VENTURE capital is a term used to describe money invested on risk basis.

According to Frank Holmes of Cardiff-based Gambit Corporate Finance there are few true venture capitalists in the UK.

The word venturer, he believes, has disappeared from the scene and most are now labelled private equity investors. This has resulted in less money being made available for credible early stage businesses.

He said, “This implies that the risks being taken are reduced significantly by the way in which these organisations or individuals approach any investment decision.

They have effectively increased the amount of due diligence and are taking less speculative approaches to their investments.”

Venture capitalists can range from individuals knownas Business Angels to small, medium and large institutions that, effectively, try to achieve a high return on money invested to reflect the risk taken. Clearly, there is a significant funding gap between these.

Different venture capitalists have, Mr Holmes points out, different priorities in terms of the rate of return they expect and the time in which they wish to realise it.

But all have a common focus and that is to create a capital gain over a period of time through a growth-and-exit strategy. He said, “Today there are fewer public sector organisations that take venture capital and invest in companies within their geographical region. In Wales we have Finance Wales,which has an equity arm to assist Welsh companies who find it difficult to find venture capital elsewhere.

“That being said, there is still, within Wales, smaller venture capital bodies who effectively invest in transactions at the smaller end of the market and I believe Wales could actually benefit from more being established.”

Over the past year venture capital activity in Europe and Ireland has grown dramatically while the level of activity in the UK over the same period has dropped s i gn i f i can t

y.

The reason for this is that venture capitalists prefer to buy when the mar-ket’s valuations are low and then sell when pricing is high and the UK is a far more mature market.

For promising growth sectors Mr Holmes points to waste management, health care and food technology areas.

He said, “Health care is growing because of a mandate within the NHS to outsource to the private sector a number of disciplines and facilities ranging from renal care and laboratory management to MRI scanning.

“Within those sectors there are a number of options for private companies to operate what were traditionally public services.”

Waste management, meanwhile, is a huge area of opportunity as government looks to find ways to deal with environmental issues and the problems of pollution and landfill resources.

All, however, have one thing in common – they are recession- proof.

One of the biggest problems faced by venture capitalists inthe past 18 months is their inability to exit their investments either by selling or by finding an alternative route through a market flotation.

The reason, it seems, is that equity markets are depressed and the appetite for equity investment is at its lowest for some time.

Coupled with this, companies are now looking to expand inwardly rather than by acquisition.

Despite this trend, Mr Holmes believes there will be an upturn in two areas.

“We are seeing a lot more companies coming up for sale as senior management decide it’s time to move on,” he said.

“We are seeing this because the retirement age is falling and people are looking to exit at an earlier age.”

Another factor is the huge shift within the venture capital market as fewer major deals arise in the UK compared with the less developed markets of Europe and Ireland.

Added to this are disenchanted management teams and investors who have come to the conclusion that it’s time to part company.

Consequently some of the larger venture capitalists’ equity houses now look to off-load their investments, converting them to cash for new acquisitions.

If this is the background against which a venture capitalist operates what is the al-chemy that comprises his make-up?

Frank Holmes concedes it’s difficult to categorise a venture capitalist in terms of persona.

He thinks the typical make-up would include someone who enjoys creating and chasing a business deal, someone who is well researched and looks for the exciting growth opportunities within specific market sectors and business, someone who is keyed up on what constitutes a balanced but hungry management team which will drive its plans to fruition because they have to make plans come to fruition.

“I suppose it’s a financier who can spot an opportunity in the market, which is innovative and helps a company, enables a business to grow quickly and give it a number of exit options,” he said.

“He or she must be someone who clearly likes money and who aspires to see their risk investment increase several fold and is prepared to speculate in order to accumulate. Not all these investments will come good.

The key to achieving success is knowing which is the right venture capital for particular transactions. There will inevitably be failures but there will be several stars that will make up for the rest and that is the ethos of venture capital investment and portfolio management.”

On the downside Mr Holmes said one of the more depressing features encountered over the past few years has been the reluctance of City-based venture capitalist private equity houses to come into South Wales unless there is something exceptional in the offing.

This means small and medium sized companies, many with brilliant ideas, are placed at a disadvantage.

“Over the past eight years Gambit has invested in a wide portfolio of companies and I’m pleased to say we have more successes than failures,” he said.

“There are more businesses out there that venture capital organisations can help if they have the resources to do so.”

The future for Wales lies in dispelling the inherent suspicion that exists between the public and private sector.

There must be an understanding that if wealth is to be created, those empowered to do this need to come to terms with the fact that individuals, who generate wealth, employment and economic impact must have easy access to the funds available.

“We have to make sure the barriers that exist in getting money to the best projects are broken down and people who understand what is required are put in place to do this.”