Our July Investment Insight section looks at the work of Jeff Evans, who is a Partner & Managing Director at Volta Global - a diversified private investment group focused on direct investments in venture capital, private equity, and real estate. Volta was formed in 2015 to manage the proprietary and permanent capital of its founder and partners of the firm. Prior to joining Volta, Jeff had over a decade of multi-faceted experience as an active investor in both public and private companies, and as a co-founder of a venture-backed technology company.
Tell us a bit about what makes Volta Global’s philosophy and company culture unique?
Everything about our investment philosophy and corporate culture stems from our permanent capital base. Because we don’t manage a fund or have external investors to answer to, every investment decision we make is viewed through a long-term lens and must pass the test of being undoubtedly the best usage of the two resources we care about most - our capital and our time. Because we are active in so many different areas and maintain a relatively small headcount at the corporate office, our culture remains very entrepreneurial and filled with intellectual curiosity.
Can you give an example of how your personal investment approach has evolved during your career?
Like many people drawn into this field, I’ve always considered myself to be a value-oriented investor. The idea of being one of the first to discover a business with an underappreciated competitive advantage (or “moat”), and that was currently mispriced by other investors, was an idea that captured my interest very early in my life even before I started doing this professionally. As my career has progressed and involved making investments in many different markets, I think realizing how the characteristics of competitive moats themselves can change or adapt over time has been an important evolution. Many elements that defined what a sustainable and durable competitive advantage looked like 10 or 15 years ago may have been drastically altered over time by factors like technology and changing consumer behaviour. Think about large incumbent businesses in the consumer goods space as a good example. For many decades there existed a hugely profitable moat versus smaller upstart competitors – big barriers to entry built up over time thanks to distribution being incredibly expensive and difficult to accomplish at scale, and the advertising dollars necessary to match brand recognition and awareness with the big players being prohibitively costly for most. Fast forward back to today, and businesses like Dollar Shave Club and Harry’s have leveraged direct-to-consumer distribution models and extremely low-cost (but equally effective) marketing efforts to steal almost one-fifth of the razor market from the big incumbents in only a matter of years. I still believe that investing with a focus on the original value principles is the best path to long-term success today, but investors need to be aware and attentive to how sources of competitive advantage can evolve and erode over time.
What types of businesses does Volta look for in your private equity strategy and can you share one lesson you’ve learned from your activity in the lower middle market buyout space so far?
From a high level, in our control investments we are seeking to acquire profitable and durable businesses, each with between $3-10 million in annual cash flow at time of purchase. We tend to like businesses that most people find boring and unexciting, and where we can make them just a bit more exciting. We also prefer situations with an existing management team in place to stay on and operate the business after a transaction, or where we are facilitating a transfer of the business from one generation of family to the next.
The quality of the relationship developed with the sellers or controlling shareholders of the target business is hard to overstate. Not having a proper alignment of incentives in place, or expecting something that starts out as a poor relationship to eventually sort itself out after you have acquired and taken over the business, can be recipes for disaster. For this reason, we choose our partners very carefully based on their track record of displaying integrity and honesty, and we make sure there is personality fit and proper alignment early on in the process process to avoid pitfalls down the road.
Do you have any guidance for how the average investor can improve the quality of their investment decision-making?
Learn from the best. Find great investors throughout history and be an avid reader of their writings, teachings, and experiences. A strong sense of financial market history is also important - what tends to be “new” is often just an old idea that has been repackaged in a different form. Mental models and internalizing a few big ideas from multiple disciplines beyond finance can also be quite useful as an investor. The idea of compounding is powerful, and how continuous, minor self-improvements every day accumulate over time – simple math tells you that a 1% improvement in a skill compounded every day equates to an almost 38-fold total improvement in that skill over one year. Lastly, surrounding yourself with intellectually curious people that ask a lot of questions is a great way to test your own assumptions about the world and continue to expand your own mental framework.
Damon Walford, Chief Development Officer at alternative lending industry pioneers, ThinCats, shares his thoughts with Finance Monthly on how SMEs can get the right mix when it comes to funding.
Alternative funding offers access to finance that ticks many boxes; from faster turnaround times, to flexible rates and a more in depth probing of the story behind the application. It also provides an ideal avenue to supplement private equity, venture capital, Angel investors and crowdfunders.
Alternative loans for business are more accessible when equity is part of the mix, especially in cases of business acquisition, refinancing and property development. Lenders like to see an element of entrepreneur equity as “skin in the game”, but there is an important place for 3rd party equity which may be on a different scale to that of the entrepreneur, providing meaningful impact on the risk profile of any loan.
Where appropriate an equity and term loan mix will:
- Reduce risk of the debt provider as any security available is against a smaller loan;
- Reduce funds required to service debt;
- Provide all financers with additional comfort regarding the proposition;
- Generally reduce costs of both debt and equity finance due to decreased risk.
ThinCats has huge experience in this area, and has successfully financed a range of projects where a mix of funding has provided the ideal solution. In one case, an MBO team wishing to acquire a business with justifiably high goodwill had their own equity but there was still a funding gap. This is often covered by a deferral of part of the purchase price, but in this case 3rd party equity was the best solution.
Where a sound business may have suffered a financial shock, e.g. bad debt, an equity mix can be the saviour. ThinCats has funded just such a company, where the balance sheet value needed reinstating with equity, but a cashflow-based term loan was also appropriate given underlying trade. In this case, it was impossible to finance wholly on debt, too expensive purely through equity, but very viable to provide the mix.
A property developer had a project ambition that they couldn’t fully fund through their own resources or with the highest Loan to Value debt commercially available. 3rd party equity was used to bridge the gap providing a structured debt & equity solution.
Most deals of any size will have an element of equity and debt in them, often provided by the entrepreneur, but 3rd party equity is key to getting certain deals financed.
Dr Stavros Siokos is the Managing Partner of Astarte Capital Partners - a specialist alternative co-investment platform with a focus on the real assets space. The company, whose team is spread between London, NYC, Zurich and Sydney, identifies and partners with experienced real asset operators, establishing institutional standard specialist asset management businesses in niche real asset strategies that target private equity-type returns. Astarte’s team combines their experience of building multi-billion niche asset management businesses with the know-how of established real asset operators with strong track record in the specific sector. Astarte’s target is full alignment of interests and transparency with only success-based fees. Here Dr Siokos talked to Finance Monthly about the future of international finance and Astarte’s beginnings, achievements and goals for the future.
How did your career path lead you to your current role as a Managing Partner at Astarte Capital Partners?
I was originally educated as a Computer engineer. My first two degrees were pure Computer Engineering while my Ph.D. from the University of Massachusetts focused more on Financial Engineering. Structured approach to the solution of any problem was the best skill that my education gave me. My non-academic career started as a quantitative analyst at Salomon Brothers (later Citigroup) in the mid-nineties. I quickly became managing director, responsible for the global portfolio trading strategies and all pension fund solutions. This period of my career was the best education that I ever received.
My career on the sell side lasted for almost fifteen years. Before the crisis, I decided to move to the buy side, recognizing that the sell side was ready to move into a different stage where entrepreneurship was to be challenged. Later on, I became the CEO of a small boutique asset management firm where, together with the team, we managed to build innovative alternative investment platforms and grow the assets exponentially – from a few hundred million to several billion within a few years. All the above was achieved by raising long term capital from global institutional investors. In early 2015, we decided to create a new platform, based on an innovative and disruptive model. We managed to establish this ambitious plan within a few months.
As a co-founder of Astarte, how did the idea about the company come about?
As an entrepreneur, I am constantly trying to expand my horizons. Our initial goal with Astarte was to create something that was fairer to the investors and will have a significant impact in the world of investing. We were eager to bring together the best professionals under an umbrella of full alignment and transparency. For a number of months, we worked on identifying the optimal team and the fairest structure for co-investments, and the outcome of this hard work was Astarte.
What have been the company’s biggest achievements in the past two years?
For a newly established firm, no matter how experienced the team is, the first couple of years are very challenging. I’d say that our first big achievement is managing to stay on track, since building an innovative and disruptive business in a highly competitive environment is a challenge. However, we managed to launch the firm by simultaneously attracting top talent, long term capital and excellent deal flow, which I think are the key components of any asset management business. Currently, I’m delighted to say that we are in a position where all the important ingredients are in place.
What is your vision for the future of Astarte? What do you hope to accomplish in the next three years?
Our aim, although quite ambitious, is to establish Astarte as one of the leading co-investment platforms for niche real assets. We hope to see private capital working smarter and fairer in the future, with Astarte playing a significant role on this.
What is your brief outlook on the future of international finance?
We are living in an ever-increasing regulated environment where restrictions and regulations are creating a very controlled environment that supports large firms and kills entrepreneurship. Margins are shrinking and opportunities are reduced. Thus, it is my belief that in a decade the asset management market will only consist of huge players and a limited number of niche strategy participants.
The next Thought Leader that we reached out this months is Tim van Delden, the co –founder and CIO at Amsterdam-based independent private equity firm- HPE Growth Capital. Despite his university background as Mechanical Engineer, Tim’s career began in investment banking at Morgan Stanley in London and Frankfurt. His investment banking experience was then followed by career steps at global growth investment firm General Atlantic Partners, where he worked for 5 years, before joining the Avenue Capital Group in London, a NY HQ Special Situations Hedge Fund. Here Tim shares with us details about the setting up of HPE Growth Capital, the company’s ethics and goals and his role within it.
As the Co-founder and Chief Investment Officer at HPE – could you tell us a bit more about the company? How did the idea about it come about?
HPE Growth Capital is a private equity platform which is dedicated to fast growing technology companies headquartered in Europe. HPE is focused on later stage investments across Europe, though core focus is Germany and the Benelux. HPE likes to back companies with highly-skilled management teams that have the ambition to strongly internationalize, also beyond Europe. HPE invests up to €30 million per Portfolio Company, for a significant minority stake. At the moment HPE has more than €400 million Assets under Management, plus specific co-investment programmes. Although HPE is headquartered in Amsterdam, we also have an office in Düsseldorf in Germany. HPE is a regulated firm and carries the EuVECA label, and is signatory to UNPRI, while having a strict ESG policy.
Although the company was founded in 2008, HPE’s first investment fund was launched in 2010. Hans van Ierland and I recognized that between 2004 and 2009 the European market for late stage growth investments in technology companies has become an underserved market. Prior to 2004, this market was often dominated by US players, such as General Atlantic Partners, TA Associates or Warburg Pincus. They have grown so dramatically in Assets under Management that their investment ticket sizes have grown from € 10-30 million, compared to € 100-300 million, and thereby, leaving a specific market segment behind which actually was one of the highest deal flows in Europe.
HPE was founded in the midst of the financial crisis – how did you manage to grow the company despite the difficult economic climate?
The ‘secret’ for growing the company, despite the economic climate, was believing in our team and constant persistence. We started HPE right before the Lehman Brothers collapse, so not everything was easy. However, my partner Hans van Ierland and I, as well as our colleagues who joined us later, never had a second of doubt, knowing that we bring all the good ingredients in order to pull it all off. LPs (investors) who were joining HPE must have felt this determination, starting to believe in our team - something that we are still truly grateful for today. Eventually, I’d say it was a combination of lots of hard work and a bit of luck. Speaking in sport terms: “If you keep hitting good shots, one day you will score” – this has been our mentality since the start.
What were the goals that you arrived with when co-founding the company. Nearly 9 years later, would you say that you have managed to accomplish them?
HPE was founded with the ambition to build a Tier I private equity platform for technology growth investing. We are still a young firm, but we are on the right path to achieving the aforementioned goal. It is my belief that the key ingredient for achieving this is building the right team and I am confident that our current team outperforms our expectations! Years ago, we wouldn’t have thought that we’d be able to bring in two more partners, who both have had long-standing careers in the US, and relocate them to the Netherlands. Today we are so happy to have Harry Dolman, former Co-Head of Disney Consumer Products and Manfred Krikke, a seasoned Silicon Valley tech investment banker and investor, on board with us. There’s outstanding unity between our team and we all share the same ambition – to build HPE into a recognized market leader.
Although some people might say that we have already achieved our goals, at HPE we feel that we have just started. We know what it had taken to bring HPE to where it is today, but also what it needs to be done in order to develop the company further.
What are the company’s top priorities towards its clients? How have these evolved over the years?
We have two types of clients: our LPs (investors) and our portfolio companies.
LPs expect great returns, which is their overarching priority. However, considering that the lifetime of a fund is approximately 10 years, occasionally not everything goes as planned, be it a political crisis, Brexit, unforeseen currency volatilities etc. Therefore, our priorities towards these clients are to carefully listen and communicate and act transparently.
Portfolio companies expect a true partnership with a solution-oriented mind set. Due to the nature of the sector, again things often don’t go according to plan. A finger-pointing mentality does not help in such situations, but our support in finding the best possible solution is highly respected and appreciated by our clients.
Your role focuses on investor relations – what are some of the challenges that you are faced with, in regards to this part of your work?
As Chief Investment Officer I am responsible for following our investment strategy and taking care of our relationships with existing and potential investors. I’d say that the key challenge that I am faced with is the transparent communication, when it comes to unforeseen and unexpected bad news. Although the investors sometimes may not like what they’re hearing, they always appreciate and respect the transparency and the fact that they are being informed about the given issues up front. However, luckily, most of the news that we share with our investors are good ones.
As a thought leader in this segment, how are you developing new strategies and ways to help your clients?
We consider sufficient available growth capital as one of the core elements for innovation and employment in Europe. Through our statistics, we see the high number of jobs that start-ups currently create, which has led us to embark on working with Government institutions towards supporting growth capital. Young entrepreneurs continue to thrive in European cities such as London, Berlin and Amsterdam and HPE is proud to be helping the “entrepreneurial financial ecosystem” in Europe, which is still far behind the US.
Cambridge Companies SPG (Special Projects Group) is a leading private equity firm based in Newport Beach, California with a focus on commercial real estate and venture capital transactions. The company’s estimated $300M real estate portfolio is primarily in California and Nevada, owned in part by investors and is unleveraged. Cambridge Companies has zero debt, a strong cash position and has achieved a 40.6% Overall IRR with a 47.25% average project IRR across 27 principal real estate transactions. The firm also has a Venture Capital platform and buys minority controlling and non-controlling interest in companies poised for growth. Cambridge has a growing advisory board that is comprised of some of the world’s most successful entrepreneurs, investors, financiers, scientists and operators. This month Finance Monthly had the privilege of speaking to Filipp Chebotarev. As Chief Operating Officer of Cambridge Companies, he oversees all daily operations, develops and maintains strategic partnerships and drives initiative for organizational growth. Filipp graduated from University of California Irvine with honours. Prior to establishing one of the leading Private Equity Firms in California, Filipp obtained a wide array of experience in politics, business, revenue operations and organizational development. Here Filipp tells us in more detail about Cambridge Companies’ structure and aspirations. He also introduces us to his role and its impact on the private equity firm's performance.
Cambridge Companies as a game changer investor
“We are led by a set of core values that define our character and culture; they have been at the core of Cambridge Companies SPG since its inception.”
Today most real estate investment companies only understand real estate. As long as the real estate market is hot – they find themselves performing well too. They leverage and buy more real estate until a market correction brings them to the brink of despair and as we saw in 2008 - flat out wipes them out. What differentiates Cambridge Companies from other real estate investment companies is that it has a unique non-leveraged strategy which keeps the company investments in a low-risk profile structure. The firm is also well-diversified within its VC platform and has exposure in Food, Beverage, Fintech, Healthcare and a number of other markets. Cambridge prides itself in its world-class team and advisory board, which provides the company with a unique ability to have an industry agnostic investment strategy and an ability to execute when opportunities in the market present themselves.
Above all, Cambridge has made it their top priority to serve the needs of their investors and clients. This commitment is reflected in a culture that values integrity, accountability and strong passion for excellence. The company operates with forethought, financial discipline, a long-term perspective, and an unblemished understanding that trust is the cornerstone of their success.
Filipp Chebotarev - one of the top subject matter experts on real estate and venture capital transactions in the US
Fillip’s role as Chief Operating Officer and Partner at the company is defined by character. He has been able to elevate the presence of the firm and make it a relevant player in the private equity world by implementing everything he learned during his tenure in Politics and Corporate America. Filipp’s stint as a Constituency Representative for U.S. Congressman Ed Royce allowed him to see the importance of great leadership, since his role involved gathering information from constituency groups and reporting their needs or concerns directly to the administration – allowing the leadership to understand the issues people faced within their district and react.
Filipp later transitioned to Revenue Operations at DaVita, the only Fortune 500 Healthcare provider with over $12 billion in annual revenue at the time. His daily role was to account for over 70% of total revenue, reconcile and balance the Gl, identify and correct complex payor discrepancies before the reports went off to auditors for Sorbanes-Oxley compliance. In addition, the team that he was part of handled M&A and integration, as DaVita was aggressively acquiring and consolidating smaller providers. DaVita later merged with Healthcare Partners, creating one of the most efficient integrated healthcare systems in the world. “DaVita taught me the importance of Core Values, Organizational Structure and teamwork - today I bring those important lessons to Cambridge Companies”, says Filipp. He continues: “My sister Polina and I came from humble beginnings and worked for a prominent business mogul/real estate developer for over 4 years - this is how we learned the business. Eventually, as our mentor got older, our importance in the organization elevated and the three of us became partners. In late 2015 our mentor retired and David Patton joined our firm after a successful career at Citigroup (NYSE: C). Today, our team drives investment strategy, corporate core values and organizational development. The success of our clients and teammates are our number one priority - our job is to maximize shareholder value and this is what drives us”.
Today, Filipp is considered as one of the top subject matter experts on real estate and venture capital transactions in the US. Real Estate is a wide area of expertise and his expansive experience covers assisting with vacant land, land entitlement strategy, ground up development, NNN stabilized commercial real estate, value add commercial real estate, as well as luxury single family. He has vast experience across all property types including single family, multi-family, retail, office, industrial and high-rise residential. Mr. Chebotarev is also a highly regarded Venture Capitalist. At DaVita he and a team engaged in acquiring and integrating over 1000 new clinics, as well as international healthcare joint ventures. DaVita grew revenue from $6.45 Billion in 2010 to over $12 Billion in 2013. When working for the company, he and his team were able to consolidate smaller providers that were not providing the same level of care, improve level of care and access to affordable treatment. Today, DaVita’s clinical outcomes continue to be the highest of any clinical provider, according to Government reports.
Cambridge Companies was honoured when Food and Beverage legend Greg Fleishman, who has created and grown some of the world’s largest and most successful brands during his 18-year career, joined the company’s advisory board. Together with Greg, Cambridge has been able to make a handful of incredible investments that contributed to the elevation of organic and non-GMO brands in the bake mix, food-crafting, baby food and a number of other sectors. Most recently, Filipp and his group led the multi-million dollar Series A round of investment in Foodstirs, Inc. Foodstirs is the world’s first organic, non-GMO, biodynamic bake mix quickly capturing market share in the $5 Billion U.S. Food craft and Baking market. The widely popular company was founded by Galit Liabow, internationally-known actress Sarah Michelle Gellar, and has been promoted by superstar Jessica Alba. Filipp believes that these investments have a discernible impact on the health of customers and children in the US. “The best kind of investment is one that not only performs financially (which these have done in a major way), but also makes the world a better place. By investing in organic and non-GMO food brands, we are helping to reduce the cost and offer wider access to customers, thus allowing them to live healthier lives”.
Having had experience in healthcare, real-estate, food & beverage, financial services and technology, Filipp is able to understand complicated transactions across multiple economic verticals. “My experience allows me to efficiently understand the structure of the business in which we are looking to make a potential investment. This is a very valuable asset and one of the key elements I bring to the table at Cambridge.”
When asked about his role in Cambridge Companies, Filipp continues: “From the moment I wake up to the moment my eyes close I am thinking, planning, and growing the business. I see it as my responsibility and commitment to our clients and teammates. We are led by a set of core values that define our character and culture. Our team knows that our clients come first, their success is our success. We take commitment very seriously at Cambridge and are accountable to our teammates, partners and clients. Integrity must be at the core of everything we do and trust is the cornerstone of our success. We are a group of passionate professionals focused on performing at the highest level. Our success is built on innovation and hard work. We are continuously improving, building and growing for our clients. I don’t stop until the job at hand is done and there is a favourable outcome, I inspire my team by example”.
Mr. Chebotarev also has an experience in politics, revenue operations, and organizational development. He believes that the most valuable lesson that his varied experience has taught him is the importance of having the right team. “Even a rock star needs a group of musicians, producers, lighting and sound engineers, a strong manager and a host of other teammates to deliver a memorable performance. Otherwise, he is just a guy in tight pants, singing acapella in his bedroom. My advice is - if you meet someone smarter than you, bring them on your team and build a base of intellectual capital that you can draw on for support and knowledge”.
The average holding period for private equity-backed buyout deals hit a record high in 2014, but has seen a notable drop for companies exited so far in 2015, according to the latest data from Preqin.
The average time that private equity firms have been holding buyout investments in their portfolio has been rising year-on-year since 2008. This reached a record high of 5.9 years for companies exited in 2014, almost two years longer on average than companies sold in 2008.
Yet for investments realised so far in 2015, the average holding period has dropped to 5.5 years. This marks the first point that the average holding period for buyout deals has seen a drop since the financial crisis, and is coupled with a strong exit environment which has seen a record number and total value of private equity-backed exits in 2014.
According to the alternative assets industry data and analysis firm, European companies sold so far this year had the longest average holding period of 5.7 years, compared to North America companies sold in 2015 YTD which had an average holding period of 5.3 years.
In the period since 2006, energy & utilities companies have had the shortest holding period, with these companies being held for an average of 4.3 years. By comparison, companies in the industrials sector and consumer & retail have had the longest average holding period of 5.3 years.
“Private equity investments are traditionally long-term investments with typical holding periods ranging between three and five years. The average holding period for these deals has in fact been rising steadily ever since the financial crisis, and reached almost six years on average for deals exited in 2014. Yet for companies sold over the first few months of 2015, this average has fallen, which may indicate this trend has turned a corner,” said Christopher Elvin, Head of Private Equity Products, Preqin.
“Although fund managers are largely holding onto portfolio companies for longer, the recent exit environment has been strong; the number and total value of exits in 2014 reached their highest levels on record. Yet even with this strong exit environment and the average holding period falling slightly, a significant proportion of companies bought during the buyout boom of 2006-2007 still remain active in private equity firm portfolios.”
Private equity fundraising remained strong in 2014, although capital was concentrated among fewer funds, according to Preqin.
According to Preqin, 977 private equity funds held a final close throughout the year raising a total of $486 billion (€410 billion), higher than any annual amount between 2009 and 2012, and on track to match the 2013 total, as at mid-December.
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However, the $486 billion (€410 billion) in capital commitments was spread between the lowest number of funds in any year since 2009.
The amount of capital raised is on track to match the amount of capital raised in 2013 ($531 billion / €446 billion), as Preqin expects the 2014 fundraising figure to increase by 10-20% as more information becomes available.
For the funds that did close, the average time to reach a final close fell by two months; funds that closed in 2014 took an average of 16 months, compared to 18 months for funds closed in 2013.
There was increased fundraising success in 2014, with 52% of funds closed above their fundraising target, while a further 17% met their fundraising target. This compares to 47% of closed in 2013 funds which exceeded their target.
First-time funds closed in 2014 accounted for 7% of total capital secured by funds over the year, the same proportion as in 2013.
The largest fund to close in 2014 was buyout fund Hellman & Friedman VIII, which held a final close on $10.9 billion (€9.15 billion).
According to Preqin, investor sentiment towards the asset class remains very positive with almost half of the investors surveyed by Preqin in December expect to make their next private equity fund commitment in the first half of 2015.
