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Now is the time to pair patient capital with ambition

BGF News 10.17.2018

It can be all too easy to get caught up in the negativity that surrounds the world of business. But peel back those layers of commentary and the figures can, sometimes, paint a different picture.

Data released this year by Beauhurst shows that equity investment into British high-growth businesses soared to record levels. In all, £8.3bn was invested during 2017, more than double the previous 12 months. Over 80 per cent of this total came from overseas investment, which reached £5.87bn last year, compared to £2.05bn in 2016.

Brexit has been having its impact on business and consumer confidence, as noted in PMI surveys and other indicators. At the same time, however, we would do well to consider the positive attitude displayed by Boris Johnson this week, when he called Brexit an opportunity for “hope, not fear”. The country has in fact been riding a wave of foreign desirability in our growing businesses that has passed almost unnoticed. It seems that overseas investors are excited about the future of the UK economy and, perhaps, future trade deals with the likes of the US.

But investment isn’t being directed into just any UK businesses – it’s heading to the high-growth and the ambitious, those that are working hard to be globally competitive, innovative, and resilient. And, if the supply of equity investment increased in 2017, so too did the demand. Clearly businesses don’t have the desire to wait until Brexit unfolds further before moving forward with their plans. They’re marching now. We’re seeing this across our portfolio, from earlier-stage businesses, such as Gousto, to growthstage companies such as Gymbox, and listed businesses like Accsys Technologies. It is encouraging that this sentiment and ambition is matched by investors offering more support than ever to growing businesses, and this trend isn’t exclusive to institutional investors. Crowdfunding – through platforms such as Crowdcube and Seedrs – has bounced back after a decline last year, suggesting greater appetite from retail investors too. It’s good news that investment is up in 2017.

But what’s the caveat? First, there is more foreign appetite than domestic funding. That needs to be redressed, and quickly. The number of government-backed deals continues to reduce, and we’re also seeing the impact of the EU-aligned European Investment Fund drying up. A larger pool of domestic capital exists in the UK, but there is not enough efficacy in deploying it. While local pension funds, for example, possess large groupings of investable capital, they are currently organised in a disparate and largely inefficient way. They lack scale: consolidated into one mega-fund, they could be hugely effective. Second, a deep pool of capital isn’t necessarily a patient pool of capital. In business, patience is not only a virtue in a potentially volatile environment – it is vital. Patient capital exists to help management teams realise the best possible value for their business – and that can take time. That doesn’t mean there’s a conflict between patient capital and exits. Rather, patient capital allows management teams to shoot for the right type of exit, at the right time and the right price for the entrepreneur and the economy. It’s an approach that’s gaining traction. BGF did more deals with more companies specifically seeking investment for growth and expansion than any other investor in the world. And yet, we invest in companies headquartered in the UK and Ireland exclusively.

That shows that, right now, in no other country around the globe is there a better match between the domestic supply and demand of patient capital into ambitious businesses. And yet, the industry as a whole remains sub-optimal. If we can capitalise on this moment in time to properly mobilise significantly more domestic capital, then we could have an unprecedented impact on Britain’s high-growth economy.

This article was first published in CityAM in March 2018.