Aviva Ventures’ Ben Luckett discusses the role of agility, leadership and risk when investing in a fast-growing financial services company
Our research suggests that three particular attributes characterise fast-growing companies in particular: their spirit of collaboration, their focus on technology and their sense of collective purpose. Have you seen those attributes in practice?
Ben Luckett (BL): It’s really the first and the third attributes that stand out for me, because the ability to collaborate and that sense of purpose are really linked to being able to execute at pace – that’s what fast growth requires.
How do these companies execute at pace?
BL: You need a certain amount of process that means things don’t and can’t get in the way. You need the right people who understand what moving at pace actually means and how to do that because part of it is people’s ability to get others to do work at the same pace. The classic thing on process is the massive change that we’ve seen over the last few years around agile working and moving from a more traditional sort of waterfall approach to a much more agile process.
Within financial services, the environment needs to be conducive to moving at pace, particularly from a regulatory standpoint, which is why we’ve seen the Financial Conduct Authority (FCA) developing the sandbox because it recognised that one of the things that defines moving at pace is the ability to test and learn rapidly and deploy things iteratively rather than once every six months.
What dangers do investors need to be wary of with fast-growing companies?
BL: The question I always look at is whether the business has the right balance of people to sustain its growth – do they have the right leadership team in place, bearing in mind that the founding team may not have the right capabilities to grow the business to the next stage, and can they recruit the best people?
What are the big risks facing fast-growing companies in Europe right now?
BL: Some of the risks are going to be sector-specific but one challenge we see is with raising later-stage growth capital. There’s a great deal of tax support for early-stage investors, but that isn’t necessarily the case later on and that means the appetite can sometimes be lessened.
Talent is also a challenge. In the financial services sector, you need to ask whether there will be mismatch between the level of talent required – particularly in some of the new and emerging technology fields such as machine learning. Are companies getting the right balance? And that’s quite a significant risk as things grow and go forward – the gap between talent, capability and need.
What about Brexit?
BL: I do think it’s becoming more challenging, though one quality of many fast-growing companies is that they are able to manage ambiguity. Still, I spoke to one fast-growing financial services company from Germany recently that had been poised to expand into the UK but their thinking had changed on the back of Brexit uncertainty.
I also believe it depends on your business model, on your market and, for really fast-growing companies, I think one of the reasons they’re successful is probably their ability to manage uncertainty. Maybe it’s more of a threat for those who can’t handle that kind of volatility and, by their nature, aren’t as fast-growing.
The majority of companies have funded their growth through debt and intend to continue to do so. Are you wary of companies taking on too much debt?
BL: We sometimes come across companies that are too leveraged, but we do support debt funding when it’s the right thing to do for the business – for working capital and cash flow, for example. It needs to be a balance.
At what point does an IPO make sense? Our research suggests relatively few fast-growing companies have initiated IPOs in the past three years, but those that have gone public say it has boosted their growth.
BL: I guess it really depends on strategy and why you’re looking to raise capital. There is also a question of losing some control once you put yourself at the mercy of other factors. When you have a wider and broader shareholder base, then obviously it’s a different investor conversation.
I also think there’s a certain level of maturity and stability needed before you go through that process. It’s a time-consuming and tricky process which you don’t go into lightly.