For entrepreneurs, time is extra limited, so we live by simple rules. One of mine: Avoid the TV, so there is more time for more important things.
I do make an exception though: F1. I love to zone out for a Formula 1 race. And since the season just started again, I’m in luck!
(TL;DR: I am coming back to F1 after this short sidestep. Bear with me.)
Before turning my hand to entrepreneurship, I had a 15 year banking career, dealing with different client segments. Through services like loan issuance and cash management, we helped our clients to build businesses, create jobs and boost the economy. One thing we learned was that in business, speed is important (hint). Something that I understand now more than ever.
For a big part of my banking career I dealt with Alternative Investment funds, such as Private Equity and Real Estate. This business serves as another building block in the success story of many other companies: Access to capital. Studying the many investment memorandums, prospectuses, tax structures and other information gave us a front row seat in the theatre of international business. What we learned in Private Equity was that speed is not just important, it is everything.
in Private Equity speed is not just important, it is everything.
Serving these fast paced business lines was fun, but unfortunately, less so every day… Financial and reputational risks are increasing constantly, and to mitigate those risks we typically end up with slow and administrative processes. And as we said, Private Equity requires speed, so this creates a real problem.
This reminds me of the safety car in Formula 1. When do you bring out the safety car? When there is a crash, or when the race director deems other elements (heavy rain) too dangerous to allow the race to continue safely. The race director needs to protect the drivers, but at the same time has to avoid wasting the race for nothing.
For a spectator a safety car situation is the time when you get up and get a new soda. After perhaps the initial shock or excitement of the crash, nothing moves, it’s boring so you’re not missing anything. Even worse is when a race starts behind a safety car, it feels like the entire thrill of the race is gone from the outset.
Next time though, look at F1 cars and the safety car. If you just see the safety car, you notice that it’s an amazing machine that’s moving at high speed and with considerable driving skill. But when you see the F1 cars behind it, you realise that it is not fast enough. The F1 cars meanwhile are desperately trying to keep their tyres warm be frantically swerving across the circuit. Cold tyres leads to lack of traction which leads to sliding off the track or worse accidents.
So lets translate this metaphor to PE. Who’s who? You guessed it:
Now go and read the above paragraph again with this translation in mind. What would happen if the spectators of the Investment Fund race would leave their seats out of boredom or frustration. Certainly not good for the sport.
In the financial sector, we often blame other parts of the ecosystem for the lack of traction. “If only the regulation were lighter, we would do more business”. “If only the bankers and fund managers behaved, we would need less regulation”.
The truth is however that everyone needs to play their part:
I am happy that we are playing our small part in producing the best possible “tyres” for the fund industry. It’s great to protect our racers from unnecessary accidents, losing their racing license, losing the respect of their fans and even helping them race faster.
Enjoy the race!