Luke Johnson on Beer & Partners, angel investing, and business success
The former Channel 4 chairman on savvy investments, unavoidable failures and his proudest business achievement
Luke Johnson has one of the most impressive and diverse CVs in British Business. Having turned Pizza Express from a modest 12 outlets into one of the most recognisable restaurant brands in the country, he’s also the man behind Italian chain Strada and an investor in numerous other high street and luxury eateries. He’s chaired both Channel 4 and the Royal Society of Arts alongside writing his ongoing weekly column in the Financial Times and most recently, became the largest single investor in angel network Beer & Partners. Famed for his outspoken, and often biting comments, Luke spoke to us before the 2010 emergency Budget and gave us his hopes for the new government coalition, and a few pointers on what makes a great investment.
What can the government do to support the economy?
I think the government has to do two things, and then get out of the way. They have to deregulate and they have to pursue tax policies that encourage investment and employment.
They need to stimulate entrepreneurs to take risks, start businesses and create jobs.
If you create a job you take someone off unemployment benefit, they pay taxes and become a productive member of the community. Most of the research I’ve read suggests most net new jobs are created by smaller businesses – the innovative companies rather than the bigger companies.
I’d like to see some deregulation of things like employment legislation for smaller companies, because I think that’s probably the biggest single barrier for taking on staff.
What are you your hopes for the emergency Budget?
I’d like to see intelligent policies on things like Capital Gains Tax (CGT). I hope the concessions are very big and straightforward. I can live with the idea that quoted shares and second homes suffer a higher rate of capital gains, but anything that looks and sounds vaguely like a business investment – something that could help create jobs and wealth – should have a much lower rate of tax, perhaps a return to 10%.
You’ve recently invested in Beer & Partners. Does this mean you’re planning more of a focus on angel investing?
No, I’m going to continue to invest in established businesses, but I do angel investing and I’ve made a couple of angel investments in the last few months. I thought what Michael [Weaver – Beer & Partners’ chief exec] and his colleagues do is an interesting formula that has a lot more potential. I believe in the future of angel investing, because I think it can fill a big gap that’s currently unsatisfied by institutional venture capital or the banks.
It’s partly dealflow for me, and it’s partly just insight into what’s happening at the sort of roots level for early stage companies. I’m interested in entrepreneurs and find tales of companies that grow and succeed very inspiring.
What sort of return do you generally expect from an angel investment?
I think a successful deal should give you three times your investment. As for how long that takes it’s probably somewhere between three and six years. It’s high risk, high reward.
What attracts you to an investment?
There are so many factors. To give you a simplistic answer: it’s management, product; markets; margins; the track record of the individuals, the scale of the opportunity, potential return on capital. But some things are more important than others, like how good the people are.
I never invest in businesses I don’t understand and also tend not to invest in businesses with three years of losses before profitability in their business plan, which means quite a lot of the more adventurous, high-tech, innovative things probably aren’t right for me. I’m just a bit too impatient.
What was your biggest mistake?
For me it would have to be Borders [the high street book chain went into administration in 2009 just months after Luke exited through a management buy out]. Don’t invest in dying industries. We bought it as a turnaround thinking it was cheap, but actually the challenges were so great that I think it was always doomed. We misjudged just how powerful Amazon is, and how powerful the supermarkets are at book selling.
What has been your proudest achievement in business?
I suppose creating Strada, because we did it from scratch. I’m very proud of it. It’s a good quality concept and it’s proved very popular and successful.
How does running a public organisation like Channel 4 compare to being an owner-manager?
I much prefer being an owner. I don’t mean anything hostile towards Channel 4, because I’ve been involved with other non-profits, social enterprises and charities etc, but at the end of the day I enjoy being an owner and the responsibility and the rewards come with that.