long-awaited “These could be the US$8.1 billion, was destined for Brazil. arrival of many firms and acquisitions, nod of recognition towards companies that time the Economic reforms paved the way for a such as JPMorgan’s purchase of Gávea the country’s recent period of athletics races or who clean decade of economic stability, while social Investimentos, the mid-market still offers extraordinary growth, which the stadiums,” he says. welfare programmes helped lift 33 million many opportunities. has since allowed Brazil to UK-based Actis, for out of poverty during Mr Lula da Silva’s “We have about 50-60 dedicated private become the world’s sixth- example, has cited Brazilians’ eight years in office, creating a thriving raised a lot of money in 2011 but few equity teams registered in Brazil, but biggest economy. poor knowledge of English consumer market. transactions were done,” he said, adding in India there are 490,” says Stratus’s For private equity funds, it ahead of the sporting events Brazil’s vast offshore oil discoveries that many deals fell apart over pricing. Mr Gonçalves, who is also an advisor to has been yet another reason as one of the reasons behind in 2007 and planned infrastructure Private equity groups invested about LAVCA and the Emerging Markets Private to invest, especially given that their recent US$68 million investments of US$1 trillion, as the US$888 million in Brazil last year, more Equity Association (EMPEA). Brazil is also set to host the investment in the Brazilian country prepares to host the World Cup in than double the total amount in 2011, “We are still far away from building a World Cup in 2014. language school CNA. 2014 and the 2016 Olympics, are also set to according to Dealogic. The retail sector critical mass,” he adds. boost the economy. has drawn over 70 per cent of this year’s Governance standards are also While growth has slowed recently, investment and is a favourite with US improving in the market, thanks to capital Álvaro Gonçalves, chief executive of private equity group Carlyle. market reforms introduced in 2000 known Brazil’s Stratus Group, says this may be In its sixth investment in the country as the Novo Mercado (New Market) and positive for private equity. since 2008, Carlyle bought 60 per cent the recent overhaul of Brazil’s corporate “There was a point when people were of Tok&Stok, Brazil’s version of Ikea, for and bankruptcy laws. talking about overheating... the big funds around US$346 million in September. “Funds still have an important job to Daniel Sterenberg, a director at Carlyle, do in terms of governance structure says that he had long been assessing the but the scenario is improving,” says Mr Fundraising by private sector given that spending per capita on Junqueira Figueiredo. furniture in Brazil is only about US$56 With solid foundations, Brazil’s private

“ y equity and venture per year, compared to US$200-300 in equity industry and its growth will now mature markets. largely depend on the development of the

capital firms last year Other major deals over the past few g ett hy: country’s own stock market. years include Apax’s acquisition in 2010 If the government can keep Brazil’s reached an all-time high g rap of a controlling stake in IT company interest rates close to their current all- h oto for Latin America ” Tivit and First Reserve’s US$500 million p time lows, while keeping a lid of inflation,

28 BVCAJOURNAL BVCAJOURNAL 29 sponsor’s article UK the most bankable We’ve researched European European market in 2012 companies exited by private equity for seven Investors have taken to the UK as market, PE houses continue to use their years. The results show a safe haven from the volatility of core skills of identifying prime assets, and the Eurozone are bold and brave in their acquisitions of How does private sustained productivity those businesses. growth and returns. The latest data, published by the Centre This year saw a significant rise in the equity create value? for Research at number ‘mega-’ of over £1 billion, To find out how private equity Imperial College London, and sponsored with three deals achieving a combined is building better businesses by Ernst & Young and Equistone Partners value of £3.8 billion, compared to only By branching out Europe, revealed that the total value one deal in 2011 at £1 billion. The MBO of across Europe, go to of UK buyouts in 2012 rose by 23 per Iceland Foods (£1.4 billion) was the largest ey.com/privateequitystudy cent, achieving a value of £15.7 billion of these, followed by Misys (£1.2 billion) compared to £12.7 billion in 2011. The total and Wood Mackenzie (£1.1 billion). number of deals recorded also increased This rise in mega-buyouts suggests See More | Insight over the 12 months, but only marginally, that, in the current environment of at 189 compared to 187 in 2011. The macroeconomic uncertainty, investors rise in average deal size in the UK was are seeking stability in those high particularly positive, however, increasing quality investments offering lower risks, from £68 million in 2011 to £84 million. which has manifested itself in the rising What these positive numbers reveal is attractiveness of the established assets that the UK buyout market has shown real involved in deals of over £1 billion. resilience in the face of macroeconomic As well as the deals at the top of the uncertainty, buoyed by the relative value range, deal activity and values in safety that sterling offers in light of the the mid-market showed signs of strength eurozone crisis. As a result, it has attracted in 2012, with both the number and values significant investment compared to the of deals increasing. In the deal range of rest of Europe. £50 million to £250 million there were 39 The number and value of buyouts deals, equating to a value of £4.1 billion. involving divestments by foreign This compared to 36 deals totalling £3.8 corporations saw a marked increase this billion in 2011. The number of deals in the year, rising to 19 deals and £1.9 billion £250 million to £1 billion range totalled compared to 15 and £1 billion in 2011. 10 in 2012, with a combined value of £6.0 Business and support services was billion, compared to 11 and £5.8 billion the the most active sector in terms of volume year before. and value of deals, with 46 deals totalling After a relatively positive year in 2012, about £4.1 billion. how will the PE market in the UK perform One of the highlights for the UK PE over 2013? The fundamentals for an active market in 2012 was that PE buyouts PE market are in place – the PE houses contributed a high percentage to M&A have money to spend and assets to sell, activity, in terms of both value and appetite is strong and the debt markets volumes of deals generated. are open, but corporates continue to be Buyouts rose to 45% of all M&A activity weighed down by a lack of confidence. in the first nine months of 2012, compared Until corporates come back to the deal to 33% over the same period in 2011. As a table in a meaningful way, PE in the UK proportion of M&A values, buyouts rose to will continue to stutter. 82% for the first nine months, compared to 61% for the whole of 2011. Sachin Date, Private Equity leader for What these positive percentage Europe, Middle East, India and Africa increases reveal is that, even in a volatile (EMEIA) at Ernst & Young

© 2012 EYGM Limited. All Rights Reserved. All Rights Limited. © 2012 EYGM 31

13947_EY_PE_AD_185x240.indd 1 04/09/2012 11:18 portfolio perspective Regional Dinner Series 2013

Birmingham – Bristol – Edinburgh – Leeds – Manchester

Sponsored by

Our established series of dinners throughout the UK enables our members to come together, share insights and entertain clients. Our 2013 series features high-profi le guest speakers and invaluable networking opportunities.

Midlands Dinner, Scotland and Northern Birmingham Ireland Dinner, Edinburgh 21 March 2013 13 June 2013 Birmingham Town Hall The Balmoral Hotel, Edinburgh The origins of Seatwave are a rare Guest speaker: Guest speaker: Scott Hastings, example of serendipity in the business Richard Coles, Vicar Rugby Champion world, according to founder and non- executive chairman Joe Cohen. At the company’s founding back in North West Dinner, Northeast Dinner, A meeting 2006, Cohen was running the European Manchester Leeds operations at dating site Match.com, but 18 April 2013 19 September 2013 his previous experience in a senior role Queens Hotel, Leeds Hilton Manchester Deansgate at Ticketmaster had left him with the Guest speaker: Guest speaker: Kevin Keegan, impression that the live event ticketing Steve Davis, Snooker Champion Footballer & Manager of minds market remained inadequate. “I felt there was an opportunity to provide a much better level of service Wales & South West Dinner, From a germ of an idea in 2006, and with the help of and experience for consumers in Special offer: Book fi ve tables for the price of four across Bristol ticketing,” explains Cohen, “so I had any of our regional dinners. its VC backers, Seatwave has developed into a major 9 May 2013 been looking for the chance to set

Marriott City Centre Hotel, Bristol BVCA Members: g ticket exchange for live events. Founder Joe Cohen, something up on my own.” At the same

Guest speaker: £1,755 + VAT per table £175.50 + VAT per place g rei who recently stepped down from the position of time, Atlas Venture had been looking at Gerald Ratner, Businessman the ticketing space. By chance the two Non-members: hy: rob hy: Chief Executive, shares his story with Vicky Meek sides met and Seatwave was founded £3,495 + VAT per table £349.50 + VAT per place with an initial US$500,000 seed g rap investment. “It was a meeting of minds,” h oto

p says Cohen.

Book online at www.bvca.co.uk/events T: +44 (0)20 7420 1800 E: [email protected] BVCAJOURNAL 33

Regional Dinner 185x240 Ad-Jan13.indd 1 17/01/2013 14:35 portfolio perspective

Having started with tackling the UK market, Seatwave now operates across Historically, it Europe, the US and Canada. And it’s here has“ been difficult to that Cohen’s previous experience has really paid dividends. “Even though I get access to events was part of a multi-billion dollar US company – InterActiveCorp, which owns in a safe and Match.com and also used to own repetitive way. Ticketmaster – I was always on the inside of building new businesses,” he says. ” “That helped me understand how you set up profitable and scalable consumer businesses quickly. I know what kinds of processes and structures needed to be in place to ensure the company could expand rapidly.” Seatwave has so far raised four rounds of VC funding, totalling US$53 million, and now counts Mangrove Capital, Fidelity Growth Partners and Accel The investor’s view Partners among its investors, alongside Fred Destin, partner, Atlas. While Cohen admits it is not Atlas Venture always easy balancing the relationships between the four investors, he is clear Seatwave was something that they bring an enormous amount of of an unusual animal for us value to the business. “VC backing has because we co-founded the brought in a group of intelligent people business with Joe Cohen. We that come with a different perspective,” had been working on some he explains. “Management necessarily ideas for the UK ticketing has to focus on operations; the VCs help market as we’d seen the us see how we can create additional success of StubHub in the thereby limiting the possibility of fake enterprise value. They also have a US. We had spoken to a few VC backing has tickets being sold on the site. It calls its wealth of experience as they sit on a entrepreneurs but passed on company has also been able brought“ in a group of system TicketIntegrity, which number of boards and so have different investing and decided to set to expand internationally by guarantees that correct and valid tickets ways of seeing opportunities and up something ourselves. leveraging its technology intelligent people that will arrive on time or buyers get their challenges in the market.” It was then that we platform in markets such as money back. For all this, Seatwave takes The other key advantage of venture met Joe. He had the ideal Italy, Germany, Scandinavia come with a different a cut of the selling price and charges a backing, adds Cohen, is the credibility it experience as he’d worked and the Netherlands. It’s perspective booking fee to buyers. can lend to the company. “If people see in the ticketing business and not always straightforward, With over three million tickets on sale that we have the backing of a savvy had experience of building though, as each country ” at any one time, Seatwave certainly investor such as Advent, it lubricates an online company. He’d also has different dynamics – the appears to have struck a chord with the what we’re doing,” he says. been working on his own German market, for example, Fast-forward to today and Seatwave market. Cohen puts this down to “a hy Seatwave reached profitability in 2011, ideas in the ticketing space. It is highly fragmented and there

has become an integral part of the singular focus on solving consumer g rap although Cohen says that success as he was the perfect match. is a regulatory misalignment ticketing space, offering a secondary problems [because] historically, it has measures it is some way off yet. “We have We set out in a very across different markets.

exchange between people with tickets to been difficult to get access to events in a oto Ph z come a long way in helping consumers understated and lean way. The business is still illegal in sell and those seeking to buy. It was a safe and repetitive way.” get easier access to live events,” he Seatwave initially targeted the France, so we haven’t been

market crying out for disruption. He adds that the company’s values are omit Ch explains. “But there’s still a lot to do. live music market and sought able to set up there yet.

Previously, many fans could only buy key to ensuring success. “Even before we on We will continue our course of product to acquire traffic to the site Yet despite the challenges,

second-hand tickets from dodgy touts started, we wrote a statement of J / g innovation and we want to ensure tickets cheaply – we wanted to build it’s been a great journey so

lurking in dark alleys outside venues, principles that set out our values,” he g rei are more fairly priced.” And, of course, distribution cost-effectively. far. And attracting syndicate with all the risks for buyers that entailed. says. “These are founded on the web is only one part of the jigsaw. As traffic has built up, the investors Mangrove, Fidelity

Seatwave claims it is able to cut out transparency to all we have dealings rob hy: With the continued development of company has moved into and Accel has added to these risks by offering the tickets in an with, fairness and a commitment to mobile and tablet technology, he adds, other live event areas such Seatwave’s credibility and g rap open environment and only paying innovation – we should never be satisfied “there are plenty of new channels we as sports and theatre. The ability to expand further. h oto

sellers after the event has taken place – but always striving to do better.” p can chase.”

28 BVCAJOURNAL BVCAJOURNAL 35 sponsor’s article Forex – necessary evil or unnecessary risk?

In 2012’s numerous plot twists, the market least expected it. This left those the currency markets very rarely unprepared finance directors chasing the market rather than leading it, with many escaped unscathed caught out at the wrong end of the range. Hitting the top of the market often FX price action was largely driven by occurs by luck rather than judgement, the infamous risk-on/risk-off sentiment, which is why sitting it out and hoping where institutional investors spent their is a risky business when the market The FX experts time running back and forth between is not where you need it. Strategic FX equities and the safe haven value stores of management is imperative to any business the US dollar. that has its profits and competitiveness US quantitative easing (QE) was said threatened by an adverse market to be merely protectionist as the Federal movement. In many ways the process is Government pumped tens of billions of simple, but no business is exactly the same you can count on dollars into the system, consequently – everyone has different targets, and they forcing down the value of the greenback. are rarely short-dated. It was felt that further QE only had a Foreign exchange is the most liquid Your business is unique and so are your needs. marginal benefit as there was already and possibly the most volatile market in Foreign exchange plenty of liquidity in the market. The the world, and when it comes to making We always keep that in mind. By getting to know real reason for such a move was to lower currency transactions it would make sense the competitive position of other major to shop around for the best rate. This is impacts businesses. and understand your business, and tailoring our currencies in the international market and an approach many have taken, and on the service to you, we’ll help to achieve the results boost US exports. face of it rightly so. If you buy from any The Bank of Japan followed the US, market, surely you want the best price? Protect your you’re looking for. intervening with its version of QE to the But best price is regularly confused tune of US$128 billion of asset purchases. with best spread, and the key to effective investments by The resulting weaker yen was clearly an currency management is to protect We support BVCA members by adding value to effort to lift Japanese exports, but many from loss, rather than gamble for a gain. their portfolio’s treasury management saw it as nothing less than a currency war. Understanding short, medium and long- managing the risks This resulted in a domino effect on term requirements means that careful performance. This helps to maximise return China, which had two primary concerns. A product selection, along with well- on investments. drop in the value of the dollar tends to push educated timing and execution, allows the right way. up the value of the yuan, which impacts on a business to reduce its exposure China’s own export market. It also reduces to fluctuations. the value of more than US$1.2 trillion US More frequently, private equity Foreign exchange is our business. Visit us at; treasury bonds that Beijing holds. investors are seeking the specialist In Europe, the diversity of the various services of dedicated brokers, not globalreach-partners.com/bvca economies meant that a common only to manage their own currency or call us on 020 3465 8200 application of monetary policy by the requirements, but, more importantly, European Central Bank just added fuel to that of their portfolio companies. There the fire. Austerity measures, demanding is little in the way of certainty promised that governments spend less, only in 2013, but it is likely that proper FX exacerbated the problem in countries strategy will again prove itself to add real like Spain and Italy, where the economies value to the bottom line. began contracting even faster. The unfortunate issue for currency David Huggett is Currency Consultant, hedgers was that much of the news Global Reach Partners The foreign exchange experts you can trust Global Reach Partners released was against the grain and when [email protected] Registered in England No. 4344764. Registered for Money Laundering Regulations 4 Coleman Street and Money Services Business at Her Majesty’s Revenue & Customs registration No. 12140164. Supervised by the Financial Services Authority (FSA) in accordance London EC2R 5AR with the payment services regulations 2009, registration No. 504315. www.globalreach-partners.com

BVCAJOURNAL 37 ANNIVERSARY

The BVCA, like the industry it investment by industry sector 1984 represents, has changed immeasurably (percentage of companies financed) since its foundation 30 years ago, as the sector has grown into one of the biggest 19 success stories in the British economy. 17 During this period, the private equity and venture capital industry has been 10 11 transformed from a cottage industry 8 8 7 8 into part of the mainstream economy 6 - making Britain one of the leading 3 3 centres for private equity in the world. In the early 1980s, the BVCA’s primary objective was to secure recognition from the government Industrial Computer Consumer

and policy organisations. Today, Electronics

governments and policy makers at Construction Other services Other Transportation Medical/Health home and abroad seek our opinion on a Communication Energy and Mining and Energy

wide range of issues - regulatory, fiscal, manufacturing Other technical and legal - as the BVCA has become the respected voice representing number of members the world-class industry, as well as a 2012 model for new and existing national average deal size private equity and venture capital 509 2011 associations across the globe. £8.1m

“Thirty years ago, we felt the need to prove that 1984 entrepreneurs £273,000 existed. John McGregor, now 1983 Lord McGregor, said our industry 34 Total investment could only move by member firms forward if it had a representative 2011 organisation that could portray what number of 2011 years old we were doing. Government isn’t used companies £18.6bn to speaking to individuals. financed 1,048

People such as David Cooksey, Colin 1984 Clive, Tony Lorenz and myself sat 479 and still round a table and decided to create the BVCA. Over the three decades that 1984 have followed, the need for interfacing with the Government has increased £190m and the BVCA has had to expand as going strong the private equity industry has grown. Our industry needs an organisation Three decades on from its foundation, the BVCA oto £ that is doing research and arguing the continues to play a pivotal role as the public policy case for incentives for entrepreneurs The BVCA is a powerful and effective with domestic and international “ advocate for the private equity and venture capital governments. The role of the BVCA is advocate for our industry and invaluable in

rap istockp h hy: crucial in achieving this.” industry in the UK g helping to shape and influence perceptions oto

p h - Sir Ronald Cohen, of what we do and who we are The Portland Trust Gerry Murphy, The Blackstone Group ”

38 BVCAJOURNAL BVCAJOURNAL 39 sponsor’s article The law firm of Dorsey & Whitney Playing to the crowd proudly serves investors, than an ordinary person would normally undertake. An overwhelmingly large entrepreneurs and number of start-ups will fail and the returns are not that promising. According established companies. to a report by the British Business Angels Association and NESTA, 9 per cent of exits produced nearly 80 per cent of all the From our offices in positive cash flow and that statistic only covers those businesses that get to exit. Early stage, private businesses have no London and 18 other liquidity in their shares and achieving liquidity is difficult. Early investors are locations on four likely not to receive dividends and will Assessing the risks and rewards suffer dilution when the start-up takes associated with crowdfunding further funds. continents, we help Legal and regulatory provisions in the It is no revelation that the current UK are designed to protect these investors navigate the journey economic climate has resulted in scant but do not contemplate the rising availability of seed capital for early stage crowdfunding phenomenon and so most companies. With the collapse of the debt crowdfunding sites deftly circumnavigate from the dream stage to markets in 2008, the traditional means these laws through a variety of methods, of funding start-ups disappeared. Banks leaving investors potentially more stopped lending and venture capital exposed. The UK’s Financial Services the world stage. shifted its attention to later stage, less Authority has been adamant that most sponsors ad risky businesses. crowdfunding should be targeted at However, a glimmer of light has sophisticated investors – those who appeared in the ‘funding gap’ shadows understand the valuation of the business with the emergence of crowdfunding as a and can afford to lose their investment. means for start-ups to raise cash without Appreciating that the use of relying on traditional funding routes. crowdfunding to boost start-ups is Investors can invest relatively small both essential and inevitable – and amounts – as little as £10 – and be part of championed by three entrepreneurs who a new big idea. saw the problem and decided to lobby For companies, crowdfunding appears Washington DC to fix it – the US is in the to be a ‘win-win’. They get access to process of implementing the Jumpstart capital and a chance to take investment Our Businesses (or JOBS) Act, which from people who believe in the business. imposes regulation to protect investors. However it is crucial to note that some Those three entrepreneurs are now models of crowdfunding (such as those working with the Securities and where investors directly own shares) Exchange Commission to write the can lead to an unwieldy shareholder rules which will apply to crowdfunded base, which is a disincentive to future investments in the US. What is clear is VC investment and potentially make the that crowdfunding is a rising and popular company uninvestable beyond the crowd. trend, which is unlikely to wane for some The high profile success stories of the time to come. With careful thought, the internet age are undoubtedly legendary UK government has an opportunity to and, for individuals, the chance of harness the power of the crowd to fund its oto investing in the next Google or Facebook, much desired innovation economy. supplemented by the risks associated with investing, is exciting. The truth Frances Doherty, Partner – Dorsey is, however, that virtually all start-ups & Whitney, with thanks to Catherine

rap istockp h hy: have a higher level of investment risk Passmore, Associate – Dorsey & Whitney g oto usa canada europe -pacific www.dorsey.com p h BVCAJOURNAL 41 PROFESSIONAL DEVELOPMENT Media - being misunderstood had serious regulatory implications that could Many constituencies severely affect our ability to invest. “continue to look at This entire episode helped us raise our savvy game and resulted in a big improvement private equity from a in the way we engage externally. position of some Director of Communications and Public The environment has changed since but the industry must maintain scepticism Affairs at Permira, Chris Davison its communication efforts. Although explains that now private equity is no smaller transactions and slower deal ” activity have attracted less media longer a burning media issue, the interest, many constituencies continue easily and quickly. Our international industry should increase its engagement to look at private equity from a position reach also means that we need to of some scepticism and the industry be highly aware of complexities and and has a better chance to get its is still facing a number of challenges sensitivities of the different markets we messages across borne out by the crisis: longer operate in around the world. fundraising cycles and general mistrust Finally, we are paying more attention of the financial services industry to to what goes on in the digital media Notwithstanding last year’s focus name but a few. world. Although we still are learning on Mitt Romney’s career at Bain, The US presidential campaign about the best ways to engage on media private equity has fallen down today’s helped ‘normalise’ the industry to platforms like Twitter, I can see how its media agenda, since the industry’s some extent and showed that private global reach and instantaneous quality uncomfortable stretch in the spotlight equity doesn’t have to be complicated. can make it a very powerful direct in 2006 and 2007. The industry has It can be articulated in a relatively communication tool if used properly. been less visible in recent years and the straightforward way, as the many prolonged financial crisis has relegated videos posted on YouTube during the boom years to distant memory. the campaign demonstrated. The Intense media scrutiny can be industry understands this and takes Three key skills for a media both damaging and distracting communication far more seriously. relations professional for a business, but it is not a Aside from the BVCA’s and other Empathy: If you are not inclined to valid excuse to disengage. The industry associations’ invaluable work, listen properly and aren’t capable of industry learned in 2007 that firms are better organised and are interpreting what people are really the general misunderstanding disclosing much more information saying, then it is extremely difficult to of its activities left it very about their firms and investments. communicate effectively. vulnerable and an easy target As well as media engagement, we for politicians, trade unions spend a lot of time at Permira liaising Lucidity: Communication in this and regulatory bodies. with our portfolio companies to help industry can be quite complicated.

We also learned that it them understand and address the Whether talking to journalists or key ia d e was harder to explain communications challenges associated stakeholders, you have to be able to M al the benefits brought with being owned by private equity and communicate messages in a clear and u is by the industry while we are also very active in supporting the succinct manner. it was under attack communications efforts of various PE than it would have industry bodies. Trustworthy: Building relationships ones / V been otherwise. To ensure effective external with people is very important. The day-

Furthermore, communications, a good information to-day interaction with journalists can Danhy: J we learned that flow internally is essential. Our joined- get quite intense, so you have to trust rap g communicating up strategy means that I can get hold of them and they have to trust you. oto h really mattered anyone in Tokyo, New York or Frankfurt p

42 BVCAJOURNAL BVCAJOURNAL 43 Advertisement Promotion Bringing ABL into mainstream lending

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BVCAJOURNAL 45 Guest columnist In-house Training Limited options James Quinn, Deputy Business Editor of the Sunday Telegraph, expects “ The BVCA in-house a more hands-on approach from investment firms’ limited partners Tailoring our courses course provided our If you have team members who require training in a specific Over coffee with a veteran mergers and For GPs this reduces the number of area and are seeking a cost effective way to enrich their attendees with a acquisitions banker, the conversation potential investee companies, and comes turned to private equity general partners despite languishing equity valuations in skills, we can work closely with our programme directors to broad overview of (GPs) and investors in the public markets. recent times. tailor one of our standard courses for you. the subject matter. It The two are odd bedfellows, wanting The same is true on the flipside. Many was well structured different things from the companies they of the large deals structured in 2006 and Popular in-house courses delivered invest in, while relying on the same assets 2007 are now coming to term, and GPs’ and professionally from which to extract value. thoughts understandably turn to exit. n Deal Structuring Before the financial crisis, the two were But one of the most popular routes, a n Leadership Development presented. We will more aligned. Given the cheap debt and public listing, is largely closed, other than n Foundation continue to use significant amount of equity available to for the most successful of companies. n Introduction to Private Equity these courses as part GPs to construct large public-to-private Institutional investors have become n Negotiating Skills takeovers, institutional investors in the increasingly cynical about buying into n Non-Executive Director of the professional equity markets were only too happy to companies that have been owned by GPs. n benefit from significant premiums. Although this does not mean that equity Pitch Perfect Presentations development plan for The 2007 battle for Alliance Boots is one our team.” of the best examples of this. Two private Skillcapital equity consortiums – one made up of KKR Buying the same asset twice Bespoke solutions and Alliance Unichem founder Stefano “ Pessina, the other by Guy Hands’ Terra in succession is never good We will work with you to develop an entirely bespoke Firma – chased the asset. training programme targeted to address your specific As is widely known, KKR won the day, markets are a no-go zone, it does make a ” needs. paying £11.39-a-share, valuing the retailer private-to-public move less likely. at £11.1 billion. But the race had begun six As a result, the coming months will see weeks earlier. When KKR and Alliance increasing numbers of restructurings and Exclusive programmes Unichem first approached the board, it was recapitalisations, to allow GPs to extract The following courses are specifically designed to be with an offer of £9.7 billion. some value while holding on to ownership The eventual offer – which valued of the underlying asset. delivered in-house: Alliance Boots at a hefty 24.8 times its For some, the ever-popular secondary n Advanced negotiation skills 2008 forecast earnings – was pushed up or tertiary buy-outs are increasingly n Deal origination by 14 per cent as a result of competitive galling, particularly for larger LPs, which n Leadership development programmes tension between the two private equity- might be invested in both the fund of the n Psychometric testing and team dynamics analysis led bidders, along wih the availability of exiting GP and that of the investing GP. n Sales training masterclasses cheap debt. Unsurprisingly, institutional Buying the same asset twice in succession n investors welcomed the offer. is never good. Valuation workshop The situation today could not be The lack of control has already led some more different. Despite debt markets LPs to invest alongside GPs to gain greater increasingly opening up, there appears to control of the assets and the eventual exit be neither the demand nor the inclination plan. If GPs’ rocky relationship with the www.bvca.co.uk/training for the sort of big ticket public-to-privates public markets continues, expect to see T: +44 (0)20 7420 1800 that were once commonplace. more of this type of investing in 2013. E: [email protected]

46 BVCAJOURNAL

Courses 240x185 Ads-Jan13.indd 2 15/01/2013 15:27 Management Team Forum & Awards 2013 Celebrating the success stories of the private equity & venture capital industry

In partnership with Roundtable lunch sponsor

4 July 2013 London Marriott Hotel, Grosvenor Square 12.30pm – 1am

Book your awards table and forum place at www.bvca-mta.com or contact Vincenzo Manto: +44 (0)20 7420 1831 [email protected]