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Industry events / 09 June 2021

BVCA HighGrowth 2021 - Day 2 key takeaways (part 1)

BVCA HighGrowth 2021 - Day 2 key takeaways (part 1)

Across the 2 day event Crestbridge will publish a brief rundown of key takeaways from each session as the event unfolds. 

The event, which is deemed to be the UK's leading event for growth companies partnering with venture and growth capital, took place virtually for the first time and featured entrepreneurs, management teams and investors as they share their thoughts and experience on what it takes to succeed in today's environment.

Read our key takeaways below from the first part of Day 2 at BVCA HighGrowth.

Paul Scully minister for small business, consumers and labour markets

  • Providers of private equity and VC have essential role helping Britain recover from pandemic.
  • But a business in East Midlands with the same growth prospects is half as a likely to secure growth equity as a business in London.
  • My challenge to you as a sector is to include rest of country in London’s success.
  • Is often said that fund managers invest within 2-hour radius of their office. Suggests that could use remote technology to solve this problem. 
  • Some countries are already doing this, working with British Business Bank in counties such as Cornwall.

Presentation on growth equity perspective: what did we learn during the crisis?

Michele Giddens, Co-CEO, Bridges Fund Management

  • The most successful leadership teams in high growth businesses always learn from the past, so I’m going to discuss lessons we learned from the pandemic.
  • We invest in the high growth private companies helping bring in transition to more sustainable and inclusive economy. 
  • Pitchbook data show blistering start to year in private equity, with quarterly record. 
  • High growth businesses tend to be agile and innovative so period of disruption can also be growth opportunities. 

This shock to system of pandemic did trigger innovation. Five key lessons from pandemic:

  • Invest behind long-term trends 
  • Invest in trends, not fads
  • Pick the right partners
  • Prioritise digital
  • Expect a different kind of government

An example of the value of prioritising digital: One portfolio company, World of Books, is a circular economy business set up when the founders noticed charity shops throwing books out for landfill, so became seller of second-hand books. During pandemic was a sudden collapse in supply of books from charity shops. But had two important digital solutions. One allows people to sell their books by scanning their barcodes. Also had sophisticated software and pricing algorithms that allowed company to manage nimble and sensitive pricing. 

Growth capital: How entrepreneurs adapted during the crisis

Panel moderated by Darren Hart, Head of Growth Capital, Santander Corporate & Commercial Banking

Michael Eder, Managing Director, Student Beans

  • Marketing and tech company that helps run loyalty and marketing campaigns for companies selling to students. 
  • We took view early in pandemic that didn’t want to damage future growth but wanted to preserve cash. Was difficult to find balance between the two. 
  • Our cash collection suddenly fell 95% from a normal week. We reacted quickly, which was key. Could see the core business performing very well, so knew that cash would come eventually. 

Three-pillar approach to preserving cash:

  1. Stopped paying all of our bills.
  2. Ramped up our credit control. 
  3. Went to the business and asked everyone to take a pay cut. 

In addition:

  • We applied for the finance assistance available in every country we were in, and monitored progress with this carefully. 
  • We made redundant some people who were underperforming. 
  • The values we consciously created for our business proved helpful.
  • We embraced the tech stack to support a remote business. We used Slack, Google Apps and other tech interaction tools. Had daily newsletter. Changed from monthly to weekly mass meetings, with anyone free to ask a question. 
  • Mental health issues: with people at home and no separation between work and non-work, was tough for people. Encouraged people to take holidays and breaks during the day. 

Lucy Graham, Investment Director, Cairngorm Capital
Private equity fund focusing on lower mid-market. 

  • We tried our best to create war room mentality. Daily calls to share intel on what schemes were available from government to help our teams. 
  • The furlough scheme was particularly helpful. 
  • We also spoke to landlords, who were mostly helpful in restructuring rental payments. 
  • We spoke to our lenders, whom we found very supportive. 
  • Quite a lot of our businesses imported form Far East and Europe. Brexit helped during the pandemic because we had been preparing for Brexit by ensuring availability of supply was monitored and we had alternative sources. 
  • Demand from Far East has skyrocketed at time when container prices have risen 75% and there is shortage of them. That has been difficult for our timber business, and our bike business, whose components are made in Taiwan and Cambodia. 

John Pallagi, Founder & CEO, Farmison
Online butcher.

  • In most businesses data is everything. 
  • Our business increased fivefold in Spring 2020. 
  • The restaurants closed and that supply chain of meat had to go somewhere, but the market came to us, as demand from households rose. We built cold rooms. Introduced next-day delivery and click and collect, after studying success of Amazon Prime. 
  • Because of this demand, have moved from 36 to just over 100 employees. 

Presentation on growth equity market data

Henry Whorwood, Head of Research & Consultancy, Beauhurst

  • Growth investment – investments in companies that already profitable – £4.3bn in 2021, in 197 deals. 
  • Big dip in 2020 to £5.5bn in 530 from £8.5bn in 590 deals in 2019. 
  • But starting to see strong recovery. Q1 record year by value, at £2.8bn, though deal number, at 140, not particularly high. 

In terms of who is investing, top investors, in number of deals:

  • BGF Growth Capital 133 
  • Crowdcube 72 
  • Balderton Capital 63
  • Data shows increasing regionality of growth capital transactions, although London does continue to dominate. Top locations outside London are Leeds and Manchester. 
  • Most common sectors are software as a service and business to business professional services.

Presentation on valuations, and why tech might be cheaper than you think…

David Toms, Head of Research at Hg

  • 2019 saw a 17-year high in valuations in software businesses, but since then valuations have risen another 20 percent, from 17 to 20 times forecast operating profit. Echoes rising valuations in other sectors. Relatively speaking, software and services no more expensive now than pre-Covid. Having said this, still relatively more expensive than in 2015, when a divergence in valuations opened up. 
  • This reflects earnings growth. 
  • Earnings forecasts for software are about 15% above where were before pandemic, but other sectors have only got to just about returned to pre-covid levels. So software earnings are vastly more predictable than we expected. 
  • Helped by move towards software as a service. Cloud subscription software has been the main engine of growth for a decade. This is very much more predictable than the old software license revenue. Pandemic has triggered even faster move towards the cloud. Customers like this because whole burden of installing and maintaining passes from the customer to the software company.  

Follow us on LinkedIn for more key takeaways from BVCA HighGrowth 2021.

 

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