Sometimes entrepreneurs can feel like the victims rather than beneficiaries of venture capital investing. We like to think we are different, and having been successful entrepreneurs as well as investors, the Shackleton team always aims for a cheerful outcome for all stakeholders.
Shackleton’s development capital investments are generally in profitable companies operating in traditional industries. Shackleton acts as a patient and committed shareholder, willing to work with companies to achieve an agreed objective. In most cases, other than turnarounds, management teams are highly experienced and portfolio companies are already set on a steady growth path.
Shackleton’s main contribution is likely to be in helping to realise value in accordance with the company’s aims, be it through flotation or trade sale, or a company share buyback. Sometimes Shackleton may help in finding acquisitions, including new technology to help a company to develop a new area of growth and where appropriate Shackleton is willing to invest additional sums to achieve this.
Companies in our venture portfolio are usually revenue-generating and in the main profitable. The exceptions are typically in the medical area where development timescales are longer.
Many companies struggle for years to commercialise their product, and go through several rounds of funding before success is achieved, often beyond the timescales of their original investor. In the process, they end up with a complicated capital structure and little incentive for management.
The incoming secondary investor can view things in a new light and can help you make the changes necessary to achieve success. These may be a simpler capital structure, new management incentives or changes to strategy, often facilitated by much needed investment where that will help the company to build value towards a profitable exit for all concerned. However, we also know that the source of ultimate success is the energy and enterprise of the management teams we back. Although we will often take a board seat, Shackleton does not believe in interfering where the ingredients are already in place for success.
Sir Ernest Shackleton placed an advertisement for his crew. It attracted 5000 replies for 28 places. It read: “Men wanted for hazardous journey. Small wages, bitter cold, long months of complete darkness, constant danger, safe return doubtful. Honour and recognition in case of success.” While venture investing is challenging, it need not be quite this risky, and we always aim to achieve a successful exit for every investee.
Pancredit, the lending solutions business, is a good example of our approach, and was the first investment we made on forming Shackleton in 2006. It had been funded by equity and loan in a succession of investment rounds from various VCs. Shackleton acquired these interests, and we immediately restructured to better reward and align management, by reducing the nominal value of the loan and granting new options.
We supported the team through very challenging times for lenders, as the ramifications of the Financial Crisis struck the company’s market particularly hard, with Deborah Hudson serving as Non-Exec Chairman. We helped the company rebuild and Pancredit’s Pre-Tax Profits rose 7-fold over the 8-year investment life, allowing us to record a 35% cash IRR on our investment. Moreover, we helped members of the management team to spin-out a division of the company, trading as Panintelligence, which remains an important, and fast-growing, member of our family of investees.
Tinglobal Limited, a company involved in the refurbishment and sale of midrange computer systems, in which Shackleton acquired an investment from 3i. With Shackleton’s help Tinglobal substantially adjusted its capital structure to improve incentives for the management team.
Shackleton provided further finance to help Tinglobal make a major acquisition, and we bought out some additional smaller shareholdings. We remained actively involved investors after a partial sale of our shareholding in 2011, and Hugh Stewart supported the management team through an exit process that ultimately saw the business acquired by Singapore listed Procurri in 2015.
We remain close to the management of our alumni companies, and often work with them again, where this does not conflict with the interests of the acquirers of their businesses.