Many have become accustomed to seeing buyout specialists ruling the roost at the British Venture Capital Association (BVCA). Not with their most recent appointment however. Unusually for that august organisation, the background of the new chairman and spokesperson, Anne Glover, is in venture. And not just everyday venture either, but high tech. That's one reason why people sat up when the appointment was announced.
Glover herself thinks the fact that her appointment is a surprise to some is a shame: “After all, the first ever chairman of the BVCA, David Cooksey, was a tech investor,” she says smiling.
Far from being intent on banging the technology drum though, the new chairman is keen to emphasise the harmony that exists within the BVCA and the fact that it is a representative body of all segments of the UK private equity industry, unlike its North American counterpart, the NVCA, which represents only venture firms.
The co-founder and chief executive of Amadeus Capital Partners, the London- and Cambridge-based venture group, believes that her appointment is a good indicator of how this unique collection of diverse members can operate as a collective: “We [the BVCA] speak on behalf of a diverse group on issues that matter to all of them: tax, regulation, economic impact. These are universal themes and impact on the private equity community as a whole.”
Her confidence in her ability to speak for a membership that comprises buyout firms, early-stage specialists, mezzanine vehicles, venture capital trusts, seed capital investors and mid-market firms, stems from the triumvirate structure that the BVCA operates at the upper echelons of its management structure. The presence of a vicechairman, chairman and past chairman, who work closely together, ensures a continuity of message and allows the BVCA to develop themes and policies over a number of years, rather than having to change tack each time a new principal is appointed.
The LSE needs to claim the position of being the primary public equity market for private equitybacked businesses to exit on
Aside from the ongoing tax, regulatory and business education issues with which the BVCA regularly concerns itself, Glover identifies two additional themes that the BVCA is researching at the moment, with a view to developing a strategic position.
The first is looking at the role of government procurement regulations. The Association is keen to help ensure that smaller UK companies with innovative products and services – many of whom are venture backed – can compete for government contracts alongside larger (often non-UK based) corporations.
MAKE THAT IPO HAPPEN
The other key theme for the BVCA, and one which is clearly also close to Glover's venture-oriented heart, relates to public equity markets and in particular the important role London's stock market should play within Europe. Declares Glover: “In Europe, London is seen as the major financial centre and we think the London Stock Exchange (LSE) needs to claim the position of being the primary public equity market for private equity-backed businesses to exit on.”
Glover believes that a thriving public equity market is a necessary complement to an active private equity market across Europe, and both should be driven by the UK: “Most of the pan-European funds, whether buyout funds or venture funds, are located in London. They may have other offices in Paris or Milan, but we're taking the success of the UK private equity industry and Europeanising it, which is great.”
Glover asserts that the most successful investments frequently exit through a listing, whether on the buyout or venture side. But it is in the world of venture in particular – where the “home run” exit can transform a fund's IRR – that having a strong public market exit route is seen as especially key. “London is already seen as the deepest and most senior public market in Europe and the place where large buyouts can successfully exit. It's critically important that venture firms can exit there too.”
The demise of the Neuer Markt, the German high-tech stock exchange set up to mirror NASDAQ in the US, doesn't unduly concern Glover. Her belief is that the LSE should, and will, be interested in listing European companies that previously would have looked to the German market for an exit route.
In the same way that the BVCA sees the UK private equity industry as being a portal for Europe, it is working with the LSE to promote the exchange as an exit route for private equity-backed companies from across the region and beyond. Glover describes a recent meeting with the LSE, about seeing how they might work together in this field, as “very positive.”
The importance of a vigorous stock market is not just a venture issue however; it has as many ramifications for buyout funds as they acquire ever-larger assets. Trade buyers are becoming thinner on the ground, not least because both national and regional competition rules mean fewer companies can buy such private equity-backed businesses.
The price tickets on some of these assets is also a determining factor as to why only a small number of trade buyers can muster the funds to bid for them. This month's announcement by buyout giant CVC that it intends to list UK auto parts retailer Halfords on the LSE for a targeted £900 million is a good instance of this trend. In Glover's view, these are all reasons why an efficient listing process, with good liquidity and good investor coverage of the LSE is equally critical for buyout funds, as well as it is for venture investors.
Glover becomes notably animated when discussing the merits of the LSE as a means by which European technology companies can be helped to grow in the later stages of their existence. Here she is deliberately positing an alternative view to the belief held in certain quarters that European technology firms need to be listed on NASDAQ to truly prosper.
Glover acknowledges that some European tech companies have gone to NASDAQ and been successful, but her main concern with that route is that the UK and European private equity industries are not learning collectively about how to grow enterprises worth billions, not just millions, of euros. “If we want to export our ability to grow really big companies,” she says, “let's float them on NASDAQ. If we want to change the way we do business, let's float them here and figure out how to help them grow to be sustainably large enterprises.”
Glover also believes that while NASDAQ is the tried and trusted method for a US tech company to grow and develop, “it's not the established way for a European company.” She admits that investors in European private equity funds are sceptical about this concept, but maintains that floating venture-backed companies on the LSE and helping them develop is one of the major challenges for the UK private equity industry – and that the BVCA must be at the heart of that process.
IT'S ALL IN THE RIVER
Glover compares the way forward in this area – how the UK private equity industry can compete against its US counterpart – to an old Japanese proverb about how that country goes about improving its quality control systems: “It's like lowering the level of a river. As you lower the level of the water, you encounter a rock and you work on that rock. When that rock is gone, you lower the water level again until you encounter another rock and you work on that rock until it's gone. You keep on lowering the level until it's completely smooth and that's how you develop a high quality system.”
Glover applies the metaphor to the UK private equity industry in that it has made significant steps over the last eight to ten years, overcoming various hurdles along the way. Initially there was cynicism in some US quarters that the UK, while it had great technology, wasn't very good at picking the right investments, didn't know how to build tech companies and that UK companies had to be exported to Silicon Valley to be successful.
That hurdle has been overcome by demonstrating an ability to build businesses up to a certain scale through a combination of a better fiscal environment, mobile labour markets and better access to the global marketplace. The next challenge is to demonstrate to investors that Europe has a viable and durable public market exit route and that venture-backed companies, in particular, don't need to automatically turn to NASDAQ at that crucial, later-stage of their development.
THE BENEFITS OF FAILURE
While recognising the ongoing importance of trade sales as an exit route, Glover's (and the BVCA's) aim is to work closely with the LSE to ensure that an IPO on the exchange is recognised as a credible exit option. Inherent in this is a conviction that there is now a tremendous pool of managerial and entrepreneurial talent operating in Europe – and that these people are ready and able to manage the transition from a private to public company.
Like many people, Glover can see the negative aspects of the dotcom bubble, but she also believes there was a very valuable upside to that experience for the European venture market: “The bubble brought a whole bunch of corporate finance people over to Europe to do deals in the investment banks. When the bubble burst, a lot of them got fired and they then started up their own companies. So what we've now got is a number of world-class corporate finance boutiques growing up in London, that never existed before.”
The bursting of the bubble also delivered the kind of hard knocks to young entrepreneurs in Europe that has better equipped them to thrive, believes Glover. In her view this generation of 20-30 year olds – the entrepreneurs of the future – have experienced the kinds of rebuffs and failures that will help to produce a more robust venture market in the region.
While fundraising remains “challenging” for venture firms in Europe, Glover does not think that there is a capital “under-hang” at this point – where there is insufficient capital available to fund several rounds of financing let alone invest in new businesses. She nonetheless believes that it is important that the venture fundraising that is currently taking place is successful – not just for investment reasons but also for the credibility of the European venture community as a whole. Although she concedes that the tech sector is “under scrutiny” in Europe at the moment, Glover is quick to point out that as chairman of the BVCA her job is to promote the private equity industry as a whole, rather than focus on one specific sector.
In Glover's estimation, the BVCA doesn't always get sufficient credit for that particular part of its role: promoting the organisation and arguing on behalf of the whole industry and, despite at times widely-differing views of its members, engendering a camaraderie and esprit de corps that benefits the whole of the private equity community. This unifying influence, she says, becomes especially valuable in discussions with external bodies, including the government and other venture capital organisations.
Her unswerving belief in the importance of London as the hub of the European financial and private equity communities and her opinion that relationships with the LSE need to be developed further is not an argument for taking a localist approach, however. Glover's point is that there has to be a credible alternative to NASDAQ, providing growth companies and their backers with a real choice.
Glover hasn't yet spoken to her counterparts in Europe on this issue and appreciates that they may not feel the same way about her belief that London should be the central public market exit hub within Europe. But ideas for a European equivalent of NASDAQ don't hold much sway with the chairman of BVCA.
“You can't invent a pan-European growth market. Markets don't get created – EASDAQ [the ill fated attempt to launch a European equivalent of NASDAQ] proved that – markets work because institutions want to trade on them. We should work with what we've got and try and improve it, rather than create something totally new.”
The chairman of the BVCA is unlikely to have issued her last volley on this particular subject.