Funds: Intermediate closings Penta Capital double first

Penta Capital, the venture capital firm formed by five disaffected Scotland-based Royal Bank Development Capital executives in the autumn of last year, in May both achieved the first closing on its maiden fund and signed its first investment.

The first closing of GBP100 million (EURO162 million) was achieved via two GBP50 million commitments one from Bank of Scotland and the other from Old Mutual. Although signing on these commitments was not tied up until early May, Bank of Scotland was widely reported as having offered a commitment at the tail end of last year should the Penta venture get up and running. Both key investors have co-investment rights and Stephen Scott, who has taken on the fund raising/investor relations role at Penta for the time being, says that he is talking seriously to half a dozen other potential investors for this fund. He hopes to open the lines of communication with around 20 investors for future fund-raising exercsises.

Scott says of the fund raising experience – which Parallel Ventures latterly undertook for RBDC – that many people are struck by a need to invest in their own square box’ i.e., pan-European’ or technology focus’.

The five (disaffected thanks to unequal distribution of carry and management issues) were director Stephen Scott, associate directors David Calder and Torquil Macnaughton and assistant directors Rod Begbie and Mark Philips.

The first deal to be signed by the fund – which would likely have been supported by bridge financing from Bank of Scotland had fund commitments not been in place – is in one of Penta’s target areas, IT. In addition to IT & communications, Penta’s target sectors in the areas of buyouts and later stage investment focus are leisure and business services. The majority – over 60 per cent – of Penta’s deal flow has come off-market, straight from management teams. Scott attributes this in part to the comfort factor management teams derive from dealing with a firm that has gone through the new business process itself.

Scott says much of the attention Penta has received has focused on the group’s name. Although the Penta five shortly became four following the departure of Rod Begbie, the firm will soon be true to its name once more following the appointment of Craig Armour as the fifth partner. Armour comes from the merchant bank Noble Grossart, where he has been an Edinburgh-based director for four years. Scott says Armour has long been known to the team and his experience includes flotation and investment work. Scott expects the team to grow to seven or eight by year-end. Recruitment will be across the experience spectrum.

Another task at the top of Scott’s list in coming weeks is to formalise Penta’s network of advisory clusters which may yet end up resembling an industrial advisory board.

Rod Begbie and Joe McGrane – who was soon to follow on the heels of the departing Penta team from Royal Bank Development Capital late last year – have yet to resurface in the venture capital industry. Royal Bank Development Capital plugged the leadership gap with the appointment of ex-Warburg’s banker Mark Nicholls as managing director – see EVCJ February issue – and the recruitment of David Giffin from Bank of Scotland’s structured finance group to develop its private equity activities in continental Europe.