Knowledge-sharing and collaboration transformative for businesses
When entrepreneurs meet a private equity investor, it is not the cash that they should be focusing on, but everything else that investor can bring to the table, says David Issott. “Cash is a commodity at the moment. And if an investor is looking for a 30% return on their investment, it is also quite expensive”, he told guests at the Stonehage Fleming Family Investment Conference in London last week, during a Q&A with Meiping Yap, Director of Private Capital, Stonehage Fleming Investment Management (SFIM).
“We are about partnering with people and relationships,” said David, who is a partner at Hg, a private equity investor with around £10bn in funds under management, targeting software and service buyouts primarily in Europe and in which Stonehage Fleming’s Private Capital team is currently invested. “We try to work out the nature of the person that we are working with and complement that individual”.
David’s core focus is on healthcare technology and services businesses. Of the 16 investments in Hg’s Mercury fund over the last seven years, 13, he said, have been founder-led deals. “Where a founder is in place, we have always partnered with them”, he said.
“In our sector, you often get a technologist as a founder. In that case, you can be pretty sure the product is good. On the other hand, the commercial ‘go-to-market’ might be weaker.” Equally, said David, you might have a more commercial person who has built a business to answer a particular business problem that they are trying to fix. “Those businesses tend to have a great way of dealing with the problem but you sometimes find that the technology is weak.”
This is where collaboration is key. David advocates a culture of knowledge sharing and the value of bringing operational knowhow to an investee business. “As well as having a deep understanding of the sectors we focus on, there are also 30 companies that we are partnered with and, between them, there is a lot of intellectual property (IP) to go around. We have a strong focus on operations and seek opportunities to bring a great bit of IP from ‘over there’ into the companies ‘over here’, and vice versa.
It is this combination of capital and the specific expertise from private equity investors that allows a business to reposition, said David. “Capital is the easy part”, he said. “It is everything else you bring that makes the difference”.
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