Unfortunately the whining of Europe’s venture capital GPs is beginning to get just a little bit tedious. If they’re not moaning about the fact that no one wants to talk about what they do, then it’s down to the tools they have to work with; the lack of a European equivalent to NASDAQ (the cure to all European venture capital funds’ woes, some would have you believe), or that there aren’t enough entrepreneurs in Europe (a more questionable complaint as time goes on), and so on?
Time for some introspection?
Connor Kehoe of McKinsey & Co gave the keynote speech on day one of the conference, stepping in when the UK Chancellor the Exchequer was a no show. Kehoe presented some detailed research that attempted to analyse why some deals were more successful than others. And later, in a panel discussion he admitted that research done on buyout firms clearly found that different partners within a partnership approach investments and their management in different ways.
Nothing suprising there, but what it comes down to is there not really being a true house view for many firms. Most of the McKinsey research, at the risk of oversimplifying the plethora of complex bar charts and graphs (beautifully presented in PowerPoint of course,) boils down to how hands-on the GP leading the transaction is within the first 100 days. Again, no great surprise.
Perhaps the obvious next step (although there wasn’t the time, nor, probably, did Kehoe have the remit to suggest it), is for buyout firms, and better still their ailing venture capital compatriots, to do what large corporates do in similar circumstances and pay the strategy consultants to come in and answer the questions they already know the answers to, but don’t have the stomach or mandate to voice alone.
The question being, which GPs are either getting it wrong, why and how often and which ones are getting right and why and how often. If they could identify the critical factors to getting it right and they come down to solid replicable disciplines then firms could institute their own best practice and would probably have something interesting to tell their existing and potentially next time round investors (many of whom should fall into both camps.) Obviously many firms already spout the best practice line but getting an independent assessment would enable them to tell which GPs actually successfully instituted it and how as opposed to those that merely paid lip service. This involves getting to understand the relationships GPs have with members of their own team (analysts, associates), external resources and, most importantly, interviewing investee companies management in depth. All in all, not a job to be undertaken either lightly or in-house.
The problem is that this wouldn’t be a bloodless exercise, so firms would go into it knowing there may be investment partners that either need to go or need radically to change their remit within the firm so that they can do something that adds greater value than what they are currently doing.
Not only would such an exercise have the potential to be divisive, it’s also likely to be unpleasant during the period of self-examination and conclusion-drawing and then there is the issue of LP unease that automatically arises as key personnel are changed.
Consulting key LPs beforehand would be one route, but also one that is likely to prolong the agony within the firm itself. That said, many venture capital firms simply aren’t going to survive as they stand, and identifying where the weaknesses are might give them a chance of survival and LPs something believable to buy into in a subsequent fund raising. It would sure beat all the grumbling for those that have to listen to it, which frankly ends up being the LPs, who probably already feel like the injured party and so disinclined to be sympathetic.
Some legitimate grumbling, however, centred on the choice of venue. The London private equity market, in the main, rather let the side down, with the view that a great many had registered and then pushed off back to their offices, diminishing the conference’s networking value. But perhaps they weren’t keen to hang around the Edgware Road. There’s nothing wrong with the Edgware Road per se, there’s just not much there except the A40 heading out to Oxford. Now that would have been a good place to hold the conference, or just about anywhere within an hour or two’s travel from central London where skipping back to the office wasn’t an option. Still, it’s likely the London private equity market will redeem itself in this regard next year when EVCA holds its annual symposium in Monaco?
Quote of the conference
Taking part in the panel called ‘Relationship building, LPs & GPs: is it a real partnership?’, Rhonda Ryan of Insight Investments noted the lack of knowledge about the private equity asset class had resulted in her having one conversation in which she was told, “private equity always fails because they always end up selling.” If only, some of our European venture capital GPs may well be thinking?