Why now is the age for private equity
THE venture capital and private equity industries had a bruising time during the credit crunch. But now that banks are less willing or able to lend they have found some good investment opportunities.
Mark Lilley’s business Abokado, a takeaway lunchtime chain with six branches, recently benefited from a capital injection from private equity group Kings Park Capital to fund another 20 shops. Likewise, my-wardrobe.com, the online fashion retailer shunned by banks when it was formed in 2007, also secured £6m of funding from Balderton Capital this year.
But what is it like to have private equity partners? “I met some stuffy private equity funders, which wouldn’t have worked well at all. The relationship we have feels like a partnership. We are all similar ages, from similar backgrounds and with similar attitudes. That helps,” says Lilley.
The industry has changed in the last couple of years, says Simon Clark, managing partner at Fidelity Growth Partners and chairman of the venture committee of the British Venture Capital Association (BVCA). “Firstly, there has been a clear, noticeable improvement in the standard of companies being set up here,” says Clark. “The second thing is that more successful entrepreneurs are helping the next generation,” he says. This can be a fountain of good advice for young companies. For example, the founders of Skype launched a $165m venture capital fund called Atomico back in March.
The recession has also helped to sift out the wheat from the chaff, making it easier for venture capital to find good investments: “Businesses have been built in a tough environment, which makes them stronger,” adds Clark.
The rapid pace of innovation these days also makes for interesting opportunities for venture capitalists, says Patrick Reeve, the managing partner of Albion Ventures: “Change is a great incentive for new businesses, which is what we like.”
But standards have risen. Unlike during the years of plenty, funding is now only going to the best quality companies. Lilley says that Kings Park Capital chose Abokado because of its scalable business model and strong management team. “After all, it is management that delivers the business plan and if necessary steers the business through difficult or unexpected times.”
If this is the age of private equity funding, then make sure your business is well-positioned to take advantage.