Sir Ronald Cohen: Apax Partners
Cohen talks about building an enterprising Britain and why social investment is his new passion
Towards the end of my meeting with Sir Ronald Cohen, I ask the legendary investor to distil his experiences of working with some of the UK’s finest entrepreneurial talent into a single piece of advice. Instead of the expected stock response about risk taking and self belief, he encourages me to start my own business.
“In your field, everyone knows electronic publishing is going to be the name of the game,” he says. “No one denies that more content will be consumed, but the business model for selling that content is still in a state of transition. Those who can anticipate the changes and find the answers will build huge businesses very successfully.”
Cohen calls this uncertainty “the second bounce of the ball”. Make an obvious choice based on current market conditions – the first bounce – and the success of your venture is likely to be limited. But if you anticipate the second bounce, he says, you can move directly into a leadership position in a market.
Business owners are often sceptical when venture capitalists assert their entrepreneurial credentials, yet Cohen is well placed to spread the enterprise gospel. He built the UK’s first private equity (PE) firm, Apax Partners, into Europe’s largest, with $35bn under management, offices in eight countries and more than 300 staff.
The slim, Oxford-educated financier today occupies an influential position at the heart of the establishment. Knighted in 2000 for “services to the venture capital industry”, his close relationship with Labour, and Gordon Brown in particular, has been the source of much debate. Yet Cohen remains an inveterate entrepreneur, and the story of his formative years is as powerful as any rags-to-riches narrative.
Cohen was born in Cairo in 1945 to a Syrian father and British mother. President Nasser’s reaction to the Suez crisis 11 years later was to provide an early defining moment. His family fled a rising tide of anti-Semitism, and landed in Golders Green, north London as refugees. He spoke no English, but was sent to Orange Hill grammar school in north-west London. Within two years he was top of the class.
The upheaval provided an early sense of independence. “It gave me the confidence that I could go out in the world and achieve the things that I was ambitious to do,” Cohen tells me. “There’s no doubt that overcoming challenges early on in your life gives you the confidence to take on others. So much of entrepreneurship has to do with confidence – anything that can strengthen that is extremely valuable,” he says.
At Oxford, where Cohen studied Politics, Philosophy and Economics, he displayed the first signs of an enduring fondness for leadership and public life when he stood for and won the presidency of the Union, securing a visit from Robert Kennedy during his tenure. But beyond a general desire to work for himself and “make money somehow”, Cohen’s entrepreneurial streak lacked direction.
He decided to complete his education at HarvardBusinessSchool, winning a scholarship. “I’m a great advocate of business schools,” he says. “If you haven’t had detailed training in business, it saves you a number of years.” Cohen’s Harvard colleagues were to prove equally influential. “They were ambitious, intelligent and had a track record of success. And they came from all over the world. It gives you a fantastic sense of what the best of your generation are keen to do, how they think and it provides a lot of useful networks for the future.”
Having worked day and night for two years, Cohen left Harvard a different person, driven and extremely hard working. “I learned to think at Oxford and how to apply that thinking to business at Harvard,” he says. His decision to study in the US didn’t just alter the course of his own life. It was also to become the catalyst for a seminal moment in the history of British enterprise.
Building an industry
Cohen justifiably casts himself in the same light as the entrepreneurs that he has invested in; respective Sirs Richard Branson and Stelios Haji-Ioannou head a stellar list, which includes some of the most prestigious names in corporate Britain. Yet you can forgive the numerous people who, over 30 years ago, told Cohen he was insane for trying to kick-start an industry that Europe knew very little about, from a country that then seemed as ill-suited to enterprise as at any time in living memory.
In 1972, Britain was on a three-day week and had three million unemployed. Entrepreneurship was an alien concept, a US phenomenon we simply weren’t suited to. From his experiences at Harvard, Cohen recognised that building an ecosystem for enterprise, which venture funding would be a key part of, could change people’s outlooks.
“Entrepreneurship is about role models and mindset,” he says. “If you’re in a society where you see a lot of people who have been entrepreneurial and successful, you think of it as a natural option. If your personality is not geared for it, then it may not be for you. But you’ll at least relate to it in an objective way and it will have positive connotations, just as being a doctor or a teacher does. Entrepreneurship is not brain surgery, but it does require an all encompassing approach to taking advantage of opportunities.”
Cohen would have to wait until 1981 before he would raise his first major fund in the UK. That £10m looks paltry against the firm’s subsequent achievements – a recent Apax fund raised £10bn. In context, though, it was an incredible accomplishment. For most, the challenge of establishing a business is enough. Cohen needed to build up an industry and an enterprise ecosystem that could support his fledgling venture. He was a founding director of the British Private Equity and Venture Capital Association, and remains a fierce advocate of the value and role of venture capital.
Before that landmark £10m fund was raised, Cohen was restricted to giving advice on corporate-finance and raising private placements of capital one venture at a time. Then, when two of the founding partners responded to the slow start by pulling out in 1975 and a third decided that he wanted to operate more independently, Cohen realised he wouldn’t succeed in building an investment business based in London alone. “Inventing a venture fund from scratch in Britain was something we might have come around to doing eventually, but in the US, the model was already implemented. Seeing it over there made it obvious what I needed to do,” he says.
Once again, he looked west, this time to New York. He had met investor Alan Patricof, one of the pioneers of US VC, two years before. In a shrewd move, Cohen asked Patricof to replace one of his departing partners. “Alan crystallised the model to go for,” says Cohen. “He helped define the type of fund and raise it. It was very hard to get even £5m on this side of the water. The US investors were more sophisticated and led the way. They encouraged the more enlightened British institutions to go down a road that had already been taken in the US. Then it was a question of working out where the ball was going to continue to bounce.”
Thought and action
During the 1990s, Apax expanded rapidly. It provided start-up capital for more than 500 companies and venture funding for many others. From Waterstone’s to Virgin Radio, AOL and Autonomy, the firm’s consistent successes are a testament to Cohen’s knack for anticipating the ‘second bounce’, and it’s an ability he’s always searched for in the hundreds of entrepreneurs who have pitched ideas to him. So what common features did he detect in the likes of Branson, Stelios, Tim Waterstone and Chris Evans? “They all aim high, are determined and very bright,” he says. “They want to be the best in their fields. There’s also a very short link between thought and action. They quickly get round to practical ways of thinking about an opportunity.”
Cohen is engaging and courteous company, but there’s a robustness behind his urbane exterior that some have identified as a ruthless streak. If ego is another common characterisitic of the entrepreneur, it’s no surprise that Cohen’s name has rarely been synonymous with self-deprecation. Ego is a legitimate source of energy and power, he says, but not direction.
Parties at his London mansion have achieved legendary status, with attendees including Lord Browne of BP, the Rothschilds and Sir David Frost. He’s also had the ear of Gordon Brown for years, so it’s disappointing that The Second Bounce of the Ball, his autobiography-cum-entrepreneur handbook, lacks any juicy insights from his years as a networker par excellence.
“Gordon Brown is an outstanding intellect and has a very social conviction,” is his diplomatic response when asked about the prime minister’s current sea of troubles. “He wants to make Britain a more efficient place economically and a more effective place socially. I’m very committed to supporting him. He’s a great human being. Politics is not an easy game. I’m very hopeful that he will be able to win the next election.” As an interviewee, Cohen is let down only by his absolute discretion.
The third bounce
Cohen turns 63 in August. With a £260m personal fortune, you’d forgive him for considering retirement, but for a man used to climbing the north face, it’s not an option. Since he stepped down from the helm of Apax two-and-a-half years ago, he’s been concentrating on spreading his message that equality of opportunity will allow us to close the poverty gap in Britain’s inner cities and, in tune with his titanic ambitions, even bring peace to the Middle East by doing the same in Israel’s West Bank.
“Reaching a balance between what you do for yourself and what you do for others is where fulfilment lies,” he says. “I always thought that I had a role to play in the relief of poverty, helping other people, ways that capitalised on the expertise that I had gained and my access to capital markets.”
Cohen might be capitalism’s loudest cheerleader, but he insists its sustainability depends upon equality of opportunity; he says failure to close the gap between rich and poor will lead to “violent reactions from those left behind”. He chairs Bridges Community Ventures, a community development venture fund he co-founded in 2002 to invest in businesses in England’s poorest areas, and in 2003 he created and funded The Portland Trust in an effort to ease tensions and alleviate poverty in the Middle East through economic means. He’s also spearheading an initiative to socially invest the estimated £70m in dormant funds in British bank accounts through his new bank, Social Finance.
“Relieving poverty and bringing peace to the Middle East is a greater challenge than building a private equity firm,” he says. It would be easy to dismiss such lofty ambitions as hubris, but encouraging people in the poorest 25% of Britain into entrepreneurship is a powerful rebuttal to the familiar image of the private equity professional as a locust. “Private equity is simply the control of financial and other risk in taking advantage of opportunities to create economic growth. If you begin to apply those disciplines and the ambitions that go with them, it’s not surprising that we’re beginning to see a wave of social entrepreneurship that may rival business entrepreneurship,” he says. “Mission-driven investors, from Bill Gates to Sir Tom Hunter, are not a flash in the pan. They are a visible signal of a huge change in society. Private enterprise will find a new area of opportunity in social investment and great companies are going to be judged on their engagement with social initiatives.”
In this context, party politics is a secondary issue. Cohen might be one of the Labour Party’s biggest donors, making regular contributions that run into the millions, but you sense that his allegiance will move with the power. “Whatever happens in electoral terms,” he says, “the issues that I’m working on – poverty and conflict resolution – remain.”