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Q&A with a Venture Capitalist - CVC Ventures

Wholesale Investor Director, Steve Torso, interviews CVC Ventures about where and why and how they invest.

Q&A with a Venture Capitalist - CVC Ventures 7 September 2009
Q. As a Venture Capital firm, what kind of deals do you look for?
A. CVC Limited (CVC) began in 1984 as an MIC (Managed Investment Company) but it has long since broadened its operations to become a Listed Investment Company dealing in listed and unlisted equity as well as property and funds management.
 
We tend to look for compelling management within our investee companies. These are companies which are serving a market need with a genuine ability to maintain, defend and grow their market position. We look for something solid about the offering that gives them the ability to grow that business.
 
Venture Capital and Private Equity deals are but one of our areas of focus. Venture Capital deals characterised the very early stage of our development. Today these kinds of deals are only done through our CVC REEF and CVC Sustainable Investments funds. These funds have picked up excellent opportunities in the Energy, Food and Waste Management sectors.
 
In terms of CVC Sustainable Investments, we look for a market opportunity that ensures there is a place for the product or service offered. Especially when Government support exists to support an absolute need to roll out the product or service. This type of situation gives real strength and viability to the opportunity leading to the potential for solid gross margins and returns on investment.
 
Q. Do you have a specific niche or industry which interests you?
A. CVC does not limit itself to a specific niche. We look for investments in companies that offer strong margins. We tend to be a generalist but we have developed areas of expertise. Over our 20 plus years of operation we have developed a ‘nose’ for what is good – what is worth spending time on and what is not worth spending more time on. One of these areas of expertise has been that we have been able to go into well researched opportunities in the sustainability sector.
 
We try to work with companies which we can help grow, expand and consolidate. We like to buy well, add value well and sell well. Our key focus is to generate above average returns to our shareholders.
 
Typically we aim to buy in at a private company multiple and sell at public company multiples. As we add value that can lead to a sale price that could be ten times the original purchase price or even more.
 
Q. How has the turbulent market impacted valuations, and how have you been able to benefit from that?
A. The current market conditions have made many vendors see things in a far more realistic light. A lot of people under stress have been more willing to talk to us compared with a year or so ago and this means that the opportunities we are able to look at have very much increased in both quantity and quality.
 
Q. What sort of percentage returns have you been able to achieve through investing in private companies?
A. We have been able to generate returns for our investors of better than 15% for almost twenty years and this includes some investments that have stellar performance where in some cases the returns have been around 25%.
 
Q. What are the top criteria you seek when investing?
1. Top of the list comes the management of the company being considered for investment. It usually starts with a compelling individual who knows what he or she is doing and has the ability to assemble a strong team. The type of person we are talking about is an entrepreneurial individual. It seems to us that this ingredient, the compelling individual, is present as the key factor in about 100% of the deals we would become involved in.
 
2. The next thing is that the offer has to be fairly priced.
 
3. The business model needs to be robust and scalable without requiring too much additional capital. We look for good margins, defendable positions and rapport. On this latter point let me say that it is a bit like a marriage … you have to feel like you are working with friends because you are going to be working together for a long time.
 
4. Lastly and very importantly we look for a natural group of people who are going to be in the market for the asset when the time comes to sell it.
 
Q. Where do you see the opportunities over the next few years?
A. We are seeing opportunities everywhere. Approaches are coming in daily from would-be vendors. The key areas that we will be scrutinising are better pricing offered by vendors and the opportunity for CVC to be actively involved.
 

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