While traditional assets will form the bulk of most portfolios, investing in private companies could really boost performance and diversification. Here, Matt Taylor, managing partner at Rockpool Investments, explains how his firm offers a different approach to private equity.
Investing in profitable private companies is an increasingly attractive option for individual investors as returns from private company investing are not closely correlated to those from traditional asset classes.
Smaller companies often find it hard to attract investment, even with a track record of profits and growth. As a result, highly-attractive terms can be secured for direct investment.
The problem historically has been how to invest in private companies. The traditional route of investing via private equity funds meant that investors had little control or visibility over where their money was being invested. The alternative was for the investor to do all the work themselves. But few private investors have the time or experience to undertake the work required to find the right companies, negotiate the best terms and monitor the investment through its life cycle.
Having enjoyed an extensive career in the private equity sector, Matt Taylor recognised that there was a gap in the market and was convinced that he could provide something much better for investors. In 2011 he launched Rockpool and since then, it has offered a completely different route to private company investing. Rockpool’s model is based on investors making direct investments into private companies – but with Rockpool as the professional investor who finds the best private companies, undertakes the thorough due diligence required on prospective investments and negotiates the best terms.
We only consider businesses founded on strong principles which have good strong paths to growth, said Taylor. We look at those which require between £2-5m in funding and we operate a very stringent due diligence process.
We’ve done all the hard work putting the opportunities in front of clients and we enable them to make their own decisions; we allow them to ask as many questions as they want in order to decide whether to invest, he added. There’s a lot of dialogue and engagement.
Rockpool’s equity deals qualify for the Enterprise Investment Scheme (EIS). This means that investors benefit from upfront income tax relief, Capital Gains Tax exemption and loss relief, with the option of deferring gains on any asset. This powerful combination of tax reliefs can benefit investors with a range of different tax situations including high income, pension withdrawals and inheritance planning.
Investors access Rockpool’s investments by becoming a member of the Rockpool Network, which includes hundreds of successful entrepreneurs and business professionals with experience in a wide range of business sectors. The Network offers a real benefit to the investment selection and the due diligence process.
We are not sector specific, we simply look for good quality British businesses that have room for growth, said Taylor. Because of that we don’t have sector specialists, but our network of business professionals allows us to very quickly reach people who are highly experienced in very specific areas: that’s very powerful.
Rockpool’s approach to direct investing in private companies is certainly proving popular. In just over three years the company has attracted 1,000 investors who have invested over £100m. And it’s still growing – in the last year alone, business doubled.