Q: What have Dolly the sheep, Chris Evans and Britain's first e-billionaire got in common? A: The man who helped to create them all

Ronald Cohen seems to have the Midas Touch. His venture capital firm, Apax Partners, has backed a string of unlikely winners, gaining returns of 45 per cent a year. So what's the secret of his success?
Click to follow
The Independent Online

Back in 1972, when Ronald Cohen founded what was to become Apax Partners, the idea of setting up a venture capital company in Britain must have seemed as crazy as the notions behind some of the companies in which it now invests.

Back in 1972, when Ronald Cohen founded what was to become Apax Partners, the idea of setting up a venture capital company in Britain must have seemed as crazy as the notions behind some of the companies in which it now invests.

The early 1970s were hardly a high watermark for British industry. Industrial strife, quality problems and other associated ills meant nobody dared talk about an "enterprise culture" the way they do now.

Hardly known globally, the company has become the talk of the financial community on the back of a string of transactions, culminating in Autonomy, the Cambridge-based software company, being listed on the London Stock Exchange. "I knew people who were ambitious, tax rates were coming down, the Unlisted Securities Market (USM) had been created," says Mr Cohen. He was then on the board of a company run by the inventor and entrepreneur Sir Clive Sinclair, so he knew what was being developed.

But, the reticence of institutional investors and a general lack of enthusiasm meant it took a long time to take off. During its first 10 years, Apax was essentially a corporate finance boutique. As a result, it had a hard struggle in much the same way the fledgling companies it helps are rarely the overnight successes they appear to be.

The Autonomy involvement has been a spectacular success. Apax reduced its holding when the company listed on Nasdaq and Easdaq, and again last month on the London Stock Exchange. After an initial investment of 3m euros (£1.8m), it realised £150m in the LSE listing and has made about $1bn. But backing Mike Lynch, Autonomy's founder and Britain's first internet billionaire, is not Apax's only major achievement. Among its key European investments are the PC distribution company Computacenter, which turned a £200m profit for Apax, online auction company QXL, telecommunications company Esprit Telecom, biotech company PPL Therapeutics - known to the world for "Dolly the Sheep" - chip-maker Dialog Semiconductor and Ginger Media, DJ Chris Evans' company which bought Virgin Radio in 1997. In the United States, it invested in internet company America Online in 1985, selling out at the time of its 1992 IPO.

Though there have been losers, backing such winners has helped Apax produce returns of about 45 per cent over the past decade. That is about three times the yield for pension funds over the same period. Both big company pension plans and institutional funds, particularly from the United States, have been significant investors in Apax for many years. And long before these interests were acquired, the company played a key part in consolidating the changes Mr Cohen saw early on to create the environment in which the likes of Autonomy, PPL and Dialog have been able to flourish.

The Midas Touch can even extend to Apax's extra-curricular activities. Michael Ridpath, author of Free to Trade and other thrillers set in the world of high finance, worked at Apax until his best sellers enabled him to adopt a more sedate lifestyle. As an MBA student at Harvard Business School and a management consultant at McKinsey, Mr Cohen saw first hand the dominance of US industry. More important, he also saw how the Nasdaq market for technology stocks was helping to build future world-beaters. He and his original colleagues realised early on, he says, that without stock markets to finance growth between the start-up stage and listing, Britain and Europe would never be competitive with the USA.

Consequently, when he failed in an attempt to persuade the London Stock Exchange to introduce an equivalent to Nasdaq as a replacement for the USM, he and others set about creating Easdaq (the European equivalent of Nasdaq) which inspired the establishment of Germany's Neuer Markt. Mr Cohen is so convinced of its importance that he says Autonomy's success "would not have been possible" without it. This is because, at a time when it lacked the three-year trading record required for entry to the London market, it could obtain the funds that would enable it to expand.

This was all part of creating what Mr Cohen calls "a system". Other components were the creation of the British Venture Capital Association, founded in Apax's London offices in 1983 and chaired by a number of Apax directors, the development of a helpful tax regime through lobbying, and the establishment of research and development activity at universities.

Mr Cohen, 55, could be considered to be part of the "new establishment". A former president of the Oxford Union, he has served on numerous enterprise and technology committees and is chairman of the Social Investment Task Force that created the community investment plan outlined last week in the Chancellor's pre-Budget report. He is a great music patron and has a keen interest in art - many pieces from his collection adorn the walls of Apax's offices which lie opposite the BBC in London's Portland Place.

But, though he is the public face of Apax, Mr Cohen would be the first to insist the business's success is not just down to him. There are the company's founders, Maurice Tchenio, who runs the Paris operation, and Alan Patricof, whose Chicago-based fund Mr Cohen and Mr Tchenio linked up with in 1977. There are also several other offices around the world and a group of highly-qualified specialists who head the teams handling key sectors. For example, last year, it hired former ONdigital chief executive Stephen Grabiner as its new head of media just as he was about to join Rupert Murdoch's internet investment business, eVentures. Mr Grabiner was a former managing director of the Telegraph newspaper group and executive director at United News and Media. Apax's telecommunications practice is headed by John McMonigall, a former senior executive with BT; the healthcare sector is run by Paul Haycock, former chief executive of Cantab Pharmaceuticals; and the retail and consumer products sector is headed by George Charters, a former deputy chairman of Safeway.

The idea is that Apax reduces its risk by knowing a number of important areas in great detail, and its directors like to say they aim to know more about technology than the entrepreneurs seeking to use it. This can be a great boon to entrepreneurs. Mr McMonigall, for instance, says Autonomy ended up as a different sort of company due to the input it received from him and a colleague who took seats on the young company's board.

This expertise can also lead to Apax playing a role in creating businesses rather than just funding them. For example, Mr McMonigall helped set up the UK messaging company Xpedite Systems in 1993 to help its US parent expand overseas. He brought in a former BT colleague, John Proctor, to run it and organised an investment of £3m on top of Apax's original $12m (£8.3m) input into the US operation. It became the UK leader in sophisticated faxing with a turnover in 1997 of £20m before the business was sold to the US company for $85.5m at the beginning of 1998. As Mr Cohen says: "The more you know about the area the bolder you can be."

This approach has enabled Apax to put more emphasis on early-stage investments than many of its better known rivals, such as 3i and the venture capital operations of big banks. Overall investment in early-stage businesses by venture capital companies has increased recently, from about 10 per cent of their activities to about 15 per cent. Apax typically devotes 30-35 per cent of its business to this area.

Meanwhile, many funds preoccupy themselves with buyouts of established businesses - an activity Mr Cohen and his colleagues believe does not have much to do with true venture capital. Aware of the popular distrust of venture capitalists - or "vulture capitalists" as they are sometimes known - Mr Cohen says: "From the beginning we saw ourselves as builders of business rather than as financiers." He places companies like Apax somewhere between management consultancies and investment banks. He says that while many venture capital funds hire accountants and other financial specialists, Apax tends to go for industry specialists or former management consultants trained at Harvard or other business schools.

Having such a clear focus contributes to the company's high reputation. Autonomy's Mr Lynch is reported to have said: "The thing Apax brought, which is absolutely vital, is that old-fashioned quality known as wisdom." An industry insider regards it as "the most professional venture-capital company in Europe."

Such accolades, along with the company's oustanding returns, breed greater success, and Apax directors claim they often win deals from rivals because their knowledge helps win over entrepreneurs.

But this reputation could also pose problems. First, while there has been a slowdown in technology stocks and Nasdaq had a sharp slowdown last week, Apax and other leading companies still have access to large amounts of cash. And, some suggest, the desire to invest money rather than leave it on deposit, could lead to the company becoming involved in bidding wars with other cash-rich groups.

Second, Mr Cohen acknowledges the need for Apax to be global. He insists it is run as a single company with one global operating committee and all employees sharing the profits.

But Apax does not yet enjoy the recognition of some of its rivals, partly because in the all-important US it operates under the Patricof name. Moreover, the desire to become bigger - like the management consultancies and investment banks that are in some ways its models - could reduce its staff's quality.

There is also the question of hunger. For all the talk of new technologies, Apax's London offices exude a well-heeled calm that leads one financier to question whether the company and its City-suited staff are as in touch with the New Economy as it claims. Mr Cohen points out that venture capital is a cyclical business. "Our performance at the end of the 1980s was much less good than we would have liked," he says, adding that many companies collapsed in the 1989-1992 recession.

However, judged on Apax's overall record of the past three decades, it would take a brave person to bet against Mr Cohen and his team.

Comments