SMEs will save the UK… but my kids are all learning Spanish just in case
WOL KOLADE, managing partner at Isis, is worried. The future of private equity – and the UK economy as a whole – is at a turning point, he says, and he’s not sure which way things will go.
And when Kolade worries, people should listen – he knows what he is talking about. He joined the private equity vehicle 17 years ago, having worked on scores of investments – most of them, he boasts, providing a generous rate of return. He has also had a stint as chairman of the British Private Equity and Venture Capital Association, taking up the role in the bad old days of 2007, when his industry was hated, just in time to receive the grilling of his life from the Treasury Select Committee.
Small business is his passion, the force that gets him out of bed in the morning – “hug an entrepreneur” he jokes at one point – and he thinks it can be the saviour of the British economy. “Big companies don’t really care about the UK,” he says, speaking with the measured enthusiasm of a seasoned speaker. “They will go anywhere. It’s SMEs who drive the economy.”
Isis invests in just such companies – small, dynamic, growing businesses, where it can take entrepreneurial spirit and supplement it with experience.
Kolade, 43, who trained as an engineer at Kings College, says his firm is finally loosening the purse strings after a period of consolidation in the wake of the financial crisis. Last month it invested £4m in GettingPersonal.co.uk, a gift retailer with a £10m turnover. It was the firm’s third investment in a month, having ploughed £3.2m into business support firm Inspired Thinking Group and buying Adapted Vehicle Hire.
They will all hope Isis can work the kind of magic that took clothing retailer Fat Face from 20 stores to 97 – and made it a high street staple – in the five years before its exit in 2005.
Isis is a compact operation, with 55 staff spread over offices in London, Manchester, Birmingham and Leeds. Most of the 25 professionals in the company are directors in firms Isis has invested in.
It will usually buy between 25 and 75 per cent of a firm, a range Kolade says strikes the right balance of power between investor and entrepreneur.
The biggest problem most of the firms he invests in face is coming to terms with the daily grind of running a successful business. “I don’t think any entrepreneur goes into this game to run a business – they go into it in order to execute on some vision they have – that’s their drive. The running the business actually becomes quite irritating. Our job is to capture the best of what they have to give and screen out the rest.”
After three years he wants a firm to have arrived in a position where founders can give up their hands-on role altogether, providing input as a director or shareholder. After that, he says, his preferred route of exit is a trade sale.
He claims Isis has lost its investment in less than 10 per cent of cases over the last decade. The majority make a decent return and ten per cent see far higher multiples, as in the case of Fat Face.
The main hindrance to his work, he says, is government intervention: “In terms of regulation, it always gets worse.”
He campaigned against the hike in capital gains tax (CGT) in the run-up to the election; a “purely political” levy which he says will “destabilise entrepreneurship”. The government’s biggest mistake, though, was not fixing the rise in CGT for the duration of the parliament. “It could go up again next year. It creates an atmosphere where people don’t know what is coming.”
So how harmful does he think the hike has been? “I’ll tell you in ten year’s time. That’s when you will see how much damage has been done.”
Despite his campaigning, he says he is not interested in politics. “My job is to try and work around it. Politicians say ‘what can we do to help business?’ I say: ‘get out of the way’.
“What isn’t understood in government circles is that entrepreneurs are the ones who will drive us out of recession.”
Kolade passionately believes that most services can be better taken care of by the private sector – things like fostering, children’s services, adult care. “There’s no need for these things to be done in the public sector. The private sector can do it cheaper, more effectively and more efficiently,” he says, banging his coffee cup on the table top to emphasise each point.
“The next revolution will be in that. And I’m looking forward to it.”
He says the squeeze in public spending should be used to drive opportunities to the private sector, where small enterprise can take up the slack and drive the economy. Whether it will achieve this depends on how the government manages the cuts and whether businesses have the confidence to keep borrowing.
This is one of his major concerns about the UK economy – that the reputation of debt has been irrevocably tainted. “People are thinking about debt in the wrong way – debt is OK. Companies running with cash in the bank are inefficient. In order to grow you need to borrow – because then you are betting today for tomorrow.
“In the latter half of the last financial cycle it got out of control but I challenge you to find me anyone who hasn’t benefited from debt. Anyone who has bought a house, retailers, governments, everyone.
“It annoys me when people say leverage is bad – it’s what has built the entire civilisation we live in. But It usually takes a generation for people’s attitude towards debt to change.”
Banks must play their part in encouraging borrowing too. Kolade says if lending doesn’t pick up soon, a “whole lot” of businesses will go bust over the next five years.
So how worried is he about the future? “I’m getting my children to learn languages just in case. They are learning Spanish – I’d get them to take up Mandarin but it’s just too complicated.
“The aberration in the last 2,000 years of economy is the dominance of the west. Population has always been the driver of wealth but the industrial revolution and, to a lesser extent, slavery, negated that. What we’re seeing now is a reversion to the norm, with China and India being where the wealth is. Now we’re in the information age, they are the places that will benefit, not here.”
The challenge, he believes, is for politicians to learn to trust business – and quickly: “You politicians in Europe – do you understand what our children will be inheriting if we carry on as we are?”
But it isn’t all doom and gloom for the UK. Kolade says he has seen a cultural shift in recent years. “The dotcom boom and bust did a lot of damage but one thing it did was to legitimise entrepreneurship.
“This has fed into the TV programmes – the likes of Dragon’s Den and The Apprentice. These resonate with the public. I’ve got a good feeling about the British entrepreneur. We’re inventive, creative people.
“I was doing a talk to a bunch of 14 year-olds last month. At the end I said ‘So who wants to run their own business when they’re older?’ I was expecting one or two but more than half put their hands up. That has to be a good thing for business in this country.”
CV | WOL KOLADE
Isis: Kolade joined the private equity firm in 1993 and is managing partner of the business.
BVCA: He was named chairman of the British Private Equity and Venture Capital Association in 2007, after serving as a council member from 2002.
Barclays: He spent three years as a banker at Barclays from 1990.
London School of Economics: He is a council member and chair of the audit committee of the University and a director of the Social Finance Board (SFB).