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6th November 2009
CAT.219
Private Equity (Birmingham Post)
Richard Bucknell, the newly appointed Fund Principal of the £30m Catapult Growth Fund (CGF) takes a look at the role venture capital has in fashioning a more innovative economy by investing in the most promising companies and technologies of tomorrow.
The strength of the UK economy was historically built on a large and successful manufacturing base which - as everyone recognises - has dwindled away to such an extent that we are now principally a service economy.
In recent times we have seen our manufacturers farming out high volume, low tech products to low-cost economies such as China, the Far East and India, where such items can be produced more cheaply and efficiently.
This has, of course impacted on jobs within the sector both regionally and nationally, but there are still major opportunities for existing and new players within the technology arena, particularly with the world increasingly focusing its attention on the environment and energy. Long term global macro issues such as these don’t go away whether the economy grows or shrinks for a period.
There is, in my opinion, a real opportunity for UK plc to embrace new technology and become more innovative – after all we have the entrepreneurial culture and intellectual resources to do this, but we need to act now whilst we have an ‘edge’ over the rapidly developing low-cost countries whose economies are evolving rapidly and where the skills to develop and exploit new IP will soon be added to manufacturing efficiency and low-level outsourcing.
If we can re-invigorate our manufacturing sector – not just by creating products and retaining the intellectual property rights - but by actually producing them here, we can generate jobs and with this comes wider economic benefits. It is a sad indictment that there has been an absence of any significant domestic UK manufacturing capacity in the wind power generation market, despite being one of the countries best suited to exploit this natural resource.
For young businesses looking to accelerate their growth, an injection of capital is often the most effective way to achieve this. Every year Venture Capitalists – like Catapult – see a very significant number of businesses seeking investment, but only a small percentage of these will go through to completion.
Management teams seeking investment need to look at how best to present themselves to potential funders. They should highlight the business opportunities open to them, demonstrate what they have achieved to date and how their future plans might be realised; and how an injection of capital from a VC will enable them to deliver their goals.
One of the biggest challenges for very small, young businesses is making the most of a good product or idea. Very often, they lack the experience to fully commercialise the opportunity.
Venture Capitalists are looking to invest in entrepreneurs with great ideas and viable business potential. Entrepreneurs may be very product or technology focused, without necessarily the same grasp on wider market and competitor issues. Whilst not necessarily experts in all the areas in which they invest, VC’s are invariably aware of what it takes in terms of management and operational infrastructure and how a company’s proposition is commercialized in order to exploit fully the potential of an enterprise and work with the entrepreneur to maximize value creation.
Enterprises are likely to need help through the life-cycle of their business. ‘Start-up‘ concerns are often backed by Business Angels and individuals, then as the business moves forward to it’s next stage of development, additional backing may be sought via venture capital. Finally, as the business expands it may seek further investment through private equity and, beyond that, capital markets.
It is also important to recognise that as a business develops it will encounter new challenges both from a structural and management perspective.
Growing businesses sustain growing pains! Business acumen, together with great ideas and innovation, need to be married together in order to create a successful commercial venture. Many good ideas don’t get off the ground as they have not been managed and brought to the market in the right way – the best technology doesn’t always win the day! A good example of this was the fierce competition between VHS and Betamax video recorder formats. VHS won the battle even though it was generally recognised that Betamax was the better technology.
There’s a lot going on in the VC space at the moment. It’s an area where the public sector, both regionally and nationally, is a major source of funding. Currently, Chris Rowlands, the former chairman of 3i’s operation in Asia, is conducting a UK government review into growth capital funding for SME’s. The review is looking to clarify the nature and extent of public sector involvement in venture capital where there is relatively little private sector money at the smaller end of the market.
At the same time, the Government’s recently announced Innovation Investment Fund, which hopes to ultimately leverage its initial £150m commitment into a £1bn 10 year Fund is a positive signal of support for technology-based innovation-led growth markets.
Given the reliance on the public sector it’s important for the VC community and the businesses they support, that these initiatives / reviews are concluded promptly and begin to deliver against their objectives, without being subject to too much in the way of political vagaries.
If the environment for investment is sufficiently conducive, VC’s like Catapult are ready and willing to invest and the future for the UK and its innovative and entrepreneurial companies is optimistic.
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For further information contact Richard Bucknell at Catapult Venture Managers on 0121 616 0180 or 07730 622122 or Paul Shrimpton at PSPR Ltd on 0121 354 7311 or 07979 505322.
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