Profile: Ronald Cohen More action than Talk
Peter Koenig meets a venture capitalist who does big deals for larger-than-life clients
Sunday 02 August 1998
Aside from advising MacKenzie's TalkCo consortium, Cohen's firm, Apax Partners, recently made headlines on another radio deal - providing capital for Chris Evans and Ginger Productions' acquisition of Virgin Radio. Next month Apax branches out from its traditional turf, venture capital, into dealing in small company shares. Meanwhile, Cohen has become one of Tony Blair's businessmen advisers. He chairs two Department of Trade and Industry committees aimed at improving UK competitiveness and is helping out the New Labour policy wonks working on creating a UK equivalent of California's Silicon Valley.
"In the Eighties, people thought we were on a hiding to nothing," says Cohen speaking of Apax in particular, but also the venture capital industry in general. Now, he says, the publicity declaring that he has arrived is nothing more than a prelude for the news to come. "Circumstances are changing in favour of venture capital and the entrepreneur," Cohen says. "The best is yet to come for Apax, the venture capital industry, and entrepreneurs."
Before he became a semi-public figure this year, insiders in the City knew Cohen because of Apax's gradually lengthening list of success stories. Cohen and his colleagues invested early in Computacenter, the UK computer services company; Esprit, the independent phone company; Waterstone's bookshops; and PPL Therapeutics, the Dolly the cloned sheep company. They have reaped the rewards as the equity in these companies has been sold to the public.
Now, however, the financial and business communities are taking an interest in Apax and venture capital. Apax is one of about 100 venture capital firms in the UK. These have invested pounds 23bn in UK start-ups, development propositions and management buyouts since the founding of the British Venture Capital Association in 1983.
This is a substantial sum compared to the pounds 6.5bn capitalisation of AIM, the small company stock market, even if it remains a drop in the ocean compared with the pounds 1,440.5bn invested in UK companies through the main London Stock Exchange. Gradually, the distrust of venture capital firms by the City's big fund managers is being turned round.
In the early Eighties, pension funds and insurance companies were given the hard sell by young and often brash venture capital firms. Take big risks, City fund managers were told. Earn big rewards. So City fund managers took big risks and earned mediocre or poor returns. Once burnt they were twice shy.
As the six-year-old Nineties mini-boom gathered pace, however, and as stock markets round the world rallied on the strength of hi-tech leaders, the City's painful memories have given way to a growing sense that venture capital is a sensible risk/reward play.
In 1997, venture capital investment in the UK rose 29 per cent to a record pounds 4.2bn. This money went into 1,200 new and developing businesses and to managers buying out their divisions from former employers. "The money going into venture capital this year is even higher," says Charlotte Morrison, spokeswoman for the British Venture Capital Association.
The gains since the early Eighties, meanwhile, if less than sensational, have been respectable. Over one year, venture capital funds returned 21 per cent, according to the WM company; over five years 29.3 per cent; over 10 years 14.6 per cent.
The hot stock market last year took some of the wind out of UK venture capitalists' sails. Both the FT-SE All-Share and FT-SE 100 indices outperformed UK venture capital funds. But the best of the Eighties/Nineties bull market may be behind us, Cohen suggests with a wary smile. The prospect of a bear market, combined with changes in Europe's financial regime, combined with New Labour's championship of entrepreneurial activity, all make it timely, according to Cohen, to review where venture capital has come from in the UK and where it is going - even more than the headlines about him and Kelvin MacKenzie. Cohen founded Apax Partners in 1972 at the age of 26, after graduating from Oxford and Harvard Business School and doing stints as a management consultant at McKinsey & Co in the UK and Italy. Apax was associated from the start with Alan Patricoff, the New York-based venture capitalist who gained fame in the US when he helped finance the fledgling New York magazine, home to such writers as Jimmy Breslin and Tom Wolfe. "From the start our idea was to be international," Cohen says.
He and Patricoff developed associations with likeminded venture capitalists in Paris, Munich, Zurich and Tel Aviv. Each company in each city remains separate and privately held, but the venture capitalists hold shares in each others' companies and, Cohen says, "we operate as one".
Making it through the Seventies, during which the firm was as invisible as its humblest start-up, and the Eighties, during which it survived the shakeout in its industry, Apax has grown steadily in the Nineties. Today it and its associated firms have $3.5bn under management worldwide - two thirds in Europe. Apax has 300 European staff. Five years ago, pounds 500,000 was a large stake for the firm. Today pounds 10m is.
The headlines in venture capital are being made in management buyouts. Think not only of Talk and Virgin Radio, but of Cinven's backing for the recent management buyout of IPC's consumer magazine division. "The buyout game is producing good returns," says Ian Armitage, the head of Mercury Asset Management's private equity group.
But Apax is concentrating on early-stage investments as well as buyouts. It organises itself not by the kind of venture capital it invests, but by the fields into which the money goes. Apax focuses on information technology, telecoms, biotech and speciality retailing.
Cohen declines to discuss the performance of Apax. But the latest figures at Companies House show that in 1996 Apax Partners Ventures made a pounds 233,000 profit on sales of pounds 11m. Apax Partners is one of four UK divisions of Cohen's firm. A guestimate would be that Apax UK is now generating annual sales of about pounds 50m. Profits would be considerable but, with no public shareholders to please, understated.
If Cohen is right, however, and venture capital is entering a golden age in the UK and Europe, the figures his firm generates over the next five years could be in for the kind of growth spurt his best fledgling companies have achieved.
Cohen was one of the moving spirits behind the establishment of Easdaq last year. Easdaq is the over-the-counter pan-European counterpart of Nasdaq in the US, the stock market exchange home to Microsoft, Cisco Systems, and other such wonders. Cohen believes that the establishment of Easdaq will make it easier for successful start-up companies to go public, thus making it easier for venture capitalists to realise gains in their investments. He also thinks that Easdaq, with its American ways, will force the big tradition-bound European stock exchanges to modernise.
"One of the big problems at the moment is that it is not part of the European culture for companies to go public until they are making a profit. This is not the case in the US.
"Traditionally, European stock exchanges have sought to position themselves as safe for widows and orphans. We think investors should be able to decide on the risks of a hi-tech company for themselves."
His views about business in the UK are equally unconventional. Cohen rejects the notion that Britain and the entrepreneurial spirit are cultural misfits. While accepting that public attitudes toward entrepreneurs striking it rich after taking big risks remain ambivalent, he expresses confidence that Blair will introduce policies over the lifetime of his government to encourage entrepreneurial risk-taking. "There is not necessarily a big risk involved in being an executive at a privatised utility," he says. "But there should be big rewards for men who are willing to go out and start something."
That, in a phrase, is what Cohen himself has done. He may not be as famous as the other big backer to Kelvin MacKenzie and his bid for Talk Radio. But Rupert Murdoch may be yesterday's man, while the head of Apax is tomorrow's.
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