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Industry events / 06 October 2021

BVCA Summit 2021 - Day 1 key takeaways (part 1)

BVCA Summit 2021 - Day 1 key takeaways (part 1)

Across the BVCA Summit 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 premier private equity and venture capital conference will take place online whilst this year’s exclusive roundtable discussions and networking events will take place in person.

Read our key takeaways below from the first part of Day 1 at BVCA Summit.

 

WELCOME: PRIVATE CAPITAL – CREATING PUBLIC VALUE

Michael Moore, Director General, BVCA

The conference theme is Investing in a changing world. Change is a constant, but what will change next?

How the industry has adaped to this changing world, and changing demands of public and stakeholders, and the value we add. Smartphones. Reinventing banking as it moves to the cloud.

Kerry Baldwin of IQ has been working with government, learning what government wants. I look forward to discussing Kerry's notes shortly.

Summarises briefly what is on the agenda for today for GPS and LPS, those making investments and those advising on them. How do senior figures in the media and politics see us? Disclosing more, improving compliance, actively adapting portfolio companies. Investing in a changing world.

Looking to tomorrow. Action on climate change is not just about preventing value erosion. There is a refreshing realism in the industry about what we've done and what we still need to do. Diversity. 

Covid has affected communities and workplaces everywhere. As government withdraws support programmes...there is a story for us to tell. Venture capital played a big role. Dame Kate Bingham will be talking to us about vaccines shortly.

The industry has always invested through economic cycles. Investing when times are tough.  The industry has stakes in over 5,000 businesses across the UK employing over a million people.

Numbers can never be the full story. Iconic Dr Martens transformed by venture capital and now listed. Other great stories thanks to private capital. Scottish. Welsh. See our Investing with Integrity report and Investing in New Horizons reports.

We've reshaped our organisation this year with more emphasis on external partnerships. We have not turned our back on scrutiny. We are improving understanding of the value we add, engaging with press and using case studies to demonstrate the public value we create.

We already play a huge part in the success of the UK and are ideally placed to support policymakers.

I was at Conservative Conference in Manchester. Focus on common themes in the party politicaly conference season. How do you deliver on global climate expectations. Private equity and venture capital are well placed to play their part.

We can and will be appropriately engaged. We represent one of the the UK's most dynamic industries. Private capital is a force for good that demonstrates public value.

 

MICHAEL MOORE IN CONVERSATION WITH THE BVCA CHAIR: FIRESIDE CHAT

Kerry Baldwin, Managing Partner, IQ Capital, and BVCA Chair 2021/22

MM: Welcome to our studio. It's been quite a busy year. What's it been like these last 12 months.

KB: Very active. V hands-on. Remote working. One company growing from 150 to 500 employees while working remotely.

MM: Are there lots of exciting new life-transforming things coming out of your portfolio?

KB:  Yes. Technology is driving the future. Banking. Data. Privacy. Transformation. Obesity. Type 2 diabetes. We all work together in different areas of the market across different stages in different sectors. There is a huge amount of intelligence and experience to draw upon, when working at speed.

MM: Technical committees do a lot of work to help us make informed decisions and answer questions from government. Re engaging with government, the positive sign is we've seen the chancellor wanting to engage. 

KB: The chancellor is very interested in hearing from the industry. At Treasury Connect. I was able to talk through founders' rounds. Experienced managers. Where are funds needed? You saw it also with Boris Johnson at London Tech week last week.

MM: We are telling the story of how this industry invests. What role can we play re government objectives?

KB: We are an important part of the eco-system. We employ so many people in our industry, investing throughout the UK. We can help transition out of Covid and build for the future at the forefront of fintech and life sciences...all at speed. We have had so many technologies and needed to work out how to invest. We are seeing record numbers this year across private equity as well. Our deal flow is extraordinary. I have never seen such technological deal flow.

MM: In terms of questions asked of us, which I think is a symptom of our success, what is your thinking on extra questions we are being asked?

KB: Our activity is generating scrutiny. What's really important is having case studies to demonstrate activity and scaling.

MM: Case studies. There is a nervousness in the industry on the part of people who don't want to boast. But the more we talk about it...

KB: It is essential to use case studies to illustrate the impact of our fundraising and investment. We need case studies. Ahead of Cop26 we are looking for case studies on how companies are approaching net zero. Case studies in a language that everyone can understand. You have to explain to a minister in two minutes. You need to use language they can understand.

MM: If we use case studies rather than multiples on deals, it helps people understand. What has excited you over the past year?

KB: Meeting members and funds across different stages. From venture capital to growth capital to private equity. You see more and more of this. Our eco-system is a lot more collaborative. It will be transformative.

MM: You mentioned Cop26. The big issue of our time and for decades to come. How important is it for us as an industry to grasp this?

KB: This is really important. Not a box-ticking exercise. We want case studies.

MM: That is a great call to arms.

 

MACRO-ECONOMIC TRENDS: PRESENTATION

Peter Arnold, UK&I Partner, Economic Advisory, EY

What a pleasure it is to be here this morning. Has been an eventful 12 months, and another eventful 12 months lie ahead. I want to touch on shorter- and longer-term themes.

Global economies have bounced back impressively from Covid. 

But there are a few buts. Aviation. Transport. Hospitality.

Spectre on the horizon: Inflation.

The recovery is running into supply constraints. Has hit a brick wall. Supply constraints in labour market and raw materials. Inflation has gone from nearly zero to over 3% and possibly more than 4% by end-2021.

Part of a global phenomenon that could see higher interest rates. The real question is how transitory the shock will be. Oil touched $40 last year and is now around $80. A real risk that this could become permanent and we could see stagflation.

But there are grounds for optimism. We avoided mass unemployment. It did rise in the UK to around 5% but has fallen back. After end of furlough, we don't see it rising beyond 5% before falling back again. Vacancies are running hot; over a million across the UK.

Other grounds for confidence. What has happened to consumer balance sheets. Households have built up estimated savings of around £200bn but a good deal of that is with higher earners who tend to spend less. 

Consumer spending will remain strong, but channelled into different reactions than we'd usually expect. More and more retail sales are going online which has implications for retailers.

Can be a disconnect between what consumers say they want in terms of sustainability and what they actually want. Saving the planet is important, but so is cost.

Decarbonising heating will be important over the next few years.

UK attractiveness to investors looks set to improve, relatively and absolutely. But vaccine noise and EU trade deal debate can distort the picture.

EU exit and Covid will impact upon the shape of the economy. Increased focus on life sciences. Agritech. Moving of food production back to the UK. Also seeing downside risk in transport, manufacturing and chemicals.

Deep dive into trade. EU exporters need the UK more than the UK needs UK exporters. UK exports have returned broadly to pre-January levels. But there is pain amongst smaller producers.

EU exports into the UK: there is evidence of import substitution away from EU exporters because of trade barriers.

Levelling up is cutting through and there is an opportunity to deliver. We've seen real growth in attraction of non-London regions to investors. But there is a lot of Covid noise. Scotland, north east and north west are targets for levelling up. 45% of businesses we spoke to want to transform supply chain structures. We'll see more reshoring and near-shoring of supply, and building in of resilience over the next four or five years.

Big question. Will we ever return to pre-Covid normal? Mobility in London still well down despite September re-opening. Air travel in particular has a long way to go.


THE BIG PICTURE: ADDRESSING PRIVATE EQUITY PERCEPTION: How external stakeholders see the industry.

Panel moderated by Sara Rajaswaran, Director, External Affairs, BVCA

The panelists:

James Ashton, Business writer, speaker and consultant, Portland Communications

Lord Finkelstein, Columnist, The Times

Michael Moore, Director General, BVCA

Sara to LF (Danny): can you give us an idea of the relationship between government, private equity and the public etc?

LF: The big thing is they aren't thinking of you. They don't know what PE is. If they read a story they won't remember it, unless it's about something at the end of their garden. People don't understand money and budgets. You need to understand this. Politicians know that people don't know and don't care. This goes for a wide range of issues, not just this field. Your job is to persuade political operators that what you are doing will avoid loss. To most people, avoiding direct loss is more important than gain. EG, capital gain means nothing to most people, who won't have a capital gain. You have to think strategically about how you influence politicians and politics, when no one is listening. But you have a big role in helping the economy to improve which will affect the outcome of elections.

You can't just replace a low-wage economy with a high-wage economy. You need economic growth. Government wants growth in areas outside London and will spend money on infrastructure. The Treasury will be important but the levelling up department will be important.

Sara to James: is it true that there was attention on our industry before the financial crisis and it is returning?

James: People aren't interested. Tech disruption. Fuel disruption. Most journalists have probably not paid attention to your industry. But is your industry ready for a revival of press interest? The industry is more pervasive. More and more deals. Part of your story in terms of delivery to the economy is enriching pensioners and owning big brand companies contributing a lot to the economy.

Sara: Gps provide a lot of data to LPs but that is not transparency for the press. What do the press want?

James: it should be just another asset class. Too many of your members take the private in private equity too literally. You need to explain yourself. And if you let in some light, people might decide it's less important than they thought.

Sara to MM: What is BVCA doing?

MM: I'm excited about what this industry does. Funding breakthroughs in life sciences and providing the factories they need. Problem we face is communicating not so much the narrow value as the broad value. Private capital is everywhere. We need to be on the pitch explaining to people and politicians what we are doing. I'll bang on about the Helsinki Principle, establishing English as a third language for the industry. Listen to what people say are their concerns.

Sara to LF: As we grow out of Covid, business will have a huge part to play. How do you see relationship between business and government playing out?

LF: The most important thing is to do it rather than talk about it. Talking to politicians does not often really matter. You need to SHOW as well as explain. George Osborne went to a lot of factories to see what was being done. That had more impact than writing letters and having debates. Don't pay too much attention on communication that doesn't alter the bottom line. Make sure they understand easily.

Sara: I was with George Osborne on a couple of hard hat visits. People were amazed at how human George Osborne seemed.

LF: If that's the case, think of the impact it might have had on him.

Sara to James: How can we sell our better stories. What hooks are you looking for in stories on sustainability, net zero levelling up?

James: We are drowning in slogans. We have a prime minister who loves a slogan. Just because your industry has decided it wants to talk does not mean anyone wants to listen. I don't think the media are driven by press releases any more. A press release full of jargon will join the hundreds of others a journalist receives. The challenge is. There IS a perception problem.

Sara: you said private equity needs to be just another asset class. What do we need to do? Journalists and politicians suspect private.

James: For some of the bigger firms, take meetings you would not normally do. George Osborne and the bosses of KKR are just humans. Round the financials, the issue of carry, the debate around that looks flimsy. You need to get the right people in front of the right people.

LF: I agree. Human relations are an important part of press relations.

Sara: In the UK, we are slightly embarrassed about success.

James: You need to get over it. The carry debate is flimsy.

Sara to MM: Over the past couple of years, you've had a lot of conversations like this. What have you learned and been surprised by?

MM: For all of us outside the industry and come in, there are millions of others who don't and who don't care. I am pleased that the industry has recognised we are ready to show and tell, to talk, to develop relationships. I am confident: this is an industry generating jobs and income and is a real force for good.

 

HOW THE INDUSTRY ASSISTED THE COVID-19 RECOVERY: FIRESIDE CHAT

Kate Bingham, Managing Partner, SV Health Investors and Former Chair of the UK Vaccine Taskforce
Catherine Lewis La Torre, CEO, British Business Bank

Interviewed by Michael Moore, Director General, BVCA

Our investors invested more than £9.5bn in UK companies in 2020, supporting the great speed of development of vaccines.

MM: I'm proud to be DG of BVCA. But the story is Covid recovery and the role of the vaccine. 

KB: I'm dealing with incomplete and ambiguous data but this is something we do all the time in private equity.

MM: Your reaction when the PM's phone call came in?

KB: No vaccine had ever been developed within five years and we didn't have five years. I tried to temper the PM's expectations. It was a very tall order to do it so quickly.

MM: You've had a feeling of imposter syndrome. Why?

KB: Because the task was to run the vaccine task force, something different to what I normally do, treating sick people to get them better, rather than preventing healthy people from becoming sick.

MM: Three goals. Get vaccine. Get it ready internationally.

KB: We did really well on getting the vaccine. Getting it international, hasn't been a lot delivered. There is more to be done. Because viruses mutate, the more likely there is to be an escape variant. Goal three, to be better prepared for future, is a task in progress. We supercharged existing capabilities in the UK, which were good and vibrant to begin with. We helped them scale up and are in a better position now.

MM: You persuaded Treasury to give you £1bn up front. How difficult was that?

KB: Not very. The priority was speed. We had to develop vaccine clinically and scale up. Pfizer vaccine was developed in a year. AZ vaccine in less than a year. It was not a complicate conversation. The £900m we spent was a drop in the ocean compared to the cost of the economy being closed.

We were embedded in the VC industry. We either knew everyone in every relevant company or knew someone who knew them. We could contact people very quickly. Exactly what I do in normal work. We did world class diligence and brought in a first-class team to do the work. Portfolio, recognising risk and expertise. I set up Zoom calls on Monday, Wed and Fri at 8 in the morning. We never met in person. I still haven't met some of the task force. We had highly empowered expert diverse people who just got on with the job. Main lesson for the day job? Identify talented people and get on with it. Having a lot of women on the team helps solve problems. Diversity is important.

I stepped down at Christmas but the task force continues. The vaccine distribution mechanism and format needs to be improved to improve efficiency and bring down costs. We need to find patches, fills, sprays and single dose alternatives.

Having mainstream media attention was unusual. Communication, though, was a huge part of the exercise.

MM: What are you doing back in the day job?

KB: Back of the eye treatments. I've realised how good we are at certain areas of science.

MM to CLLT: Primary purpose of BBB before Covid?

CLLT: Providing finance to British business. That hasn't changed. But we had to support businesses that had costs but no revenues. We have enabled financing of around £90bn in an intensive year.

MM: The response to the pandemic. How did you see VC/PE respond?

CLLT: We are the largest investor in funding rounds for companies with growth and development funds. We launched the Future Fund in May and expect many convertible loan notes to convert into equity at some point. Those companies will need to maintain growth. Speed of delivery into market was a priority rather than perfection.

MM: If we look forward, we've seen what role BBB can play. What excites you about the future?

CLLT: We have launched Future Fund Breakthrough focused on deep tech. That is our first major move into direct co-investment rather than investment via funds. We know that life sciences is very strong in the UK but finance has not been as forthcoming as elsewhere. We've introduced programmes to attract institutional capital. Share our pipeline, our due diligence.

Of course it matters that the PM and chancellor are so supportive. Support from government helps us do what we think we need to do.

MM: What do we all  need to grasp?

KB: Scale up is very important. Being able to introduce more capital to the growth stage is important, allowing companies to remain independent for longer in what is a strong sector.

MM: What do institutions need to understand to invest large sums?

KB: The pandemic has helped! This is a sector that can deliver and can deliver quickly. This is a great place to generate investment returns and do some social good.

CLLT: Case studies are good to demonstrate success in the industry. We put in a pound and want 10, 20 or 30 pounds to come in from the private sector.

MM: What bits of the economy excite you in terms of powering growth in the UK?

KB: The role of digital is huge, to recruit people for clinical trials and manage patients with disease.

CLLT: I think we have an amazing challenge and opportunity in terms of climate change, for new technologies to come along and transform the way we live for the better. We think that will drive a lot of investment activity in the coming 10 years.

KB: There is more emphasis on recycling items that wouldn't normally be recycled. Doing good will do well.

MM: Are consumers driving this as much as government or regulators, or you as investors?

KB: A bit of both. People at SV care.

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