Private capital is the oil in the engine: without it we cannot restart the economy

August 2020 | SPOTLIGHT | FINANCE & INVESTMENT

Financier Worldwide Magazine

August 2020 Issue

Private investors, alongside government, will play a central role in getting the global, UK and London economy back on track after COVID-19. Private capital is the oil in the car engine, and without it circulating, the chances of a smooth recovery significantly diminish. Investors would be wise to recognise that there is an opportunity in chaos since many unsolved problems remain. People are creative, and this crisis has acted as a catalyst for people to work, collaborate and streamline their businesses. For many, the pandemic has been a time to reflect and search for smarter ways of working, new revenue streams and new strategies. What does all of this add up to for investors? In fact, it presents a huge opportunity.

Private capital within the UK continues to be at the forefront of financing the world’s most innovative companies across areas including FinTech, photonics, proptech and longevity. UK investors have played their part in disrupting entire sectors through supporting companies such as Revolut, Monzo, Formula E and Babylon Health. During a global downturn, this fundamental does not change as investors continue to drive disruption.

The importance of deploying capital during a market downturn cannot be overstated. It is all very well investing when the going is good, but when the going gets tough, private capital separates the winners from the losers. The pandemic has offered the chance to back the best companies through this period. While their weaker competitors struggle, those that survive, often backed by private capital, go on to make a difference in the world. Mike Milken once said that “cash is the oxygen of business”; in other words, capital investment frees up entrepreneurs to take bold moves, and pushes them toward new boundaries. Couple this with a crisis environment, whereby necessity is accelerating innovation, and it provides the perfect opportunity for investors to make a tangible impact by supporting bold new ideas and disruptive organisations.

During a crisis, people are focused on solving real problems and implementing leapfrogging technologies. In a crisis, evolution speeds up and people make decisions in a matter of weeks, which in ‘peace time’ would take years. By no means is this pace of decision making limited to the private sector, however. Governments around the world have offered tenders in hours, rather than years. There is a consensus within the public and private sector that the COVID-19 crisis has accelerated thinking and business practices by at least five years.

It is here when technology evolution has accelerated where investors can win big. Current ‘tech mega trends’ are not subject to the whims of the downturn. Research has not been paused, and research and development (R&D) budgets have not been cut. Private investors have realised the value in technology investment during this time. According to the latest statistics, investors have poured over $5.3bn into UK-based tech companies over the year to date. To put this into perspective, last year $5.4bn was invested between January and May. Therefore, despite the downturn, private capital into the UK tech scene continues to be prevalent. This capital also continues to be a key source of support for entrepreneurs.

New conditions have also completely transformed the way that sectors and consumers operate. Again, once these sectoral transformations have been identified, they represent a huge opportunity for private investors. Take mobility, for instance. Unsurprisingly, due to social distancing around the world, more inclusive modes of transit such as public transport, air travel and ridesharing have suffered. Correspondingly, private modes of transport such as cars and ‘sanitised’ micro-mobility have soared. If employers continue to embrace remote working and digital substitution for travel, and it is likely that they will, the reduction in commutes could balance out any rise in private vehicle usage in the longer term. Electric vehicles, autonomous vehicles, certain micromobility solutions, and other technologies that support physical distancing while simultaneously helping to tackle issues around congestion, pollution and climate change will be here to stay. Taking advantage of these mega-trends is central to the success of private investors.

So how do you put these complex intertwining factors together to create a strong portfolio which delivers long-term returns? Well, take advantage of the advice of investment communities where the available advice and support can assist in identifying the trends then guide you to the best opportunities. Matching up portfolio companies with the necessary investment and supporting this relationship with the correct intelligence and advisory support is central to facilitating the circulation of private capital.

Ultimately, the way that investors and high-net-worth individuals act this year will define their reputation and wealth for the next 10 years. It is essential that investors identify the overarching trends and play their part by injecting capital and getting the global economy back on its feet.

Konstantin Sidorov is the chief executive officer at London Technology Club. He can be contacted by email: secretary@londontechnologyclub.com.

Konstantin Sidorov

London Technology Club