Steve Cordiner, head of unquoted investment at Gresham House Ventures, considers what will help start-ups succeed while many established businesses are concerned.
As many UK businesses begin to reopen, investor eyes will be sharply focused on whether start-up companies can withstand the ongoing COVID-19 storm.
However, investors do not need to stand by nervously as these fortunes are gradually revealed. By being actively engaged in the development of portfolio companies, investors can not only identify earlier the budding businesses likely to emerge strongest, they can also move quickly to help the most challenged.
While second order impacts will undoubtedly materialise over the course of the coming year, the pandemic has also accelerated shifts and trends that were already underway, which is rewarding companies at the forefront of these trends. Although the coronavirus crisis has been catastrophic for many areas of the economy, we are seeing accelerated growth in businesses using technology to disrupt markets.
A duty to advise
In the face of uncertainty and amid a recession, the role of an investor is more important than ever. Clearly there is a need for capital, but providing support, advice and counsel is vital, particularly for many first-time entrepreneurs who may never have been through a crisis or recession.
Having worked with private equity and venture capital backed businesses throughout the 2008 financial crisis, we understand how important speed of decision making and experience are for UK growth companies navigating the pandemic and its aftermath.
As an investor, you are in a unique position. In turbulent times, you build a far deeper picture of the companies you work with and the markets they operate in. You learn which companies are resilient and which are not, which management teams make great decisions and which do not, who sees the risks and who does not. Over the years, you will have seen good times, bad times, mistakes and glimpses of genius. This enables engaged investors to share their knowledge and experience and help businesses find solutions to current challenges, as well as adapt to the changing environment.
During a crisis, we always look for companies to control the controllable. Accept it – you cannot stop a lockdown, financial crisis, or ash cloud, but you can make good decisions and plan for coming out of a crisis. In our experience, good decisions are made by businesses with good information and high-quality people. This includes staff, management and non-executive board members.
On the way into the crisis, many of these decisions were on obvious areas like cash management, but now businesses should be thinking not just about the tactical return to work, but how they can assume a competitive advantage and come out of lockdown taking market share. Now is the time for agile and ambitious businesses to shake up their markets – while still being cognisant of second order impacts to come. We are about to move into what is in many respects a far more challenging environment to make decisions, as the post-lockdown world is far more uncertain than the one which prevailed during lockdown. This also creates more opportunity for disruptive and agile businesses.
In fact, some of the young businesses which have been net winners during the pandemic probably need to be more cautious. They may have been lucky enough not to have had change forced upon them or not to have had to make some very tough decisions. These businesses are possibly more at risk of underestimating the second order impacts to come.
Communication is also key. In uncertain times, companies continuously engaging with customers and staff to share information and show they understand the challenges they are facing are building loyalty. This will bear fruit as we come through this pandemic, and for years to come, as it will form part of the DNA of those businesses in a way money cannot buy. Similarly, it is crucial for businesses to engage with stakeholders, including banks and investors. They will want to help, so even if the messages are not all positive, silence or, even worse, hiding things will only create more problems later.
Finally, as the pandemic has accentuated trends in areas such as digital transformation, we have seen businesses that were already growing strongly continue to flourish, validating our focus on businesses delivering disruptive innovation. One such company is global social commerce platform Moteefe, which allows merchants, from individuals to established businesses, to design and create print-on-demand products for sale online, such as clothes and phone cases.
The pandemic is forcing large traditional retailers to re-examine their global supply chains, and the agility of Moteefe’s localised production model continues to gain traction, offering resilience and flexibility. Meanwhile, fast fashion continues to garner negative attention – due to unethical labour standards – and faces structural challenges given its massive environmental footprint and wastage.
At the same time, consumer habits continue to accelerate the shift to online, alongside a desire of on-demand differentiated and customisable products. The need for retailers to modernise, digitise and localise their supply chains has never been greater. As a leading global platform, this positions Moteefe for further growth.
We recently made our fourth investment since 2017 into Moteefe. In that time, the business has expanded internationally and grown twentyfold, with no signs of slowing down. Extreme rates of growth such as this create its own challenges, and it is important for businesses to evolve and adapt. But the recipe for success is the same. It all starts with good people, good information, good communication and a clear focus on winning in the market to put yourself in a position to make great decisions.