Meet the investor: Luke Davis, IW Capital

CEO of the private equity firm for early-stage businesses, Davis discusses bad pitches and why investment is "much more than dry statistics and returns"

Firm: IW Capital
Name: Luke Davis

Where are you based?

IW Capital’s head office is based in Mayfair, London. Our subsequent portfolio of small and medium enterprises spans the United Kingdom.

What kind of investor are you?

As corny as it might sound, I’m the kind that buys into people over product (despite the latter being pretty important too). I’m not sure if I fit into an investor “type” as the most desirable would be an intelligent one, and for this it’s almost essential to emulate a hybrid of being both confident and risk averse; with a must-have sense of being comfortable with the potential worst case scenario.

I’m also a big believer in the UK’s small and medium enterprise population and, moreover, its continued development. Far too much talent is inhibited due to funnel neck funds.

What kind of deals do you finance?

IW Capital is a private-equity house and we manage tax-efficient investment opportunities on behalf of our investor network. Our work focuses on managing large volumes of capital investment into British small and medium-sized enterprises across a range of industries.

Our company portfolio is completely sector agnostic, however we do favour tech and innovation disruptors. That said we also place significant value on traditional sectors that support UK infrastructure; having recently completed a management buy-in in the construction sector. The group therefore ranges from high-growth tech small and medium firms to hospitality and lifestyle companies.

What they all have in common is the potential for high growth, future expansion, and most importantly, the best of the best in leaders and innovators that drive them forward.

What kind of person do you invest in?

The personal traits that I look for are instinct led, they are not necessarily “teachable traits” or academic prowess, albeit these values are incredibly important given the knowledge intensive products we support.

I’m referring to strengths such as determination, relentless drive, strong leadership abilities, and the ability to influence and ignite enthusiasm etc. Assessing the business’ value proposition, long-term growth strategy and the product are essential benchmarks for an investment, however a great idea can’t flourish without strong management. So, one of my number one gauges is the person behind that idea and their belief in their own business.

How do you source prospects?

As with any well-managed portfolio, a valuable investment strategy has always revolved around choosing assets that effectively balance risk with return. Our private equity team knows that investment potential is determined by meticulous due diligence, relevant market knowledge and above all, evaluating the skills of those driving the concepts and products forward.

We come across around 3,000 business opportunities annually; from this we sift through and seriously review around 1,500 business plans that we believe have a degree of potential. After around 200 consultation meetings, we select the top 20 small and medium enterprises to build our portfolio.

What is your ideal investment?

For me, an ideal investment provides much more than dry statistics and returns. Instead, I enjoy being able to watch a company grow from its foundation blocks to a bustling, functioning entity that is productive in every sense.

Finding a management team that’s sure of their identity and knows how they want to grow is exciting. Being able to facilitate that right through to exit is the ultimate reward, particularly when you know that your capital has been fundamental to a business’ growth.

What are your USPs?

What makes us unique as a private equity house is that we offer EIS investments as a managed deal, so we have a very hands on approach. Each of our investors are supported from the moment the deal is secured through to exit. Companies that are new to the IW portfolio benefit from an active investor on the board, not just “a money tap”.

I’m in a very fortunate position to be supported by a team well-versed in both private business management and equity investments, so their expertise is invaluable for our network of investors and the companies in our portfolio. The team has over 40 years’ experience in private equity – they know their stuff.

What are the hot sectors?

Disruptive technologies are definitely having a profound impact and I think the UK is particularly strong in the financial technology (fintech) and crowdfunding sectors. We’ve always been a nation of innovators and forward-thinkers, our booming fintech industry alongside London’s reputation as a world-hub for small and medium firms is testament to that.

Three things a company should be able to offer an investor?

  1. A future proofed vision and strong leadership to show investors that you can confidently drive your business and ultimately their investment forward.
  2. A proven track record of clear progression, whether this be in relation to the founding concept/intellectual property, service proposition, financial path etc. Growth and growth potential needs to exist on all fronts.
  3. A very detailed business plan through to exit, answers the questions that have not even been thought of yet. I cannot stress enough the importance of due diligence.

 What is the cardinal sin when looking for investment?

A bad pitch! People buy into people so delivering a confident, clear and strategic proposition is essential. You need to sell your business, your personality and your plan – so communicate how well you know your market, how passionate you are about your business and how you intend to challenge and progress your industry.

What continuing involvement do you like in an investment?

We build strong working relationships with every member of our portfolio group – each and every team holds an incredibly important position that we nurture and support accordingly. It’s this level of interaction that makes our management of EIS funds into successful small and medium firms such a rewarding experience.

When we refer to the term “investment”, the financial factor is just the beginning – we assume a seat on the board of each investment so we’re always involved in the ultimate direction of their funds. We place a great deal of emphasis on trust and communication, so we regularly speak to our portfolio and deliver updates to our clients on their behalf.

What has been your best performing investment to date?

For me, performance is not simply about financial returns but also the long-term growth and impact that investment has had in revolutionising its respective industry. While I can confidently say that all of our current portfolio possess these qualities, IW Capital’s role in securing investment for WeSwap, represents one of my more recent highlights.

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