What's Nf.wS Issue 11 December 1997
organization
19
that we are not a philanthropic cause; this
a pure, profit-making capitalist
nterprise.' Bert Steketee, a former
Rabobanker who is now one of Gilde's five
executive directors, expands on this theme:
'It is important to understand that we run
much greater risks than would be
considered acceptable in a strictly banking
context. The companies in which we invest
must have extremely good potential to
justify these risks. The key criteria in our
investment selection is the potential for
very high returns, which means that, in
nine out of ten cases, we have to decline an
investment opportunity.'
CRITERIA AT ODDS
Because the criteria that drive the banker (or
lender) and the venture capitalist (or equity
provider) are so often at odds, Gilde's posit-
ion of independence outside the Rabobank
^roup is seen as prerequisite to the mainten-
ance of its high level of growth. Having
made these points, however, both Steketee
and van Driel point out that four out of the
seven deals finalized by Gilde Participaties
since last year have been directly linked to
middle-market customers of Rabobank.
A GLOSSARY OF VENTURE CAPITAL TERMS
Venture capital and banking call for a related
but very different mentality in terms of
entrepreneurial outlook, profit expectations,
and a willingness (and ability) to assume high
levels of risk. Sometimes, similar terms are used
to describe somewhat different things. Here
are some of the 'buzzwords'that apply in the
world of venture capital.
Venture Capital hare capital that is provided
to privately-owned or unlisted companies
with the aim of realizing capital gains either
by contributing to their growth or increase in
value. More restrictively.the term is also
used to describe expansion growth capital
(as distinguished from capital for buy-
outs/buy-ins).
Buy-Out Acquisition of a privately-held or
unlisted company.
MBO Acquisition of a company or a corporate
division by its existing management; thus,a
'management buy-out.'
Due Diligence The sometimes exhaustive
process of analyzing the prospects and
financial position of a potential investment
candidate.
Upside Potential The opportunity for capital
appreciation through an application of
financial resources and management skills in
order to enhance strategies, improve asset
utilization,orexpand a company's business.
Minority Position Venture investments of less
than 5 percent of a company's share capital.
Portfolio The companies backed by a venture
capital firm orfund.
Follow-up financing Venture capitalists rarely
expect that their first injection of funds will
fully meet a company's needs. A second or
even third round of funding will almost
certainly be needed later as the business
grows or if unforeseen problems should arise.
A syndication strategy is often preferred at
this stage.
Syndication Investments involving a group
(or syndicate) of capital providers.
Exit The means by which capital gains on
investments are actually realized at the end of
the investment period.They include a public
share issue or corporate acquisition.
IPO Initial Public Offeringithe process whereby
the shares of a company are listed on an
official stock exchange.
EUROPEAN WINDOW
Gilde's cross-border investment perspective
provides the raison d'être for its fourth
existing fund called Strategie Situations,
which is capitalized at NLG 300 million.
This fund is designed to invest in other funds
and venture capital firms, and in the process
to cement cross-border relationships with
like-minded capitalists and institutional
investors in markets like the US. It has been
noted that many potential American
Iinvestors lack entrée and a window into the
|uropean marketplace. They need local
experts to inspire their EU investments and
manage any resulting equity stakes. Hence,
this fund could be a potential candidate for
substantial expansion in the foreseeable
future. Finally, for the past half-year, Gilde
has been carefully contemplating the
possibility of setting up either a Food Agri
or a Health Care investment fund. As it
happens, circumstances decided the final
outcome. 'A few opportunities unexpectedly
arose in the F&A area,' explains van Driel.
'These opportunities, combined with
Rabobank's existing forte in this field,
triggered us into a decision to launch the
Food initiative.'
FOOD FUND
The Gilde Food Fund, managed by a
dedicated team within Gilde Investments,
and capitalized at an estimated NLG 150
million, will be set up this year and will
focus on the technology component of the
food cycle. The target group includes
European and US companies that develop
techniques or specific equipment for food
processing, water purification, and similar
tech-driven capabilities. A related Regional
Fund will be set up at a somewhat later date.
It will be incorporated by Gilde, and
financed by other (potentially Asian)
participants. Its focus will be on high-
potential niche markets that add value to the
food chain - for instance companies that use
food processing technology, companies
focused on quality control and quality
labeling of foods, and so forth. 'The Food
and Agri industry is on the eve of enormous
changes, marked by a worldwide process of
rationalization and a radical increase in
efficiency,' remarks Van Driel. 'We believe
that each of the world's major regions -
having their own characteristics - will
become part of this process of change. In
order to capture some of the resulting
business, we will gradually set up funds in
Asia, South America, South Africa, possibly
North America, and Eastern Europe.'
DRIVING FORWARD
The decision to drive forward with these
F&A-related funds implies that a Health
Care initiative will have to be placed on
the back burner. Given the uncertainties
associated with rapid cycles of
technologically-driven change, Van Driel
and Steketee are both adamant to make
the point that Gilde must husband its
energies at this important phase in its
growth. 'Picking up Health Care at this
stage would require such a dilution of our
attention that it would be irresponsible,'
Steketee points out. 'There is only so much
that we can do at any given time; like
Rabobank, we realize that in order to
maintain a high level of expansion, one
needs to concentrate.'