Private EquityApril 22 2020

Private Equity on ‘The Future Fund’

2 mins read

Michael Mowlem

Managing Director, Sandaire Private Equity

Sandaire manages, on behalf of clients, a wide range of private equity funds and direct investments. The funds have given us an insight into perspectives across a myriad of industries and geographies in regard to the COVID-19 crisis and, as my colleague reported in our previous commentary last week, we are already learning through some of our funds how businesses in Asia might be faring as lockdowns ease in certain areas. 

Outside of Asia we also have a number of direct investments closer to home in the UK and Europe and these also operate in a wide variety of sectors. Many have furloughed staff, sadly some have had to let people go and no doubt several are considering the Government’s Future Fund, announced this week, which is aiming to support early stage businesses who have been overlooked by the other loan schemes developed so far, because these schemes required businesses to be profitable. The Future Fund will provide a form of equity funding to early stage/pre-profit businesses but on the basis of at least matched-funding from third party investors. Thus far just three pages of explanation has been released, but the scheme will provide welcome relief to developing businesses to access funding. 

The long term consequences of the crisis are difficult to assess right now but venture capital funds still have an estimated $40bn of aggregate ‘dry powder’ to invest into businesses, based on unallocated commitments to existing funds. The availability of this patient capital should support businesses for a while yet and evidence would suggest venture fundraisings have been less affected by recent events than the buyout industry. 

Meanwhile we are already learning of some of the winners among early stage businesses: those facilitating home education, working and living are thriving. We invested on behalf of our clients in an online pharmacy platform in Europe last year and we were reviewing online shopping trends in light of the crisis. It took 25 years for e-commerce to see its share of retail spend in the US rise to 16% and in the past few weeks certain sub-sectors will have risen to 100%. As with changed behaviour in home working, consumers are adapting to the current environment and will perhaps make lasting changes to the way they live. The new economy was growing quickly but, as often is the case in times of crisis, 2020 may accelerate the many changes taking place with long-lasting consequences.  There will undoubtedly be long term successes among developing industries that emerge from this era and several of these are identifying themselves already.