James Caan: Hamilton Bradshaw
The entrepreneur, Dragons' Den star and investor talks new enterprise initiatives, re-engineering companies, and why he loves his workaholic existence
James Caan has the ear of government and intends to use it. The entrepreneur and investor talks new enterprise initiatives, re-engineering companies, and why he loves his workaholic existence
James Caan’s meeting with Growing Business was sandwiched by the end of Dragons’ Den series eight filming and the emergency Budget on one side and his scheduled meeting with the country’s new business secretary Vince Cable on the other. It’s late on a balmy Saturday afternoon and the widescreen TV is showing the World Cup in his office. He’s on good form and eager to share his thinking on the economy, if not the details of his much-publicised non-dom spat with Duncan Bannatyne. It couldn’t have been stage-managed better if they’d tried though, he admits. But this is a mere footnote to our discussion. Given Caan’s profile there’s little point recycling his career potted history here. You’ve probably read it all before and can visit Wikipedia or his own site for the life and times of Alexander Mann, Humana International and Hamilton Bradshaw Private Equity, his Dragons’ investments and countless philanthropic and governmental roles. Instead, we want his take on the here and now, solutions and the prospects for entrepreneurial businesses amid continued economic turmoil. On with the interview:
Did the Emergency Budget go far enough for entrepreneurs?
The context is UK Plc has borrowed £925bn and it has a £155bn deficit. But there is a lot more the government could do to support entrepreneurs, such as releasing more capital to businesses, and more in terms of tax breaks.
Where’s economic growth going to come from?
Over the last 40 or 50 years, there are three sectors we’ve relied upon for growth. The corporate sector: they’ve all got too much debt; their cost base is too high. I don’t see a lot of growth there. The public sector: 750,000 jobs are going to go, so I clearly don’t see any growth there. That leaves us with SMEs. It’s a sector that’s innovative, creative, and creates jobs. That’s the focus I think the new coalition should have.
In which area do you feel Osborne missed a trick?
The only area I would have liked to have seen a contribution was where the entrepreneurial market typically goes in this country when it wants to start a business and needs funding: friends and family.
What do you suggest as a solution then?
We have no venture capital community. The banks won’t lend to start-ups because they won’t take the risk. There should be an opportunity here where we should provide something like we do for charity. If you and I give money to a charity, we can reclaim tax relief and the charity receiving it would reclaim tax. My question is: why wouldn’t we do that for entrepreneurs, especially in a high-rate tax environment?
So how would your proposal work?
If you’re earning £150,000 to £200,000 a year and someone you know comes up with an idea, generally speaking you’re in a better position to invest in that person than I am. To create an environment where angel investing becomes vibrant, attractive and worthwhile could do a lot. What’s the downside?
You’re talking about another form of Gift Aid?
Yes, but you’d call it Investors’ Relief. It’s not giving money away; it’s not charity. It’s not a gift. An angel investor wants something in return. You could create a structure that says: ‘To the extent I invest in you and I claim back tax, that is a recorded transaction.’ At the point of reclaiming the tax relief, the government gets you to sign an indemnity to say that when you get the first dividend a repayment mechanism is triggered.
Give me an example of how it would work in practice.
Let’s say I make over £150,000 a year. You come along and want £50,000. I put that in, but I’ve paid 50% tax on that. You can claim back, so between us we can claim back £25,000. At the point either one of us puts in a claim for that, the government gives you credit but says to me, the investor and now a shareholder, that at the point of claiming that we’d like an undertaking that the moment you make back that money we would like that returned.
A credit loan from the government effectively.
Yeah. The one argument the government could have would be to say ‘we will lose tax’, but right now, I don’t see any catalyst or any event that’s going to happen in the next 24 months that will mean we’re going to double our growth. I’m saying [to the government], if the businesses take off, they will employ people and by employing people you will receive tax revenues, the business will make a profit and you’ll get corporation tax, and you’re now creating hundreds of businesses which become your income devices. Were you disappointed then that there wasn’t such an initiative in the Budget? They are in a very difficult position. The focus right now is ‘how do we deal with the deficit’, which is all about generating revenues, not spending. You’ve got to deal with the problem first and then come up with structures and plans for how to recover that position.
Does Vince Cable have lots of meetings lined up with other people like you?
I think he should have. Government should have and needs to have more business people as part of its advisory board.
A year or so ago, you said Britain needed more identity and our shopfront to the high street of the world was bare. How’s it looking now?
The window is a bit blurry. I sense it’s got a curtain that’s very dusty and you can’t quite see through. What I want to see is innovation, technology and business. We should become the business capital of the world. We have the intellect, the expertise, the brand. Margaret Thatcher said we’re a nation of shopkeepers. There’s nothing wrong with that. Having an enterprising culture is a good thing.
What holds us back psychologically?
Britain forgets we have competition. Last year France, for the first time, attracted more foreign investment than we did. That’s quite staggering. If I were running a business and a competitor won my best client, I wouldn’t ignore it. I’d stop and want to ask why. Sometimes we become too complacent and don’t work hard enough.
What are we doing to make Britain the best place for business?
You need access to government when you’re going into a country. You want to feel special and important. Every other country will incentivise to create jobs. Come the Olympics, the world will be watching. What are the plans we have in place today?
Other countries, such as China, are doing it, aren’t they.
There’s a lot of bureaucracy in business, a huge amount of red tape and taxation. It’s becoming harder to do business, not easier. You could walk into a bank a few years ago with your gas bill and open an account. Now you need a War and Peace of documentation.
You’ve been particularly vocal about science and innovation through your support of the iAwards. Are you concerned it will not be given such priority by the new government?
The government knows innovation and science is critical. I would expect those initiatives to be continued and built upon.
Are we going to miss Lord Drayson?
It’s gone from Drayson to Dyson. I sense that once I’ve had a meeting with Vince Cable I’ll better understand their vision and commitment to change and innovation. My instinct is they’ll be proactive. I think they mean business and are very serious about it. Culturally, the Conservatives are very pro-business.
What was your take on the change to capital gains tax?
The government did a fantastic job in setting expectations. We were led to believe CGT would be 40%, not 28%. The stock market didn’t flinch. It was well received and the City embraced it. Businesses generally felt it was fair. The country is like a company that’s technically insolvent. You expect to see drastic measures.
Did you get any feedback from Hamilton Bradshaw investees?
It would be wrong to say everyone welcomed some of the plans and the tax hikes. Nobody welcomed it. But sometimes we whinge and whine unnecessarily because we take things out of context.
From an investment point of view, were you disappointed? Could more have been done to stimulate investment beyond the level of your Investors’ Relief idea?
They do want to do that. They tried to stimulate lending into the SME space. I think that they’re very proactive. The problem is that the reality is businesses are not doing very well. To invest in businesses when they’re in decline is pretty difficult. You get a better price as an investor though. For me, as an investor, this has been one of the best periods I’ve seen. The portfolio has doubled in size for that very reason. There’s tremendous value. For individuals that have an appetite for risk I think it’s a great environment.
What about from lending?
From a government perspective to encourage banks to lend more is a difficult position. They’re saying, they’re being asked to lend to businesses in decline, whose asset bases have shrunk, levels of security have been diluted, and yet they’re being asked to lend more money to those people. The reason they’re not lending is they have credit policies and for every 10 that approach them, nine are not credit worthy.
That’s understandable, if accurate, but surely more could be done.
I don’t think credit markets have opened anywhere near what we need, but I do understand. They can’t be reckless either. There aren’t enough healthy businesses performing well that would stack up to credit committee approval process. That’s where I think the heart of the problem is.
Has the value of your portfolio continued to rise despite conditions?
We’ve doubled the value of our portfolio. It’s staggering, unbelievable. I’m genuinely quite surprised because it shouldn’t really. So why’s it doing better? I think it’s because our model is quite unique. Most private equity / venture capital firms are essentially financial specialists – bankers, lawyers, accountants. That’s great when the market is doing well. But there’s a journey between doing a deal and exiting. Regrettably, private equity firms don’t actually do a great deal in the journey.
So they’re learning from the mistakes you’ve made in the past?
I’ve lived through two recessions. In 1992 I nearly went out of business. Posting our accounts we’d made £1,500, so were technically insolvent and there was a period where I got to a Friday and didn’t have the money to pay the wages. Why was I in that position? I didn’t I cut fast enough because I didn’t know and hadn’t faced it before.
In practical terms how do you offer the value the businesses require?
This is not about turning up once a month at a board meeting. I work seven days a week, which is why I’m here on a Saturday and will be here tomorrow. It’s about talking to them daily. I’m in the office at 8am and don’t leave until 10 or 11pm at night. It’s not because I’m mad. Some decisions don’t wait six weeks.
Describe what you do with each business?
We track what they do scientifically. We’ve redesigned all the KPIs of all the businesses we’re monitoring as all the KPIs have changed, the drivers have changed. By navigating, working, supporting, and interacting, we’ve been able to have a significant impact.
Give us an example.
Web Recruit is an online business we invested in last year. When we invested it was making £100,000 net profit, but while it was doing that its free cashflow was negligible. It was literally living hand to mouth. We’ve taken the business from £100,000 to £1m net profit – improved it ten-fold in a year.
So what changed?
It’s the same business, has the same people and management. In a market when we should have reduced headcount we’ve increased it by 50%, by getting them to focus on the markets that were performing. It’s a bit like going to a shop and they’ve got too much stock, but it’s the wrong stock. Sometimes businesses don’t listen to their customers. The only person I’m interested in listening to is the guy that’s going to buy my product and write my cheque. Everyone else’s I’m not interested in because it’s free, it’s cheap, and it’s worthless.
Is this something you see with a lot of the businesses you come across?
A lot have got customers they’ve had historically that they don’t make any money out of – key accounts, with low margins. We’ve looked at improvements in productivity, customer margin, customer concentration, improvement in focus on sectors that are clearly doing better than others. We’ve looked at productivity levels within the workforce and the people that are not productive we physically can’t afford to keep them. And we’ve probably made tougher decisions, because the entrepreneur’s never been here before. Most are 30 to 40 and have only ever known it one way.
It sounds like it’s you that’s heavily involved rather than the Hamilton Bradshaw team. Is it too heavily reliant on you?
I think the word ‘reliant’ is wrong. I’m heavily involved, but I’ve got a team of 26 people – I’m not that good.
Do you get a sense that you’re seen as interfering, as that’s often a complaint levelled by entrepreneurs about their investors who start to resent their involvement.
It’s absolutely perceived as interfering when you don’t know what you’re doing. When you know what you’re doing and make a difference, the biggest complaint I get is I don’t spend enough time. If they value it and it makes a difference, they want more.
What have you learnt in the last two years – about yourself, business, investment?
I’ve learnt that people are afraid of risk, because a risk is only a risk if you don’t understand it – it becomes a calculated risk if you understand it. Not knowing that means you can’t take risk and if you can’t do that you’ll never move on. So I’ve become obsessed with understanding risk on every level. I analyse it to death because once I’ve got to the root of it, I understand it, which means I can take it. It’s had a profound impact on my mindset and how I think. I take a lot more risk now. The work-work-life balance
In 2002, aged 42, James Caan retired. So what is he doing plastered all over our screens, newspapers and magazines?
It’s simple: he was bored stiff. “The characteristics you have don’t go away because you’ve stopped working,” he says. “I was actually trying to be something I wasn’t. I don’t love being a golfer, a sailor or a pilot. Being an entrepreneur is my hobby.”
Today it’s much more about investing and mentoring, much of which he does through his private equity firm Hamilton Bradshaw and Dragons’ Den.
“Even though it looks like I’m a workaholic, I have a very good balance. When I’m on holiday I still take the BlackBerry, iPhone and iPad.” His wife and children book-end his morning and afternoon sessions. To keep on top of things Caan employs four PAs, one for personal commitments, another who looks after his business life, a third for his diary and one who looks after emails.
Caan has an investment manager for his Dragons’ Den companies who provides a regular dashboard-style update (forecasts, revenues, profits, margins).
He gets packs on his property portfolio, and every meeting besides. Just for ours he had a potted history of what he’s done previously with Growing Business, emails exchanged and likely topics to discuss.
Doesn’t it feel faintly ridiculous?
“It is, but what’s the other option? My diary is booked to mid-October. Business doesn’t stop because I’m filming four days a week for three months. Each business produces monthly reports, accounts and board packs. If I don’t read the packs I’m not showing that the business is important. And that’s not me.”