Imperious, intolerant but invaluable: Behind a friendly public face, 3i, the venture capital group that has invested in countless businesses, is a ruthless operator

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The Independent Online
THE cheerful logo, the friendly billboards with their silly acronyms exhorting us to buy the shares: this is the public face of 3i, the venture capital group that wants to be known as a gentle giant.

But, according to insiders, the truth about 3i - which last week announced it is pressing ahead with a partial float in spite of the storms in the stock market - is rather different. It charges its clients burdensome fees, overworks its young staff, ruthlessly sacks those who do not make the grade, and allows plodders to rise to the top.

Despite all this, it is one of Britain's more useful institutions. 'It offers a brilliant service for smaller entrepreneurs that no one else can touch,' a former employee says.

Since it was founded as the Industrial and Commercial Finance Organisation in 1945, 3i has invested more than pounds 6bn in 11,000 businesses. Although the venture capital industry blossomed in the Eighties, it remained the only group happy to invest in tiny companies that would otherwise struggle for capital.

It has probably done more to nurture the 'enterprise revolution' than any other organisation.

Among its users, the entrepreneurs who have tapped 3i's funds, it has a reputation for being fair but very, very tough. Companies that need to come back for more money find they are charged heavy fees at a time they can least afford them. 'Having fee income is far more important than asset value,' one insider says. 'It's greedy with fees, but if it wasn't, it would have been slaughtered in the recession.'

But it is the culture of 3i that makes it such a strange organisation. It does not pay particularly well; it works its staff to the bone and sets them against each other in cut-throat competition. Yet it is besieged with as many job applicants as any of the blue-blooded banks. It has the pick of the business school output, and hires MBAs by the dozen as well as some of the best qualified accountants.

The secret is that 3i is regarded as the best training ground in town. Not only does it train very well - a new entrant would spend 30 days out of the office in the first year - it weeds out people who are not going to make the grade, and does not pay its best people enough to keep them loyal.

The heads of almost all the other venture capital groups in London are 3i alumni. 'It is recognised as the university of venture capital,' the former manager says. 'The best people go on to become extremely successful.'

Success is measured in only one way, though: the ability to find new companies to back. 'It's a deal-driven environment. If you can't do the deals, you get out,' he says. Each member of staff is set a target for new investments and for further investments every year.

While other venture capital groups might expect their managers to do one or two deals a year, an established 3i executive would be expected to make four or five new investments and three to four further investments. The deals would be smaller - but each would require the same effort.

Monthly lists are published showing how managers have performed; those who miss their targets soon find themselves looking for another job. 'It's a very tough organisation,' the former employee says. 'People in other venture capital organisations pitied us, and we looked at them with envy.'

This pressure causes a hothouse atmosphere with fierce internal competition and a 60- to 70-hour week. Each manager is responsible for about 40 companies, and in theory should spend time helping his charges. In fact, this gets in the way of finding new deals, and is kept to a minimum.

It also encourages managers to play the game - or exploit the system. The favoured method is to make marginally attractive investments, then use all their marketing skills to pass them through the vetting system. The policemen are more senior - typically accountants - but can often be outwitted by their super-sharp juniors.

Salaries are hardly mean, but are not enough to keep the best performers. The average executive earns pounds 50,000 to pounds 55,000, and might earn a 25 per cent bonus in a good year. Other venture capitalists typically offer a basic of pounds 70,000, with bigger bonuses.

Not surprisingly, they do not find it difficult to lure the best people away. 'I was headhunted by three venture capitalists and two companies wanting me to run divisions before I was 30 years old,' the ex- 3i man says.

With both the best and worst performers leaving, those who get to the top tend to be no more than competent administrators, he says. 'Of the 30 directors, four or five are high- flyers. That is why people who only meet directors tend to get the impression that 3i is a bureaucratic organisation.'

However, it cannot be accused of being elitist. It has a grammar school culture, and takes on people it thinks will be able to communicate with 'grubby engineers'. This, the former high-flyer believes, is the key to its success. '3i is extremely user-friendly,' he says.