The BVCA has highlighted the importance of Due Diligence in its 2020 Performance Measurement Survey, produced in association with PwC – its annual survey of the returns generated by its members for their investors.
With a significant presence in the UK, developed over the past 30 years, private equity and venture capital funds provide companies with the finance and know-how to deliver sustainable business growth.
Both private equity and venture capital firms are focused on delivering sustainable growth for the companies in which they invest: venture capital funds typically support early stage and younger companies, holding minority stakes in the businesses, while private equity funds typically acquire controlling stakes in more established businesses. The Performance Measurement Survey looks at funds which invest in businesses at all stages of the growth lifecycle – from venture capital funds specialising in start-ups to large buyout funds investing in global corporations.
2020 was a challenging year with the covid pandemic causing unprecedented disruption to people’s lives and livelihoods. This report, demonstrates the resilience of private equity and venture capital through this period. Capital raising continued apace. When the pandemic hit, we might have expected private equity and venture capital fundraising to slow down. In fact, the opposite happened, with £34.7bn of capital raised by funds eligible for inclusion in this survey, the largest amount in its 30 year history.
These funds are available to grow businesses in the UK and elsewhere. Investor returns continue to be strong. The aggregate since inception return for all funds launched in the past decade (i.e. starting between 2011 and 2016) is 19.6%, with Venture Capital and large private equity funds performing even better than this.
Although Private Equity and Venture Capital funds are not immune from the economic cycle, the average return has been over 14% from 2008 onwards.
Capital at risk
The report’s range of returns analysis shows that, whilst the industry’s performance as a whole is very strong, returns vary between individual private equity and venture capital funds. Some funds are ultimately unprofitable whilst others greatly outperform industry averages.
This underlies regulation requiring that investors be sufficiently experienced or well-advised before investing in private equity or venture capital funds.
Whether you are an investor or managing a fund, competent and expert commercial and technical due diligence should be a pre-requisite, when considering what/who to invest in.
Particularly with early stage and younger tech businesses, getting behind the ‘marketing/pitch’ hype is essential. To have the potential to scale profitably, a company needs:
- A strong, balanced and motivated team
- Leading edge, disruptive technology
- A clearly defined, hi-growth, hi-margin need-led market opportunity
We are one of the few companies who have the capability to undertake due diligence across all three of the above areas.
With clients – our process always starts with our Qualification (Discovery) stage, where we look in detail at the market, the technology, the finances and the people. Where appropriate, we can drill down even further with our psychometric HR analysis tools, or employ our proven Technical Due Diligence process to provide clarity and understanding of an organisation’s software engineering, architectures and software methodologies.
With investors – we can help qualify in potential candidates, or improve them through our innovation funding and scaling solutions.
Our overall capability allows us to help both ambitious tech businesses grow faster, and investors to make better decisions.
Why not talk to us and find out more.