Growth Capital Ventures want to make a difference
Growth Capital Ventures is a fintech business which not only brings together businesses hungry for capital with investors looking for a return but it also seeks a positive social impact, as Peter Jackson reports.
This piece was originally published on BQLive.co.uk on 3rd October 2017.
Brothers Norm and Craig Peterson meet me in the baroque splendour of Redworth Hall, a magnificent four star hotel in County Durham. It’s convenient for the office of their company, Growth Capital Ventures (GCV) a fintech firm based on the Aycliffe Business Park.
A business park might seem like an unlikely address for a company operating in the financial sector, but GCV is a financial services firm with a difference. It is part of the new breed of businesses set up in the wake of the financial crash of 2007, riding the wave of technological innovation and the desire to escape the failed banking models of the past.
Coincidentally, we meet at around the tenth anniversary of the collapse of Northern Rock, an event Norm remembers well. “I was on holiday and that weekend I picked up the Sunday Times and saw that Northern Rock’s shares had dropped by about 25% in a couple of days and people thought it might be worth a buy. I was away for two weeks and the following Sunday they had gone down even further and I got a phone call telling me about the queues outside Northern Rock and it was then that I realised that there was something serious going on – but not as serious as it turned out to be.’’
At this time Norm and Craig owned a luxury housing and property company Carlton and Co and, foreseeing the effects that the banking crisis would have on housebuilding, they sold their land holdings and suspended operations. The brothers were not only experienced in residential property – Craig was a residential project manager for Taylor Wimpey/ Bryant Homes, becoming regional production director – they also had a lot of expertise in raising finance.
Norm had worked in project management for large scale telecoms and broadband infrastructure businesses. He later moved into the residential and commercial property sectors before becoming director of network strategy at Bell Cable where he was responsible for raising capital to fund construction of large broadband networks throughout the UK. He later bought into a European broadband start up and raised more than £60m for it from US based venture capital funds. Craig went on to study for an MBA and focused on the rise of the alternative finance sector as part of his research project.
So, following Northern Rock and Lehman Brothers and the subsequent credit crunch, they could observe with expert eyes as the credit market froze. On the one hand, banks stopped lending, not only to each other, but also to perfectly viable businesses which were desperate for growth capital. On the other hand, people with money to invest, could only get derisory rates of return.
The Peterson brothers were sure there must be a way to bring businesses and investors together. “When the financial crash happened it was a case of, where is the money going to come from? It was a huge problem for businesses, particularly in house building,’’ says Craig. At the time, people were beginning to talk about the alternative finance sector and the brothers looked at how they could structure a fintech business.
“We had always worked raising capital, finance was core to everything we were doing, so it was a natural transition,’’ says Craig. “We looked at what was happening in the market and decided that we were going to diversify into financial services.
“We wanted it to be technology focused so it was scaleable. The market was changing and we wanted to be right at the forefront of that. When you look at fintech and alternative finance, it’s phenomenal how the market has changed in a 10-year period.’’
They became Financial Conduct Authority (FCA) approved persons and then a FCA authorised firm and also became members of the Chartered Institute of Securities and Investments.
The result was Growth Capital Ventures, a firm which brings together private capital and growing businesses which are looking for capital for expansion. Its online co-investment platform, GrowthFunders allows retail investors to buy shares in high growth impact companies alongside professional and institutional investors. All the investment opportunities are carefully vetted by GCV for their potential to deliver strong financial returns together with wider social and environmental benefits.
Through the GrowthFunders platform, investors can invest from £100 in businesses and projects alongside experienced investors and institutions. Once registered on the website, investors are kept up to date on forthcoming investment opportunities.
“Technology makes those deals – previously only really accessible to high net worth individuals – available to a wider investor base,’’ says Craig. “On the other side, businesses can then access capital from different sources. A high growth SME should be able to raise capital, not just from a venture capitalist or an angel investment network, you should be able to raise from both and, in an ideal world, retail investors. If you can bring the three together and get that co-investment model to work, then you’ve got a very powerful way for businesses to raise money.’’
Norm points out another advantage to a business. “A wider investor base correctly managed through a nominee structure can give you fantastic voice because you have all of those people as brand ambassadors.’’
GCV already has about 6,000 investors and it had an early stage involvement with Durham based challenger bank Atom with investors signing up within 24-hours. It has also successfully raised funds for start-up technology business Intelligence Fusion and for cloud-based software-as-a-service business HiveHR.
Despite these successes, GCV has no plans to move from Aycliffe Business Park. Craig explains: “it’s where the business was based originally and our view was that we didn’t need to move from Aycliffe to attract the talent that we needed to scale up.
In the north east there are some very good software developers. Also, our investment team need to have a different mind-set as a co-investment platform and from a recruitment perspective it makes sense. Also, as an operational base it made perfect sense. We don’t need to be based in London and, if we are going to service the Northern Powerhouse area then Aycliffe is a decent location from where you can reach every major city easily.’’
It took time to build GCV and to familiarise the market with the business model, but it was helped by the enthusiasm of the then Business Secretary Vince Cable for the alternative finance sector. The FCA also came to see the potential in the UK pioneering this movement.
“When we started the institutional investors weren’t investing into the alternative finance sector but after a while they could see the opportunities,’’ says Norm. “The government also put the regulatory frameworks in place to ensure this could grow.’’
GCV saw the opportunities presented by funds such as the Northern Powerhouse Investment Fund and the Finance Durham Fund and, while the firm was not a fund manager, it saw the potential to form a partnership to bid to manage such funds.
Its great breakthrough came last year when it secured a £1.1m investment from Maven Capital Partners, one of the UK’s leading private equity firms. Maven, which has taken a 28% stake in GCV, has more than £400m of assets under management and a nationwide network of regional offices.
In partnership with Maven Capital Partners, GCV, has now successfully bid to manage five investment funds, including £57.5m of the Northern Powerhouse Investment Fund and the £20m Finance Durham Fund, to support the growth of SMEs and high potential businesses across the North.
“Co-investment is a key part of the KPIs for these funds, they want to see private investment leveraged to match and the delivery and co-ordination of that co-investment can be done through our platform,’’ explains Norm. He adds: “To get investment from a company of Maven’s quality, one of the UK’s leading small cap private equity firms, was a significant step forward.’’
But the brothers are resolved that, despite the backing and involvement of Maven, which also has two members on the GCV board, there will be no rush to chase deals for the sake of it. “It’s very much a matter of quality as opposed to quantity,’’ says Craig. “We’d probably have between three and five deals open at any one time.’’
“Co-investment is part of Maven’s ethos,’’ adds Craig. “They have a co-investor network, they have VCT’s [venture capital trusts], so they have different pots of money, so if a business is looking to raise capital, they can provide a very powerful funding solution based around co-investment.’’
The Petersons plan to use their experience in property development to bring forward more projects using a revived Carlton and Co. Craig explains: “One of the things we are focusing on for our investors is the ability to diversify and invest not just in businesses and high growth SMEs but also to invest into projects such as residential developments.
“We are working on a number of investment opportunities with Maven which will open up a new asset class for our investors.’’
These will also be growth focused but will be asset-backed and would be in the form of a special purpose vehicle limited company.
“It will allow investment alongside the developer to get the type of returns the developer enjoys,’’ says Craig. “If we buy a site for say £1m and it costs £2m to build, our investors would generally invest £1m of equity to buy the site, we’d arrange the full finance package with senior debt from a suitable lender and, from there the profits would be split. We are targeting a one and a half times money on money return.’’
GCV will soon be launching its first property project: three residential sites, comprising 84 homes with a development value of nearly £24m. The Peterson brothers are confident that within four years GCV could have a £100m development programme being financed with the potential to deliver between 350 and 400 new homes a year. This would mean the creation of 500 to 600 new jobs.
“That’s going to create some real job opportunities within the supply chain, not just on the construction side and also what we are able to do, which we did in the past with Carlton, is to bring through a lot of good opportunities for apprentices,’’ says Craig.
This underlines a key element of the GCV business model – a determination that its investments and projects should have a positive social impact beyond the purely financial return on investment.
“We are looking at high quality, growth focused investment opportunities across property and growth SMEs but we really like, not just the ability to deliver the investment growth, but also social impact,’’ says Craig. “Finance is a core part of what we do, but these projects can deliver both better risk adjusted returns to investors but also wider positive social economic and environmental benefits as well.
“We like to make a difference as a business, on the one hand to our investors to provide them with investment opportunities to help them build their portfolio and their net worth and then also to do some good. That’s the foundation of what we do, investing for growth and impact. We want to help people make money, but we want to help them do some good things along the way.’’
On the other side of the equation, GCV serves the businesses and projects that are being invested in, not only by providing a powerful funding solution but also in giving advice and support to make themselves investment ready.
“A lot of entrepreneurs out there still need a lot of help to understand how to structure their business for investment and we are very well placed to do that, having raised capital ourselves on numerous occasions and having supported numerous businesses through this process,’’ says Craig.“We have an excellent in house investment team that works closely with entrepreneurs looking to raise growth capital. Working together we produce all of the investment documentation and financial forecasts to ensure the businesses we support are investment ready. Many of the entrepreneurs need additional support including coaching and mentoring, which is an area where the GCV team can add a lot of additional value.’’
Technology has been a driver and an enabler of GCV and that will continue to be the case. “We have a strong in-house tech team and the platform is under continuous development,’’ says Norm. “In tech you can’t just build it and say, `it’s done’. You are always advancing and developing it. We are always looking to improve the user experience and features, integrating third party software and anything to enhance it.’’
The investment from Maven has allowed GCV to expand its tech and programme management teams to develop new products. In particular, it intends to build on the success of the GrowthFunders platform next year with the launch of a peer-to-peer lending platform, GrowthLenders.
“It will focus on asset backed property led investment opportunities.” says Craig.
“We’re excited about this new platform, we have some very good deal flow starting with residential development schemes but we will branch out into commercial property too.
“GrowthLenders will allow people to invest using their ISA with a potential to enjoy some healthy returns secured against property, targeting returns of between 8% -10% in the form of a mini bond.”
At a later date GCV envisages the introduction of bridging finance products which could have a six to twelve month term. It is expected that GrowthLenders, as a peer to peer lending investment platform, will attract new investors, but will also allow GrowthFunders investors to diversify their portfolios.
“Investing through GrowthFunders, gives our investors the opportunity to build a growth focussed portfolio whereas investing through GrowthLenders will provide the opportunity to balance a portfolio with a more income based approach.” says Craig.
The brothers give off a palpable sense of excitement over the possibilities for GCV and an eagerness to turn all their ideas into practice. But they are clearly as passionate about their business philosophy as they are about their products. Norm says: “The ethos underpinning everything we do is making a difference. The values of our business and what drives us is: first and foremost to make money for our investors; to do some good; and to enjoy what we are doing.’’