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Tech is everywhere - where should you invest?

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It used to be easy to define what a technology company was. A couple of Stanford drop-outs holed up in a garage would work on unleashing a new way of doing things that would end up transforming all our lives. Nowadays, the definition can be anything from a company developing core software with a high degree of intellectual property, to companies using open source technology to drive disruptions across value chains.

The key issue for investors is what opportunities are arising as a result.

Tech is everywhere

There was no sector left that technology didn’t influence, said Richard Sanders, Partner & Co-head of Technology at Permira, at SuperInvestor 2018 in Amsterdam.

“Technology is at the centre of our thinking on how sectors are going to develop, especially when we look at consumer and financial services, although it’s highly relevant to industrials and healthcare as well,” he explained.

Mark Miller, Founder and Managing Partner at CatCap pointed out that we’re actually at the next stage of technological development: “Everything that has been founded so far is great, but now it’s getting more advanced, we’re into the era of deep tech,” he said. “There are lots of possibilities now to re-disrupt industries with AI and machine learning.”

In addition, there were still opportunities to connect technology with companies that hadn’t yet taken full advantage of its capabilities. “There’s now a role for investors to bring the right partners together with the right technology,” he reckoned.

Beating the competition

But we had to look carefully at the investments we were making, argued Vladimir Lasocki, Managing Director and Co-Head of the Europe Technology Advisory Troup at The Carlyle Group. “We have certain expectations on how unique the companies we invest in are. For that reason, we look at niche verticals.”

This approach helped avoid competition from the tech giants, he went on to explain: “Tech is by nature a global game. We look for the type of company that has international potential but is still niche by definition. If the business we are looking at is encroaching on much larger players with much more resources, we are not interested.”

Richard added that looking at what the tech giants were doing was a now key component of their due diligence: “If you don’t have a well-formed view on what these guys are doing, it can be a scary place to invest,” he said.

While tech giants could interrupt deal flow, Vladimir argued that this also created opportunities: “We have made money thanks to the disruption they have wrought,” he said. He referenced as an example a data centre in Spain which had mostly been serving domestic customers, until Amazon and Google started using them. “Then everybody wanted to be there, and the value of the data centre shot up.”

But while others warned that investor sentiment was turning cautious, Mark was more optimistic: “There’s a lot of reluctance among tech companies to partner with corporates because of a perception that they will kill their culture and stifle innovation. Financial investors recognise that they have built something and will work to help them go international.”

Innovation in the mid-market

The next panel discussion looked what part innovation had to play in the mid-market. In a highly competitive market, how were players keeping their edge?

Lindsey McMurray, Managing Director at Pollen Street Capital said that specialising in a sector – in their case, business and financial services – helped a lot. “It’s a fast-moving industry, but because we specialise we can see through the complexity and moving parts and bring clarity, purpose and drive,” she explained.

As a growth investor, Pollen Street Capital helped companies harness technology and data to drive the top line, she said, such as implementing technology to win new contracts and onboard customers quickly and with a slick KYC process. Ultimately, this led to reverse enquiry – companies now valued them as a strategic partner for their expertise, more so than for their capital.

It’s all about spotting opportunities

Neil MacDougall, Managing Partner at Silverfleet Capital has 30 years in the business under his belt and says that it’s still all about the basics of identifying opportunities.

“Most people miss opportunity because it comes dressed in overalls and looks like hard work, and no amount of technology will ever change that,” he stated. There were lots of opportunities to take companies to the next level using technology, he admitted, but you still had to find them before anyone else did.

But what about innovating within themselves? The panel had various ways of doing this.

Neil said that small but incremental innovations were important. For instance, implementing an online personality test for the management team allowed them to spot weaknesses and flaws in advance.

But he warned against thinking that tech had to be the next big thing: “Tech makes the small guy every bit as dangerous as the big guy,” he said. “A smart person with a bit of software can do much more than a dumb team with more resources.”

Les Brown, Managing Director & Chief Operating Officer at HGGC said that accessing data regarding their transactions and using that to inform their strategy and success going forward was certainly a focus.

However, while technology was useful, sometimes all you needed was boots on the ground in order to spot opportunities others hadn’t.

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