Smedvig Capital completed a two weeks ago on a business we originally invested in 15 years back. Tusker, a salary sacrifice for cars provider, was acquired by ECI Partners. We are very happy with the return we’ve made on the Tusker investment, but we have also mixed feelings about letting go of such a strong business. It’s always a challenge to find great new companies to back, for which there are a number of reasons:
1) The universe of companies that fulfil VCs’ criteria is not huge
2) Many transactions are not intermediated so seeing a significant portion of potential deals is challenging
3) While at one time there was felt to be a “funding gap” for development capital, there are now multiple credible capital partners in the marketplace
Fortunately the market for the deals we like is very healthy right now. One of the drivers of the increased number of VCs in the London market is the thriving early-stage community here. Over the last few years there has been a dramatic growth in the number of early stage businesses in many sectors and in some, such as fintech, London is genuinely one of the global leaders.
This means there are many more businesses that are attractive to the VC community, and this relationship is clearly self-reinforcing. Moreover, the strength of various entrepreneurial hubs makes it easier to access relevant companies than it has been in the past.
For the capital providers, the important thing is a legitimate point of difference. Companies look for different things when seeking a capital provider over and above the basic economic deal. Chosen well, the right partner can materially improve the chances of, and scale of, success – and that may well dominate any basic economic differences in financing offered.
In Smedvig Capital’s case we seek only to do three or four deals a year. This allows us to get deeply involved in investee companies, providing hands on support in multiple areas in a way that is not possible with much larger portfolios. Not all entrepreneurs want that level of involvement from their capital partner, but when they do it means we have a compelling proposition.
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The Tusker example
Tusker was founded in 2000 as a revolutionary provider for the corporate fleet lease industry. Based on innovative technology, it aimed to take fleet management online, decrease costs and increase customer satisfaction in a traditionally slow to modernise industry.
Initially it was tough to convince fleet managers in a sometimes conservative industry to switch to Tusker, and so growth was slower than expected. With our ability to take a truly long-term perspective, and our belief in the real value of Tusker’s offer, in 2006 we bought out three other institutional shareholders and invested additional capital to enable Tusker to improve its services still further.
We were also able to support Tusker in the aftermath of the global financial crisis when vehicle finance became very expensive and difficult to obtain. Tusker’s ability to secure further debt financing was greatly helped by a financial instrument Smedvig was able to put in place.
The business saw a steep change in growth rate after 2008 following the launch of Salary Sacrifice for Cars (SS4C). This was an innovative product whereby employees not normally entitled to a company car could lease one at prices that typically substantially beat high street options. SS4C took the market by storm, and Tusker became the market leader.
Accelerated growth brought new challenges, which Smedvig also supported. The business for the first time had the opportunity to sell its product direct to consumers, which was a major step for a traditionally B2B business. Smedvig helped with customer research and insight, the recruitment of dedicated B2C execs, a major project to optimise customer conversion and, jointly with the team and third party advisors, an internal and external rebranding exercise.
The board appointed Trevor Chinn, a leading figure in the automotive industry and the ex chairman and CEO of one of Europe’s largest fleet leasing companies, as chairman of Tusker. We had worked with Chin in two previous investments, Streetcar and ITIS.
Tusker has now reached almost £100m revenue, with an 11,000 vehicle fleet from over 200 corporate customers. Over 370,000 employees are now covered by a Tusker SS4C scheme, and rapid growth has led to strong profitability as the business reaches scale.
Although it’s a shame to lose an excellent company like Tusker from our portfolio, we are delighted with its success to date, and to have been able to provide the long-term active support that the business needed during its growth years.
Rob Toms is managing director at London-based investor Smedvig Capital.
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