The Business Growth Fund one year on
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A year after the formation of the bank-backed Business Growth Fund, Hunter Ruthven speaks to investment director Richard Bishop to find out how the firm has gone about selecting its investments and what the future looks like for the £2.5 billion fund.
What have the main criteria been for deal selection?
We are looking for fast-growth companies and ambitious entrepreneurs, that is at the heart of what we have been doing and the companies we have backed so far. The Business Growth Fund [BGF] is committed to investing across a range of sectors, but the aspects which have underpinned the companies we have backed, whether they are in the toy or telecoms sector, is an ambitious team, a clear strategy for growth and a need for capital.
What kind of team have you assembled to allow you to do this?
We have just over 60 people in BGF now, and it has continually grown by the month. The fund has recruited a range of experienced investors from across the spectrum, some of which have worked with very small companies and others with larger ones. Our DNA is a mixture of a lot of skills from across the private equity, growth capital and VCT area.
Have you looked to recruit anyone with a regional expertise?
Yes, we have six regional offices, and that allows us to invest across the UK. And all of those teams are led, and have a senior team, that is very experienced in that region with great networks as well.
How have you found the process so far; has it been hard closing deals?
There are a lot of fantastic growth stories across a huge range of sectors and now is a great time to be raising equity with entrepreneurs less interested in raising too much debt. So finding great businesses to back has not really been a problem.
What have your standout deals been?
A really good example is Wow! Stuff, a toy business we backed. It has an incredibly exciting entrepreneurial innovative culture. They have done a great job starting the business from scratch and now is the time they want to become more international and broaden their products by taking on an investor that can provide them with the capital to help them develop.
How will your investments be nurtured now?
Each investment has a BGF employee that goes on the board as a non-exec director. That is someone who has worked with the company during the period of getting to know them so maintaining that relationship is really important for us and for the businesses. We also look to introduce them to some really high quality non-executives who can bring something extra to the board. We are also very happy to provide further investments and I think over the next few years we will do that a lot.
How many deals a year is a sustainable number?
We are talking about trying to build a business capable of doing 40 investments a year, which will mean we have made a significant contribution to growing the market. Clearly it is going to take us a little while to get there but with the momentum we are building at the moment we can see that as being a really credible target. Each of the six offices that we run have all made an investment already and it is very important for us that we invest across a whole range of sectors and all over the UK.
Are you able to have a more UK-wide scope than other investment firms?
That’s definitely the case and is the reason we have invested in the people and the infrastructure we have as a lot of these companies are very young and rely on their local networks for advice and funding, so we have to go where they are.
Of the closed deals, what has the balance been between the BGF approaching them and the business coming to you?
It has been a mixture because a business such as M Squared Lasers researched us and approached us. GCI Telecom had long since stopped taking calls from private equity but was very keen to work with us, as we are different. We have also had some introductions from the banks and some from corporate finance advisors, so it has been a nice mix.
Is there an opportunity for the BGF to involved with companies which had not really considered giving away an equity stake as a way of pursuing growth?
Yes I definitely think that’s the case. One of the things we have found is that when we get to meet these businesses a lot of them didn’t know something like the BGF was out there. They often want the capital and support but don’t want to lose control, and when we tell them that is exactly what we can do we tend to create some really good affiliations.
What is it like being involved with a fund which is so much under the public microscope, and how should it be judged?
I think given the genesis of BGF it is fair enough that it is under the microscope and it is our responsibility to make sure that we back a lot of good growth companies and make them better businesses and have some good success stories. All of us joining the BGF, even right from the outset, knew it was a high profile company but that allows us to get our message out there to the entrepreneurs we want to invest in.
The important thing is that the BGF is still here and thriving in 10-20 years time, so we don’t see this as a two or three year mission to build a few companies. This is about building a business that can support UK entrepreneurship long-term.