Cleantech reinvention

UK private equity firm Foresight Group has come a long way since it was established in 1984. Originally named Venture Capital Funding, the firm was spun out of 3i by its founders, Bernard Fairman and Peter English, as a typically 1980s, US West Coast-style venture capital firm targeting technology. It now has a primarily cleantech-focused investment strategy, which utilises government infrastructure incentives to generate high net returns on green energy and recycling.$0$0During his time at 3i Fairman was, by his own admission, “a terrible employee”. Add this to the fact that his job at 3i involved advising others to move away from larger firms in order to set up independently, and one can see what prompted the decision to establish Venture Capital Funding in the early 1980s. The firm’s spinout was backed by merchant bank Robert Fleming & Company.$

The company’s sector strategy migration over the past 25 years is reflected in its numerous name changes. From Venture Capital Funding it became VCF Partners, then Foresight Venture Partners, and eventually Foresight Group. Fairman said it made the switch to Foresight Group in 2007 because he was having a hard time explaining what a firm erecting solar panels in Italy had to do with venture capitalism. Foresight was also the name of the firm’s first venture capital trust.$0$0“Up until autumn 2004 we were just a regular small cap, technology venture capital house. Now we don’t even call ourselves venture capital and our main thrust is cleantech,” says Fairman, adding “We prefer to call ourselves an alternative asset manager these days.”

Where’s the risk?

The firm made the move into what Fairman calls “a private equity approach to cleantech” in late 2004, when Fairman and his colleagues singled out cleantech as their investment sector of choice. They did this partly because of the increasing government incentives designed to induce investment in such technologies. The sector has “all the characteristics which make it a difficult investment area, like no cash-flow”, according to Fairman, but he insists that the government incentives and the growth of environmental awareness, combined with increased demands for energy and the use of tried and tested technologies to meet these demands, reduce the investment risk enough to counter this. “In venture capitalist terms the risk [of investing in cleantech] is so low as to be off the scale of lowness, so to speak,” he says. After all, “even in the recession people are not noticeably turning the lights out to save money.”

For example, foresight recently built a factory in Dagenham in London which recycles used plastic bottles into reusable high-grade plastic. “Where was the risk?” Fairman asks, explaining that the technology they were buying into could work effectively in other factories around the world. The only risks that Fairman admits to are the construction risk, and the possibility that the materials being produced and recycled might become more expensive. He combats the latter, he says, using five-year fixed-term contracts with suppliers.

On a recruiting spree

Foresight’s head office is based in Kent in South East England. The firm has recently opened an office in Rome, Italy, where it is focusing on raising the rest of a €50 million European Solar Fund. There are 25 people based in Kent and two in Italy, making a total of 27 Foresight employees. They are split into three investment teams: the largest team covers environmental infrastructure; the portfolio team deals with approximately 100 companies and Foresight’s four listed venture capitalist trusts and the buyout team specialises in £10 million ($15 million; €11 million) to £20 million management buyouts.$0$0Foresight appointed its first chief financial officer in 2005 in the form of Gary Fraser, who joined the firm from ISIS Asset Management. There are six back office employees in total, dealing with the administration and Financial Services Authority requirements for both the listed venture capital trusts and private equity funds managed by Foresight.

This year Foresight has been on a recruiting spree, expanding its team from 19 to 27 individuals. “We recruit when we raise money and not the other way around,” Fairman says. “The fact that we have been recruiting this year has been a function of the fact that we are raising money.” Notable appointments this year include the former director of UK waste management firm Shanks, Nigel Aitchison, to the role of industrial partner in July; Louise Farley of Acuity Capital, an alternative asset company, to marketing director in October; and former 3i executive Sonia Powar to the management buyout team in November.

Fairman credits Foresight’s achievements in the cleantech sector with an awareness of the need for in-house expertise and a refusal to outsource. It has two heavy-duty engineers who enable the firm to assess whether or not an energy plant is in working order without having to rely on the portfolio firm’s technicians. Foresight is also in the process of hiring a third engineer for its Italian office, in order to oversee a solar sub contractor as part of a European Solar Fund investment.

Mass communication

The firm has in excess of 10,000 individual investor shareholders, so being able to communicate with large numbers is essential for the smooth running of the business. The back office employees use a database software platform called Eventures to distribute mass marketing. Foresight staff send more than 5,000 emails a week, according to Fairman, combining individual mailings with direct marketing, reports and e-newsletters.$0$0“We of course communicate slightly differently depending upon each fund,” Fairman said. The “all singing all dancing” Eventures is also used to track the administrative side of investor communications, including cash calls and tax certificates. The staff also uses Microsoft Office for its daily administration.