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Industry events / 06 October 2021

BVCA Summit 2021 - Day 1 key takeaways (part 3)

BVCA Summit 2021 - Day 1 key takeaways (part 3)

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 final part of Day 1 at BVCA Summit.

 

DIGITAL TRANSFORMATION POST-COVID-19 AND BREXIT

Panel moderated by Paul Kelly, Digital and technological transformation specialist and Managing Director, AlixPartners

The panelists

Adrian Blair, CEO, Dext (formerly Receiptbank)

David Toms, Head of Research, Hg

Martin Davis, CEO, Draper Esprit

Paul K: Pre-pandemic, companies were struggling with the term digital, but the pandemic has forced it onto the C-suite agenda. What has the pandemic meant for digital in terms of digital awareness and knowledge, lessons learned and what are companies still struggling with? What has pandemic meant for digital know-how and digital IQ?

Martin Davis: The definition varies. For me, it is the way technology is applied to change businesses and lives. New technology, new capability, new habits. Another is applying digital technology to existing supply lines, for example. The world has been changed significantly by digital over the past 18 months, after more than 20 years of talking about it. Digital is a now a C-suite topic and people who don't grasp that won't last. Habits formed in the pandemic will have a lasting impact.

David Toms: It's a very broad step. Some of the senior executives have already 'got it'. But today there is still a massive grey area of behaviour. A company like Amazon is dedicating 20% of costs on tech investment while other companies are spending 5%. A lot of companies are spending very little. Some will never get it.

Paul Kelly: Younger people who were born digital have a clear advantage.
Adrian: The word digital and the concept itself are never spoken of. But there is no doubt we have seen change. Accounts, for instance, need to be done digitally, not by taking a shoebox full of documents to an accountant. We've been able to be more customer-focussed and customer-engaged.

Paul: What have we learnt?
David: We've seen a huge acceleration of evolutionary change and we have been surprised by the readiness of some people to embrace that change.

Martin: My experience is very different. I worked before in very large companies with a digital team, build from the top down rather than the bottom up. I had to work very hard to get the message through. Changing a big legacy company is a real challenge. We were doing internet banking 20 years ago and thought banks were toast, but they took the ability, raised the standard and remain the biggest banks in the world.

I would cite the example of an investment we made in Germany, in a company shifting sand and grit, an industry that is inefficient and rife with fraud. It has been digitised and has delivered significant efficiencies in terms of delivering the commodity and paying the people employed in the industry. We are investing in quantum computers and agritech but computers can still do a lot for traditional industries.

Paul: Re Hg portfolio. How do you look at leadership capability in terms of being tech-savvy?

David: Finding leaders of the right calibre is not in any way easy but it is less of an issue than how you change the thinking of staff and customers. Chief data officer, for instance, is a relatively new post. The breadth of the pool of talent remains an issue in the UK.

 

REDE PARTNERS IN CONVERSATION WITH: FIRESIDE CHAT

Interviewed by Kristina Widegren, Partner, Rede Partners 

John Doran, General Partner, TCV

K: How do you position TCV in technology in the investing landscape?
J: We think of ourselves as pioneers. We look for companies that are mission-driven with potential to scale.

K: How do you find winners?
J: That's a great question. There are probably two approaches. Top-down perspective. We are domain experts and try to get to know companies that we think are attractive. Four of five years ago we took a more bottom-up approach. Our data team can tell us more that will help identify targets.

K: How do you partner with the companies you find?
J: It is becoming ever more competitive and our angle needs to be refined constantly. We have a tremendous track record over more than 26 years, which gives a halo effect. The management teams are stars. Like sports stars, they are on the field day to day. An important focus is hiring top talent to help them do their job. We've seen a lot of cycles. We can be a good partner to founding CEOs. One fund, one world, one approach.

K: What do you see as exciting opps for the years to come?
J: We are seeing more visionary founders today than we have ever seen before. There are a number of exciting trends. Better, cheaper, faster products mean disruption will continue. Democratisation of financial services with the arrival of companies like Revolut. Many more people have access to products that were the preserve of better-off people and institutions in the past. Interbank interest rates, and fractional share-buying, for example. We have never before seen this pace of innovation or speed of growth. We are about to launch a velocity fund to allow us to take advantage of smaller scale investment opportunities.

K: Tech companies are staying private longer. How do you think about that?
J: Two things. Why is it happening? There is a ton of capital in the industry, enabling companies to remain private longer. And employees care more. Pandemic means we have had 18 months of companies being more uncertain about hiring and firing, and people working at home have had more time to think about ESG, fairness, diversity and sustainability. Where is the ball going to be in the future? In the companies who care about these issues, and we need to be in those. Europe in particular is a leader in this trend. I feel very fortunate to be in the technology space.


VENTURE CAPITAL PERSPECTIVE: WHAT'S NEW FOR VCs IN THIS CHANGING WORLD?

Panel moderated by Peter Soliman, General Counsel and Company Secretary, Hambro Perks on behalf of WE ARE GUERNSEY

Amelia Armour, Partner, Amadeus Capital Partners

Farhan Lalji, Principal, Anthemis

Andrew Williamson, Managing Partner, Cambridge Innovation Capital, and Chair, BVCA VC Committee

Peter to Amelia: There is a lot to talk about. How do you see the market?

Amelia: PitchBook figures are reaching new records. We are making huge follow-on investments more quickly than in the past. It is very frothy.

Andrew: I'd echo a lot of what Amelia said. On deep tech, it is not as frothy as in mainstream tech because of the complexity of technology. We are a Series A investor and are beginning to pass on investment opportunities because we think the valuations are a bit high. We are participating but becoming increasingly selective.

Farhan: For us, it's been interesting. We've always invested early and some of our pre-seed valuations have grown. Companies are raising funds quicker than we'd have thought.

Amelia: Interesting to see investors coming in earlier to funding rounds for companies that we know are going to take longer to come to maturity.

Peter: We have a growing range of investors and there has been talk about heat in the market because of hastily arranged financing.

Farhan: In a lot of cases, the newer investors have been through the process themselves. For us as an earlier stage investor you want to keep terms friendly to entrepreneurs but standardised at the same time.

Amelia: We are seeing high valuations at Series A financing but at the next stage those valuations can look choppy. The old adage is that this is a marathon, not a sprint. If investor syndicates are built with a view to longer-term financings, valuations can balance out over the cycle.

Farhan: Don't get over-aggressive.

Andrew: This is a high-class problem compared to where we were a decade ago.

Farhan: We are seeing some of the flowers from seeds we planted 10 to 15 years ago.

Amelia: We used to say 'if there is capital on the table, take it' but investees can be more selective today about who they take as investors. There is a lot of capital going in to companies which is causing wage inflation and staff are moving more frequently.

Peter: As companies stay private for longer, has this created a prime environment for private equity to replace venture capital?

Andrew: I think this option is beginning to present itself, which I think it is fantastic, and I hope it continues to grow.

Peter: What are your predictions for venture capital?

Amelia: I am really excited as the companies in which we are investing will be part of addressing the emerging major challenges.

Farhan: I think we will see more solo GPs.

Andrew: I think we will see more mainstreaming of venture capital.

 

GROWTH CAPITAL & MID-MARKET PERSPECTIVE

Panel moderated by Ian Wood, Partner, Epiris

David Menton, Managing Partner & Co-founder, Synova

Sabina Ouimet-Storrs, Principal, GHO Capital

Corinne Philipps, Executive Director, Tikehau Capital

David: The first thing for us, long before we invest, is understanding a company's business and strategy. We tend to find there are some core areas that need investment sooner than others, such as people and sales. 

Corinne: We tend to invest in businesses that have grown strongly historically, though we have done some incubation. We work a lot on digital, helping to set up plans for the right digital tools that will support growth plans.

Ian: What are the challenges?

David: You need to build a bond with the investee company and understand the data and digitisation. Where we identify shortfalls of one kind or another, our investment might make a company worth less at first.

Sabina: Execution is always a big challenge. You might see a lot of bookings and growing revenues but you might still need bodies to do the underlying work, and hiring an HR specialist might be a priority.

Corinne: We look to build a strong partnership with founders and work on important decisions collectively before agreeing to an investment. We need detailed plans on future development and growth. Up front, we will identify key management gaps and how to fill those gaps.

Ian: Turning to M&A, have you scaled businesses through M&A?

Sabina: We have many examples. One company in Montreal was looking to expand in Europe and we made three acquisitions in a relatively short time to expand overseas. M&A can be very powerful.

David: You have to acknowledge that pricing is going in only one direction. We have had a number of buy and build successes, but even in organic growth situations targetted M&A can play a role in delivering growth.

Ian: Any downsides to M&A?
Corinne: We are always mindful of cultural aspects and the challenges they might present, and integration. 
Ian: I can remember when 10x was an attractive price for a business but 20x seems to be the new 10.

Sabina: You are definitely right. Companies are becoming more expensive but I don't have a crystal ball to tell whether that will continue.

Corinne: We are seeing the same.
David: I'd concur with Sabina and Corinne. We are not dealing with an uneducated vendor set. The ability to generate off-market deals can help offset that.

 

LP PERSPECTIVE: MOVING AWAY FROM THE MONOLINE PRODUCT STRATEGY

Panel moderated by Peter Olds, Partner, Proskauer 

Delaney Brown, Managing Director, Private Equity Funds & Secondaries, CPP Investments

Joana Rocha Scaff, Managing Director, Neuberger Berman

Vicky Williams, Senior Portfolio Manager, Coal Pension Trustees Services

Peter Olds to Vicky: What is behind the growth in multi-product strategies?
Vicky: It can help round out the investment offering, increase flexibility and reduce cost.

Delaney: Adapting an investment strategy can help improve deal flow.

Peter: at which end of the market are you seeing it?
Delaney: Initially the mega-managers but mid-market managers are beginning to drift upwards in size and their strategies are beginning to evolve, while larger firms can be found drifting down. We do have a number of mega-managers who have determined to remain mono-line.

Joana: We are looking to build diversified portfolios for our investors and over half these days the activity is multi-strategy. We are seeing smaller managers diversify in response to investor demand and the trend is here to stay.

Peter: The growth of growth. Is that where it is coming from?
Delaney: Growth is embedded in many funds. Secondaries, real estate and credit are other areas that grown over the years.

Peter: Pluses and minuses of the trend?

Delaney: Minuses. It becomes harder and harder to see the driving motivation for investment managers for whom carry has been a traditional issue. And it might become too difficult for a relatively small number of people to manage successfully.
Joana: Discipline is essential. A proliferation of offerings can increase complexity.

Peter: The obligatory Covid question. Have events been accelerated by Covid?
Vicky: We've been on this course for a good number of years already.
Joana: Covid has probably accelerated the existing trend.

 

INVESTING IN DIVERSE FOUNDERS: THE FUNDING LANDSCAPE AND DIVERSITY AT PORTFOLIO COMPANY LEVEL

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

Paula Groves, Chief Investment Officer, Impact X Capital Partners

Patricia Hamzahee FRSA, Investor, donor and mentor, Integriti Capital and Extend Ventures

Jenny Tooth OBE, CEO, UKBAA, and Board Member of Investing in Women Code

Sara to Paula: Black founders just don't drive success. What do you say to that?

Paula: The success is unknown. We invest in underrepresented.

Sara: What needs to be done to improve the situation?
Paula: We need more diverse investors. If you are a black investor or a female investor you have a greater chance of finding relevant investment opportunities.

Sara: What works?
Paula: We make every effort to see every underrepresented entrepreneur out there, something that other private equity investors might not do.
Sara: to Patricia How do data help?
Patricia: I want to talk specifically about ESG. The emphasis is always on the E of ESG, possibly because there is more low-hanging fruit to be harvested. Evidence is important. The statistics on gender and ethnic inclusion are very poor. Echoing Paula, make sure you are connected to the talent that is out there. Treat black founders as individuals.

Sara to Jenny: How important are government initiatives?
Jenny: It's been very good to see Treasury and Cabinet support. If we look across the board, a lot has been said and a lot has been done, but we need joined-up efforts across the investment spectrum. We need to bring the evidence, the lessons learnt and join forces to co-ordinate good practice.

Sara: what more do we need to do?
Jenny: Good practice is essential. Making sure we communicate the points of opportunity and action is important. We haven't done enough work in communicating success stories to demonstrate how it makes sense to back founders. Data is going to be key. And there is a lot of work to be done.

Sara: final question for the whole panel. What are the top two or three steps firms should take to invest in more diverse founders.

Paula: The first thing is to establish what you might have already done in investing in black founders.

Patricia: We might take a leaf from US initiatives, which includes investing in diverse impact funds (such as Impact X!). We also need to be realistic. Only a tiny number of black female founders have ever received investment.
 

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