ICON66 – Volume 6
Jon Moulton's First Blog – Musings On A Train
As I write this I am struggling down the West Coast Virgin line, a gift from a grateful Government of cash flow to a self-confessed purchase tax avoider with most of his empire now offshore!
I appear to be spending much of my time avoiding my third breakfast of the morning at 11.30am - harder than you might think as clear communication seems impossible on this train. The reduced requirement for decent service in a monopoly is self-apparent.
Turning to something else that barely functions; I inevitably start to think of venture capital in the UK.
The institutions which are pouring money into the private equity world are putting nearly all of it into leveraged buy-outs, not into funding venture capital and generating growing businesses. Why not? Well generally it's simply that they've got very tired of poor (often non-existent) returns from their previous investments.
So Who is Keeping The Game Going?
VCTs are making a very good living, with the compliment of lots of dough from Mr Brown - and mostly trying to back the lowest risk deals. There are few quality players here:
* Government
agencies are
mostly conduits
for funding
lost causes
and meeting
government
targets. Extremely
rare for money
to be well
used.
* University
spin-out agencies
are a bit like
stage schools
which generate
hundreds of
hopefuls, most
of whom will
never grace
us with a performance.
These agencies
are measured
by set up numbers
and money disbursed
(destroyed)
rather than
by success.
* Angel clubs.
There have
been more failures
than successes
so far - but
these are not
hopeless. Some
are learning
by surviving,
but even they
are backing
more and more
buy-outs.
* The individual
investor. These
are in it more
for the fun
and excitement
than for investing
for gain. Mostly
their behaviour
uncomfortably
reflects the
regular attendee
at the dog
track. The
existence of
the odd winner
encourages
the punters
to keep going
even though
they really
know that the
odds will get
them in the
end!
Sometimes
I wonder why
someone as
clearly logical
as me invests
so much in
venture capital.
I must think
about this
when I get
some time...
...but this
just leads
my thoughts
into a fascinating
paradox. Normally,
if less money
is being invested
in an area
then returns
start to rise...
...but they
haven't...
...and the
suspicion must
be that even
the current
trickle of
investment
(c.5% of total
private equity
investment
in the UK into
venture capital)
is too much
for the tiny
population
of gainful
investments
buried in a
sea of rubbish.
Would more money poured into venture capital generate more good deals? Some logic and perhaps better management teams would be attracted to a larger funding pool; better equipment and science could also be available.
But a lot of this could be achieved by concentrating the existing funding if it were focused on fewer, larger deals with greater potential. We could cut university spin-outs from hundreds of tiny deals per year with the average life expectancy of a mayfly to a score or two of bigger deals with good prospects and less scrabbling for funding their growth.
After all, US venture capital deals often use a lot more capital. And the US does do a lot better.
Perhaps we need a new generation of players. Recently I have begun to notice that the average age of venture capitalists has gone up a lot. This must reflect both the intelligence of youth in avoiding a dodgy area and the fact that, in general, habitual mature venture capitalists are unemployable.
At the very
least, I need
another involuntarily
extended trip
on Virgin to
figure out
how things
could be done
better in venture
capital...
and in addition
to the other
problems with
the train journey...
...the toilet
door won't
shut!
