Meet the CA at one of Europe’s leading venture capital firms
Calum Paterson tells Robert Outram about working in the fast-moving private equity arena.
The private equity sector has evolved dramatically over the past two decades. Scottish Equity Partners (SEP), which was recently named by Preqin as one of the world’s most consistent, top performing venture capital firms, has also changed.
Calum Paterson CA, SEP’s Managing Partner since the business was created in 2000, explains: “Our investment model has evolved. We have moved from early to late stage venture capital and to growth equity for more established companies that are looking to scale. We also have an adjacent platform in technology infrastructure.
“Our evolution was in response to market developments, but we also wanted to concentrate on what we do best, which is working closely with the companies we invest in. Portfolio theory makes that difficult at the very early stage end of the market, as you can end up spreading yourselves too thinly.
“There’s always been a symbiotic relationship between venture capital and technology, but that has also changed a lot over the last two decades and the landscape is very different. Digitisation has had a big impact. It’s now possible to build companies on a much more capital-efficient basis than before. There’s more capital available today than at any time in history, but we have a strong preference for companies that use it wisely.”
Investment is more than providing capital
SEP has raised six funds and has invested in more than 160 companies, including – with a high-profile £1.5bn exit – online travel price comparison business Skyscanner.
Another aspect of SEP’s evolution is an increased emphasis on deal origination, with a specialist team now reaching out to business owners directly, not just reacting to approaches from those already in the market looking for funding.
Not everything has changed, Paterson stresses. He says: “We are a bit bigger, but most of the original founder team are still involved, which has been one of our key strengths over the years, as has augmenting it with some key hires. We have continued to specialise in technology, but have always believed that who you back is more important than what you back.
“Our starting point is always: is this a team that we can work with, and that we can help? For us, investment is definitely about more than just providing capital.”
This hands-on, relationship-based approach is one reason SEP, based in Glasgow, Edinburgh and London, focuses primarily on opportunities in the UK, although the business has also invested elsewhere in Europe.
Paterson says: “In terms of private equity and venture capital, the UK is the second largest hub globally. It’s also the largest and most attractive market in Europe for entrepreneurial companies. The immediate challenge ahead is to keep it that way.”
Skyscanner is one of a number of businesses from SEP’s portfolio that have achieved valuations of more than £1bn in recent years. It is by no means the only high-profile success story, however. Other exits over the past few years have included CSR, the Bluetooth technology company; Craneware, a healthcare software business; Biovex, a biotechnology company; and Matchesfashion.com, a leading multichannel fashion retailer.
Technology is a continuing theme, although many of SEP’s portfolio companies could be described as technology-enabled rather than cutting-edge tech in their own right. It’s no surprise, of course, that businesses with high growth potential are likely to have some kind of tech angle, and with an accelerating pace of change this is only likely to become more pronounced.
As Paterson puts it: “Technology innovation is faster than ever across the physical, biological and digital spectrums. I think we are in for a period of phenomenal disruption and, like all periods of great change, this will present threats as well as opportunities. Overall, I am optimistic about the benefits that can come from technology and I think the UK is well positioned, especially in areas such as AI [artificial intelligence], robotics and data management.”
Investment is not just about the numbers
Paterson has been working in investment for more than 25 years. He says: “Although I never intended to work as an accountant (which, as my colleagues will testify, is just as well) I am glad I did the CA qualification. As well as helping to develop financial skills, it builds a much broader set of foundations, including commercial skills and professional integrity.”
Paterson says the CA qualification is “a good stepping stone”, but he also advocates gaining other experience in business or industry first. “Investment is not just about the numbers.”
This year, he has an additional set of responsibilities as Chairman of the British Private Equity and Venture Capital Association (BVCA). The BVCA represents around 750 members including fund managers, institutional investors and professional advisers. It acts as an advocate for the sector and also provides training, research and market intelligence. There are approximately 3,000 private equity and venture capital backed companies in the UK, employing 700,000 people.
As BVCA Chair, Paterson has a governance role overseeing the organisation – one of his key tasks this year is to oversee the search for a new CEO to succeed Tim Hames. The role also involves being an ambassador and spokesperson for the industry as a whole.
Paterson says: “It has been very busy but a great experience so far. I have been really impressed by the depth and quality of work that the BVCA does, and by its high calibre team. I have also had the opportunity to meet many people from across the entire PE and venture capital industry. It’s a very diverse, non-homogeneous industry – large global capital firms at one end, all the way through to small early stage firms at the other. And lots in between. But that diversity is part of its strength.
“There is now something akin to a private equity continuum in the UK. Previously the only route to liquidity for private company shareholders would have been IPO or trade sale. Now there are private equity and venture capital investors available at all stages of a company’s development.”
In defence of the industry
One role for the BVCA is to defend the industry’s reputation, which has come under fire over the years. Some argue that private equity funding is too short-termist and, in some cases, highly leveraged deals can load investee businesses with unsustainable debt.
Paterson doesn’t agree: “As well as being a strongly performing asset class, private equity is a force for good and does much more than fund companies. It’s an engine room for economic growth and prosperity. It fuels value creation, delivers jobs and generates taxes. It also drives innovation. Much of the financing is long term, which reflects the very nature of the private equity and venture capital model. There is also now much greater awareness of the importance of responsible investment and investing for purpose.”
He adds, however: “The industry does suffer from some misconceptions. Perhaps partly because the ‘private’ in ‘private equity’ is taken too literally. The industry needs to do a better job of explaining what it does… the BVCA does a good job with this, but individual firms must take their share of the responsibility for positive communication.”