Meet the notoriously outspoken poster boy of VC
It’s not very often that you’d find the resignation letter of a businessperson printed in full in the newspaper. But in 2009, when Jon Moulton quit Alchemy Partners – the private equity firm he founded – his letter pooh-poohing the strategies of the firm made headlines everywhere.
His parting words, “I’ll do it again, but better”, first published in the FT, left the financial world wondering what the venture capitalist had up his sleeve.
Moulton’s quick exit from Alchemy was followed by an equally quick entry (six weeks to be precise) into a plush office in Covent Garden. There he set up Better Capital, a buyout company.
Only two-years-old, the company owns a string of debt-laden-turned-money-making ventures. Reader’s Digest UK, yacht builder Fairline Boats and stationery supplier Spicers, to name a few.
How has his two-year-old company achieved a net asset value of £229m? “Well, you see, going by the loads of natural charm I have and the string of successes the firm has, anyone will be ready to part with their money.”
You’ve got to give it the man. At a time when his financier friends and foes joked about bringing the curtain down on his career, a “61-year young” Moulton at his unassuming best was quick to start from scratch and build another buy-out empire.
So I’ve come to Better Capital’s HQ bang opposite Wyndham’s Theatre for a 45 minute tete-a-tete with the veteran venture capitalist.
Moulton is quick to tell me that he has just 20 minutes for the interview. I can’t blame him. After all, he is busy raising £200m to invest in struggling companies.
“Don’t worry, I’ll give you enough quotes,” he chuckles.
And then begins a rapid-fire round.
I ask him how a mere two-year-old company has a net asset value of a whopping £229.4m (as of September 2011) and Moulton quips, “Well, you see, going by the loads of natural charm I have and the string of successes the firm has, anyone will be ready to part with their money.”
Moulton’s unapologetically frank demeanour has no doubt been shaped by an illustrious 35-year career. After studying chemistry at Lancaster University, he trained as a chartered accountant before setting foot in the world of venture capitalism.
He joined Citicorp Venture Capital in 1980 and went on to become the managing director of the company. He then headed up Schroder Ventures from 1985 to 1994. After a stint at Apax Partners, he founded Alchemy Partners in 1997.
“I think the best decision of my life was to leave Alchemy because I didn’t want to waste time flogging a dead horse. They had clearly got their economics wrong. Their plans to turn Alchemy into a specialist financial services firm was just wasting the potential of a long-standing, lucrative business.
“I really enjoy my work as a venture capitalist at Better Capital, which is essentially a loss removal business. What’s stimulating yet difficult is figuring out a way to turn debt-laden companies into profit-making ventures. I could’ve never done such good work at Alchemy,” he says.
I ask him if he’s scared of making enemies. “I’ve lived my life on the basis that I do what I think is right. That will make me a mixture of friends and enemies – it always has. I don’t want to just make friends otherwise I’ll end up being like Lord Mandelson or something – endlessly announcing good news in the hope that you’ll be popular.
“I think I can do better than that in life,” he adds with a smirk.
How to turn around a failing company
Moulton has been heralded as the “prophet of losses” and the “alchemist who turns dross into gold”. He’s something of a doctor treating sick companies with a cash injection and nursing them to good financial health.
Take the iconic Reader’s Digest UK. When the magazine was at the brink of administration, Better Capital snapped it up for £13m. And voila! In February 2010, Reader’s Digest won its first circulation increase in 17 years.
Discussing how Moulton mapped out its road to recovery, he makes the turnaround sound like a piece of cake.
“The time we bought Reader’s Digest, it was paying close to £5m worth of rent in Canary Wharf for just 90 people. You didn’t have to be a genius to work out the real reason of their downfall.”
With a smaller office in Edgware Road, the magazine cut its rent bill by 95 per cent. “We tapped on the potential of Reader’s Digest to improve its database of 500,000 customers and sell more products such as books, CDs and DVDs by direct mail, and the business was its way to profit.”
So how do you know which company will rise from the ashes and which won’t, I wonder. Moulton turns professor and gives me a quick lesson explaining his infallible checklist, that has done the trick to turn around hopeless companies and helped make him worth an estimated £150m.
Jon Moulton’s checklist for turning around debt-laden companies
1. Is there a route to profit?
“If a company is losing £5m and you can find a way of eliminating £6m of losses by closing, say, a French subsidiary, then you’ve got a route to profit,” explains Moulton.
2. Is the company worth saving?
After eliminating all losses and investing, how can you tell if the company can really be resuscitated?
“You’ve got to assess whether the business ultimately has any value, because turning around hopeless cases is a waste of everybody’s time.”
3. What are the final factors to consider?
“This is a tricky one and takes hours of brainstorming to answer. Your first instinct might tell you that the business will boom but then the market conditions might be hostile or structural problems like pensions, or onerous leases might block the way to recovery,” he says.
One would imagine that this checklist would have been applicable to turnaround British car manufacturer MG Rover – the deal that never was for Moulton.
When MG Rover was falling down like a pack of cards, Moulton, then chief of Alchemy, proposed a plan to buy a part of the company and shrink the rest of it to operate as a smaller car manufacturer. His plans were shot down immediately.
“I am sure MG Rover would have been one heck of a turnaround.” enthuses Moulton. “I would have made sure everybody got a fair deal, especially the distraught workers who were left high and dry.”
Much of the mainstream branded Moulton as a “ruthless asset stripper” – a nametag that he rubbishes without batting an eyelid
“People are entitled to their own false beliefs. I’ve never asset-stripped and I never will.”
In 2009, he produced 600 bottles of wine in his Kent vineyard and called it “Recession Red” with a picture of the then British Prime Minister, Gordon Brown, on the label.
Moulton says that the logistics of turning around a business don’t necessarily mean firing people and selling off assets to get a hefty sum of money. The man’s got the math on his finger tip
He tells me that while 40 per cent of his company’s capital is used to acquire a business, 60 per cent of the capital is invested in restructuring it.
“We provide the capital to troubled businesses; we don’t rip the assets out of them,” he says.
“The economy needs private equity, and the cabinet needs fewer PR execs”
Indeed, at a time where the UK is short of finance and funding, Moulton thinks that the “private equity industry is the only potential source of pumping money into the economy.”
“On a more negative note, which I am well noted for” he says, “most companies spend more 80 per cent of their capital in buying assets and perhaps just 20 per cent developing them. And at this time, the economy needs far more in development and growth capital.”
He calls George Osborne a chancellor who’s “all talk no plan” and Vince Cable “anti-entrepreneurial”
Moulton has always been known for his snide remarks and critical observations of the economy. In 2009, he produced 600 bottles of wine in his Kent vineyard and called it “Recession Red” with a picture of the then British Prime Minister, Gordon Brown, on the label.
“We’re living better today at the expense of those who are behind us,” is his catchphrase on the economy.
“Unless we handle the large debt that is staring at us in the face, we’re in for a colossal economic disaster. No one wants to admit their short-sightedness, of pinching pennies to make the balance sheet look good.”
Moulton’s not a very big fan of the government. He doesn’t mince his words, calling George Osborne a chancellor who’s “all talk no plan”, and Vince Cable “anti-entrepreneurial”.
Ask him if he thinks the business secretary is doing a good job, and he replies: “I’m going to turn that around and ask you: what has he done well?
“He might be well-meaning, he’s intelligent, but he hasn’t achieved very much. It’s high time he sees that our economy is immersed in debt and he should do something about it.”
Moulton feels that Cable hasn’t bothered to nip the problem in the bud and get the economy going.
He think there are defects in the cabinet as a whole too. “At the moment, a third of the cabinet are former public relations executives. What we really need is a third of our cabinet to be ex-army in nature,” he chuckles.
That Liam Fox story
Moulton has had his fingers badly burned by one particular cabinet member. Moulton was in the news in October after submitting indicting evidence to cabinet secretary Gus O’Donnell on former defence secretary Liam Fox’s dubious dealings.
Moulton had made a £35,000 donation to Pargav, Adam Werrity’s not-for-profit company. Liam Fox personally solicited the donation and an email from Fox to Moulton was described as prima facie evidence that Fox planned to benefit from Pargav.
Moulton says he was fuming about his money being misused. “It’s just fortunate that [Fox] wasn’t in range,” says Moulton, perceivably peeved.
“I made that donation for what I believed was naturally legitimate and valuable purpose, and then to read in The Times that the money has gone in expensive bars and home loans was a rude shock.”
But this is one of very few moments in our interview when Moulton does not come across as relentlessly positive, despite him telling me earlier he has a reputation for pessimism. You can’t miss his bouncy attitude and almost perennial smile.
And he certainly doesn’t lack confidence. “Modesty is clearly an issue with me. Let’s face it, all of us have self-images. I am clearly a super model with a lot of intelligence, a good physique, yet sadly a little short.”
I ask how he manages to be so full of gusto, despite having his fair share of snakes and ladders career-wise.
“To the great disgust of my wife, who I’ve been married to for thirty-something years, I’ve never really had a dull moment,” pat comes the reply.
“Thirty-something years?,” I query.
“I can’t recall, it’s been too long… my wife loses count sometimes too,” he adds with a giggle.