 |
|
|
Interim management links:
|
|---|
Why choose BIE?
What's New?The Venture Capital Industry
Filling the void
Probably the most common reason for appointing an interim manager, at least at the CEO or FD level, is under-performance in a VC-backed business. Adrian Johnson, CEO of Legal & General Ventures, says that typically an interim CEO is brought in when a company has lost direction or is not meeting its original objectives. This trend has become more common in the last year due to recessionary pressures in many industries.
In turnaround situations, the venture capital house is often keen to remove the existing executive as soon as possible. However, it is likely to take two or three months to appoint a permanent successor. In the meantime, an interim can be found very quickly to run the company and implement major changes. Often the priority for the venture capitalists, when an investment is going wrong, is to get the existing CEO out immediately rather than let the company drift downwards until a permanent executive can be appointed, says Granville Baird’s Mike Fell. This kind of situation has become quite common in the technology sector in the last couple of years. Many technology companies received funding from venture capitalists but lacked a rounded or experienced management team. The companies got into trouble when market conditions worsened, says Ransom of Interregnum, which specialises in early-stage or high-growth tech companies.
The VC house uses interims at the CEO level to bring in a hard commercial edge, says Ransom. When companies are growing rapidly, which is what every VC investor hopes for, Interregnum often uses interims to beef up specific areas, such as finance or sales and marketing. Changing market conditions in particular sectors frequently lead to the appointment of an interim, says Patrick Dunne, responsible for marketing at 3i. The management team may have been formed in one economic environment, but when that changes, so do the company’s requirements. For example, in an electronics company, 3i recruited a finance director with strengths in fundraising, growth and internationalisation. But when the sector was hit by oversupply and falling demand, an interim finance executive was appointed to work alongside the permanent finance director. The interim had a track record in cash control and in building resilience in companies experiencing difficulties. The role of the interim in such cases is to tackle a limited number of clear tasks, rather than the permanent executive, whose role is longer-term and more strategic, says Dunne.
There are some differences in the way an interim will be used in a venture capital situation than in, say, a publicly quoted company or a family-run business. Venture capitalists generally do not get involved in the day-to-day running of a business. They work in partnership with the management teams they have put in place. They expect to be kept in close touch with what is going on in the company, particularly if there are any clouds on the horizon. Communication between the interim, the other managers and the investors is paramount, says Fell. Venture capitalists will want good sight of any problems, partly to protect their investment and partly because, with their contacts and experience, they may be able to help.
Because VCs are planning to exit the company in a relatively short time frame, there is an added urgency in the way that problems are dealt with. “If we see money disappearing, we want to see changes quickly,” says Ransom. Venture capital firms can bring in changes by appointing an interim much more rapidly than a public company that must gain the approval of a wider range of stakeholders.
In turnaround situations, 3i might put in an interim CEO or FD to drive down costs and secure an exit for the investors, says Thorneycroft. There may be similar cost pressures at a corporate, she adds, but in venture capital-backed businesses it is often more urgent to get the business back in to shape quickly. Those running large plcs rarely have much direct contact with their shareholders, whereas in VC-backed companies there is a close relationship between directors and investors. Thus the interim receives clear and focused objectives from the investors, and the investors are on hand to discuss how things are progressing.
Unlike in other businesses, interims in VC-backed companies will often have to deal with a different range of funders. The business may be backed by, say, 3i and Legal & General, with a small investment from Apax, plus the clearing bank. “The interim has to know how to communicate with them all, keep them all abreast of what’s going on and keep them comfortable with their investment,” says Thorneycroft.
The emphasis on speed in VC-backed businesses means that when a decision is made to bring in an interim, the investors want someone as soon as possible. Some VC firms have their own network of individuals they can call on to act as interims, but a growing number are using the services of specialist providers.
To discuss your interim management requirements with BIE call +44(0)20 7222 1010