Venture for gain
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WHAT'S NewS Issue 11 November 1996
Gilde - one of the pioneers in the Dutch venture capital market - has
grown to become a leading player in this now-established field with
investment funds valued at over NLG 1.5 billion. Rabobank's
agreement with the company earlier this year marked both the
coming-of-age for Gilde and an important new phase in Rabobank's
strategie commitment to the venture capital sector.
In the mid-1980's, venture capital was still a
fledgling market in Holland. Many banks
were quick to rush in as it showed signs of
taking off, but very few actually made
money in the end. The Dutch market was
still too underdeveloped, management was
forced to climb a steep learning curve, and
the risk/reward ratios associated with
investment in young Dutch enterprises
proved entirely unsatisfactory at first.
TURBULENT START
It was 'a learning experience' - so to speak -
but those painful lessons were transfigured
into two golden operating principles that
remain every bit as central to Gilde's
investment policy now as they were in the
more turbulent early days. First, the
successful venture capitalist intending to
make an investment in a company in its
early growth stages should carefully focus
its attention on specific industry sectors.
Secondly, MBO financing cannot be
approached from a traditional banking
perspective: it requires a much more
entrepreneurial outlook and a greater focus
on such factors as cash flow.
NAME RECOGNITION
Once these two lessons were taken to heart,
Gilde's earnings brightened considerably,
making it attractive to Rabobank both as an
investment and as a vehicle for promoting
its strategie aims. When deciding on the
Gilde agreement, the key question was
largely philosophical: should venture capital
products be marketed outside the bank,
under Gilde's strong name, or under
Rabobank's own label? The eventual
decision was that although Gilde Investment
Management is controlled by Rabobank
and operated with a view towards attaining
strategie synergies, it should be given
complete autonomy and a mandate - first
and foremost - to deliver financial results.
EARNING RETURNS
Gilde's specific objective is to select
businesses that have the potential to
generate an overall compounded return of
over 30 percent per annum in order to yield
adequate cash returns to its own investors.
GILDE INVESTMENT
FUND
De overname van Gilde
moet meehelpen om onze
strategische doelstellingen te bereiken. Het
deze maand gestarte fonds Gilde Participa
ties B.V. tracht een groter aandeel in de
markt van Nederlandse middelgrote
ondernemingen te krijgen en sluit hiermee
aan bij onze doelstellingen. Ook op inter
nationaal gebied zullen nieuwe fondsen
opgezet worden met name gericht op
agribusiness en bedrijven in de gezond
heidszorg. De twee al bestaande fondsen
richten zich op vermogensfinanciering van
MBO's en MBI's (middel)grote onderne
mingen en op snelgroeiende IT sectoren als
software applicaties en geavanceerde
communicatie producten.
underwritten by Rabobank, the funds must
also satisfy substantial outside investors
which include old friends (and fund
shareholders) and other important
institutional and pension fund investors.
BANK GOALS
Starting this month, November, a third
closed fund, geared to Rabobank clients, is
being established to help the bank pursue its
long-term goal of capturing a higher share
of the so-called 'middle market' comprised
of medium sized Dutch companies. Valued
'At the end of the day, our primary
responsibility is to insure that we earn an
attractive return on our investment,' says
Bert Steketee, the former Rabobank director
who has now moved to Gilde as one of the
three executive directors. The Gilde group
headed by Steketee is comprised of a
management company - which provides the
essential core of expertise and contacts -
and three separate investment funds (with a
fourth on the way). Its activities are
diversifying from the Netherlands through a
global network of correspondents into the
United States, the Middle East, Continental
Europe and Asian countries as well.
OLD FRIENDS
Of its three funds, the first, with capital of
NLG 800 million, focuses on equity-type
financing of management buy-out (MBO)
and buy-in (MBI) investments in mid-sized
and larger companies. The second, a fund
with a capital of NLG 200 million, is called
Gilde IT Fund and focuses on fast-growing
companies in such IT sectors as software
applications and advanced communication
products. Both of these are managed by
dedicated teams comprised of senior
management members who are, themselves,
investors in the capital at stake. Although
Bert Steketee: 'Our intent is to develop
profitable relationships.
at some NLG 300 million, Gilde
Participaties BV is closely linked to the
Rabobank. It will act as an important
component in a total service package.
Finally, further funds with capital totaling
some NLG 75 to-150 million are planned
during the course of next year. Like the
third, they will be designed with Rabobank
goals in mind. Specifically, they will be
geared towards supporting Rabobank's
international focus, particularly in the
strategie agribusiness and health care
industries.
UP FRONT
In the case of all funds, however, Gilde's
management calls the shots. This has been
deemed essential in order to maintain
Gilde's market position and to justify the
continued faith of its outside investors.
'The market - and the market alone - is
what drives us says Steketee. 'We are
terribly thorough, if not demanding, when
we consider whether to fund a company,'
he remarks. 'Our intent is to develop
profitable relationships. The more
demanding we are up front, the better the
chances of financial success. After all,
when investments work out, one can
always secure further funds...'
