‘If you’re looking for a quick flip, find a burger joint’
Photobox, Privalia, and myOptique have all exited recently for a combined value in excess of $1 billion (£770 million).
The investments delivered meaningful profit to Highland Capital Partners – the funds from which the firm I co-founded, Highland Europe, was born. The combined revenue of the three companies at the time we invested was approximately $50 million, and all were burning cash. In 2016, together they will deliver close to $1 billion in revenue and significant profitability.
Photobox, Privalia, and myOptique have between them created over 2,000 jobs across the technology, customer service, operations, manufacturing, and finance spectrum in major tech centres like London, Barcelona, Paris, Stockholm, Milan, and Munich, as well as in less obvious satellite locations like Swindon and Kiel.
Success stories like this inevitably feed a perception that Venture Capital and Growth Investment are a short-term game; that companies such as these have a string of potential buyers poised to knock at their door – and all we have to do as investors is throw capital at them and wait two or three years for the return. The reality is very different.
Like all investors, I believe that we add tremendous strategic value to the businesses in which we invest, including committed and informed board participation, assistance with recruitment at exec and board director level, expertise in financial planning, sales and marketing, and scaling, and much more besides.
Yet that is the easy part of the job – table stakes, you might say. Over the years I have learned that ‘soft skills’ – which are rarely acknowledged, much less mentioned in a deal situation – generally have more impact on the likelihood of a positive outcome for the entrepreneur and their business.
Soft-skills take many and varied forms. One example is the investor board member’s ability to serve as founder ‘coach’ and company cheerleader. The only thing I know for sure upon investing in a company, is that it won’t go exactly to plan as laid out in the initial pitch. During fifteen years in the venture growth industry and ten years in operating roles prior to that, I have yet to see a company that hasn’t at some stage hit (often severe) turbulence. Knowing that these moments will occur, one should always be ready to help the founders and management address issues as they arise. When founders find themselves in a dark place, it is my job to pick them up, dust them off and point them forward again.
This was the case with Photobox, when we rebounded from a “near-launch” IPO process to sell the company successfully within eighteen months. It was also the case for Privialia, which ultimately bounced back from a failed acquisition in Germany to a successful exit. myOptique, meanwhile, simply took longer to scale as a business than initially anticipated, given the challenging nature of the market in which it operates and its relatively slow transition from off to online.
Second to our flag-waving role as investors, I know that if I can improve board productivity as well as the quality of discussions and decision-making, I am doing an effective job. Having the ability to tie-break in an informal manner – as opposed to board-vote manner – is critical. Helping to bring a board to consensus with persuasive arguments and relevant data always wins out over hand-waving, table-banging, or, worst-of-all, founder-bashing.
A third soft-skill is team-building. All the businesses in which we invest are growing at prodigious rates and the main challenge to scalability is recruitment of executive and technical talent. All high-growth businesses have a voracious appetite for new talent; yet matching the right individual with the right company and role can be a tall order. The culture of a business is primarily shaped by the founder’s core values, behaviour and his or her choice of recruits, which is why the ability of the investor to identify with these can be very helpful when it comes to successfully sourcing and hiring on the company’s behalf.
Such soft-skills help shape a company, but ultimately value is built over the long-term by doing many things right: building your team to win, shaping your board and investor syndicate appropriately, scaling as though you are going to IPO within three years. Just don’t expect it to be quick. In my experience, it takes seven to ten years to build a meaningful and justifiably valuable business from scratch.
Whether you sell via IPO to public market investors or by M&A to a strategic buyer or private equity, you should prepare the path to exit long in advance by building your company in a high-quality manner, assembling a cohesive and fit-for-purpose group of investors, implementing impeccable financial and KPI reporting and best-in-class board governance, selecting high-quality auditors and legal advisors, and most importantly building a team that is laser-focused, execution-minded, and deeply committed to the cause. Get all of that right, and the chances are you won’t have to wait long for that knock at your door.