Finding the next Unicorn, a start-up with a valuation of over $1 billion is a tough ask.
Identifying the next Decacorn, a company worth ten times that, is even rarer. However, next-generation merchant bank GreenBank Capital Inc (CSE:GBC) believes it may have both in its portfolio.
Proactive sat down with CEO Terry Pullen to find out more about GreenBank, including how it identifies targets and its longer-term strategy.
Proactive: GreenBank Capital describes itself as a next-generation merchant banking business. What is next-generation merchant banking?
Terry Pullen: We define it as us having not just a forward-thinking strategy, but a down-to-earth approach in terms of the people that we want to engage with - whether they be new potential investments or shareholders. We have very much an open-door policy. We are a great believer in communications. While the coronavirus (COVID-19) pandemic has made face-to-face meetings difficult, the benefit for us is that we have been able to truly reach out globally through Zoom, through Microsoft Teams, and it's really meant that we've been able to purvey the openness and the communicative and collaborative approach that we take.
When we are introduced to potential new opportunities, and people come to us to chat about their needs, whether that be money or expertise, we offer them a workshop approach whereby, before we even make offers - or not as the case may be - if we like the initial introduction, then we're prepared to offer them up to two or three months’ worth of developing their business with them before either party commits.
We're not looking just to negotiate and cut the best deals; we're looking to understand how we can work with partners and what we have to offer them other than pure money. So, it's almost a management consultancy approach to building a relationship with a potential new vendor or new business opportunity.
Within those parameters, you are on the lookout for Unicorns to invest in. What's a Unicorn in GreenBank's book?
A Unicorn in our book is a business that has got the ability to grow exponentially. Ideally, it also will have a disproportionate relationship between turnover and profitability. So, the financial modelling, the monetization strategy means there's scalability that's not like a traditional sort of 'build and grow' business. Ultimately, a Unicorn for us would fit into a lot of the different tech sectors for obvious reasons because once you've actually got the tech you develop it but your running costs remain disproportionately low. We like the idea of businesses that can be scaled without any sort of real limitation to that exponential growth, and also have a really strong financial model of relatively low running costs once they have got through that initial sort of pain period of getting to income.
How have you succeeded so far in identifying those Unicorns?
One example is a company called Beelivery. It's an online grocery business, which is obviously a huge growth sector. It has taken off more so through the pandemic and has got a pretty crazy growth forecast in the industry. When we were introduced to Beelivery, we met with the CEO and with the team and spent time with them. And we absolutely believed in them as people. And we believed, with them having done the research into the market, that their model had an entirely different approach to so many of the models that have been funded and valued at literally multi-billions of pounds pre-revenue. So clearly, we feel that we have got in at a stage whereby a). we received relatively good value for money at the point where we took the risk, and b). we believe their monetization strategy and their actual model is better than anything else that's out there. It has a very low-cost base, with no bricks and mortar costs, while some of the larger valuation operations in the sector have huge running costs. We feel that the delivery model with very low running costs in a market that has lower margins will be one that will succeed and will clean up in that market.
Apart from Beelivery, what have been the company's best investments to date?
Without wishing to prejudice any of our investments, another Unicorn that unquestionably could be the growth story of the next decade is a company called CodiKoat. CodiKoat is a biotech company. It's a group of very talented, very bright, very entrepreneurial scientists based in Cambridge in England. They have come up with an antibacterial tech that frankly crosses over to so many different verticals of income, from nitrile gloves through to air filters, face masks, furniture and mobile phone covers. Because it's driven by nanotechnology, it actually delivers something that is not in the market at the moment. Not many people realise, that when they put on hand gel and they read the small print, it's massively unregulated. So, while they may claim to be 99% antibacterial, what they don't say is that they don’t take effect for two hours, and then last for just three minutes. I'm really not exaggerating there.
We invested half a million pounds in CodiKoat. Part of that money was spent on doing a pilot scheme at the Royal Opera House in London's Covent Garden and the cover that was given to tens of thousands of people that were guests of the Royal Opera House over a long period was proven to be as effective from when the protection went on to over a month later when it was still being tested. Codikoat has the potential to be revolutionary and make a global impact for good. As far as I’m aware, its technology is 'best in class'. And, as we speak, it's been patented and is also classified for ISO status. As far as we're concerned, we believe that can be more than a Unicorn. We think that could be a Decacorn because they have also just taken on the ex-CFO of Amazon and Deliveroo, a man called Philip Green. He's incredibly talented and incredibly entrepreneurial. We believe that CodiKoat will go into a Unicorn official status in the next two years.
Are there any particular sectors that you focus on for acquisition targets?
Not a particular sector, but the sectors that we would look for need to have particular themes. The theme of being global is helpful. Also, the theme of being able to scale relatively quickly. Obviously, we are looking for sectors that have strong growth prospects rather than levelling out or going backwards. And we're looking for sectors that cross over into the different forms of tech, including biotech … social tech … and the list goes on. Technology, we believe, is something that in many ways has only just scratched the surface. We really do believe that the tech stories of the next 20 to 30 years, people almost will disbelieve today but are the reality of tomorrow.
Does Green Bank have a buy and hold strategy with Unicorns like Beelivery and CodiKoat or are there plans to make them public or sell them once they mature?
The benefit of GreenBank and part of our DNA is that when we talk to vendors, principals, owners, we invest money, but we are also prepared to invest using our shares. The benefit of having shares in GreenBank is that we are listed on three markets and our stock is liquid, thereby giving potential partners an element of liquidity, which is clearly positive for them - if that's something that they're interested in.
In terms of the first part of your question, with the buy and hold IPO type of strategy, it would be foolish and narrow, I think, to have a one size fits all approach. It's important to treat each investment, treat each principal as an individual company or opportunity. And that's where our workshopping approach comes in.
Across the team, we've got over 100 years of experience in business and different skillsets, whether that be comms, the stock market, or mergers and acquisitions. What we try to do is to add value - if indeed our investees want us to do that - whilst working with the investments we make in a way that is as proactive and as positive as it can possibly be. Obviously, our shareholders are our number one priority. They have to be.
Contact the author at stephen.gunnion@proactiveinvestors.com