Alex Di Santo https://alpha-week.com/ en ESG Continues To Gather Steam in Venture Capital Investing https://alpha-week.com/esg-continues-gather-steam-venture-capital-investing <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>ESG Continues To Gather Steam in Venture Capital Investing</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-image--features.html.twig * field--node--field-image.html.twig * field--node--features.html.twig * field--field-image.html.twig * field--image.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-image field--type-image field--label-hidden field__item"> <!-- THEME DEBUG --> <!-- THEME HOOK: 'image_formatter' --> <!-- BEGIN OUTPUT from 'core/modules/image/templates/image-formatter.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'image_style' --> <!-- BEGIN OUTPUT from 'core/modules/image/templates/image-style.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'image' --> <!-- BEGIN OUTPUT from 'core/modules/system/templates/image.html.twig' --> <img loading="lazy" src="https://www.alpha-week.com/sites/default/files/styles/article_full/public/2023-10/ESG-10.jpg?itok=BMf5SrA2" width="400" height="225" alt="ESG" typeof="foaf:Image" /> <!-- END OUTPUT from 'core/modules/system/templates/image.html.twig' --> <!-- END OUTPUT from 'core/modules/image/templates/image-style.html.twig' --> <!-- END OUTPUT from 'core/modules/image/templates/image-formatter.html.twig' --> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Mon, 09/12/2022 - 05:47</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span><span><span><span>ESG frameworks (at least at some level) have been around for some time in the private equity space. However, we have seen a continued move away from ESG being a box-ticking exercise as part of the side letter process to a critical area of focus and part of the investment process for investors, managers, portfolio companies and consumers. </span></span></span></span></span></span></p> <p><span><span><span><span><span><span>Venture capital is sometimes perceived as a relatively slow adopter of ESG frameworks when compared to other private equity strategies such as buyout…but there is a good reason. </span></span></span></span></span></span></p> <p><span><span><span><span><span><span>Venture capital managers generally have smaller teams with more limited resources as well as immature portfolio companies lacking the means to adopt best practices in ESG. Venture capitalists would argue, however, that ESG is built into the investment process; it’s just not explicit. Some firms have made it explicit though, drawing up ESG frameworks of their own that mesh better with their particular investment processes and strategies and that they feel work better than the generic industry frameworks.</span></span></span></span></span></span></p> <p><span><span><span><span><span><span>With the market beginning to show a correlation between ESG implementation and high-performance the industry is beginning to adapt:</span></span></span></span></span></span></p> <ol><li><span><span><span><strong><span><span><span>Investor Level</span></span></span></strong><span><span><span> – during the fund due diligence process some investors will avoid managers that do not implement ESG into (a) their investment process or (b) the running of their own business (for example by having a clear diversity and inclusion policy). They will simply exclude the manager. Consequently, we are seeing venture capital groups step up their ESG efforts and put in place clear frameworks for delivery and reporting of ESG metrics. </span></span></span></span></span></span></li> <li><span><span><span><strong><span><span><span>Fund Manager and Portfolio Company Level </span></span></span></strong><span><span><span>– venture capitalists would argue ESG has always been part of the investment process, but this is now far more explicit in investment decision-making. Not only does a robust ESG framework help manage risk; there is also clear evidence that portfolio companies with good ESG scores outperform others. That is not to say that VCs only invest in companies that already have ESG policies in place, but that they are also looking for companies that have an ESG ambition and vision. Critically, in the Venture Capital space, early-stage companies that imbed ESG principles will be better positioned for IPO and therefore generally more attractive. Additionally, portfolio companies themselves may lack the in-house knowledge and expertise to create and live by ESG processes, so venture capital firms are well placed to give those companies with an ESG ambition some specific KPIs that help them achieve it – and then stick to it. </span></span></span></span></span></span></li> <li><span><span><span><strong><span><span><span>Consumer Level – </span></span></span></strong><span><span><span>increasingly consumers want ethical products and will exclude companies that do not have regard for the environment and social impact of their businesses. In an increasingly competitive market, there is no choice but to listen to the consumer.</span></span></span></span></span></span></li> </ol><!-- THEME DEBUG --><!-- THEME HOOK: 'filter_caption' --><!-- BEGIN OUTPUT from 'core/modules/filter/templates/filter-caption.html.twig' --><figure role="group" class="align-right"><img alt="Alex Di Santo" data-entity-type="file" data-entity-uuid="b615df72-a13e-4b46-a5d2-2174b38d74e8" src="https://www.alpha-week.com/sites/default/files/inline-images/Alex%20Di%20Santo.jpg" /><figcaption>Alex Di Santo</figcaption></figure><!-- END OUTPUT from 'core/modules/filter/templates/filter-caption.html.twig' --><p><span><span><span><strong><span><span><span>Venture Capital &amp; ESG – Where Are We Today? </span></span></span></strong></span></span></span></p> <p><span><span><span><span><span><span>According to surveys by the UNPRI and our own observations at Crestbridge, there have been some real moves towards ESG within the industry, with tailored exclusion policies, the addition of ESG clauses and KPIs in deal documentation, and post-investment enquiries monitoring the risk exposures and ESG policies of portfolio companies. </span></span></span></span></span></span></p> <p><span><span><span><span><span><span>The “Great Resignation” has also created a highly competitive job market in many industries. This competition for talent is shifting company policy at both the fund manager level and portfolio company level to align more with staff. Within funds, VC CFOs and COOs having to outbid each other for good staff, increasing salaries, but also offering extra benefits like carry to those in roles who aren’t traditionally offered carry. Participants also discussed how they're handling diversity and inclusion, and the progress made at their own firms in attracting diverse staff.</span></span></span></span></span></span></p> <p><span><span><span><strong><span><span><span>The Venture Capital Market Today</span></span></span></strong></span></span></span></p> <p><span><span><span><span><span><span>Venture Capital deal activity in 2021 – 2022 has picked up compared to the pandemic years and we are seeing some interesting trends. </span></span></span></span></span></span></p> <p><span><span><span><span><span><span>The upheaval of Europe’s energy policy following the conflict in Ukraine favours bold start-ups in the green energy and climate sectors. The market is expecting a marked shift of investment capital and debt in that direction, making venture capital and venture debt investments and lending respectively, more environmentally focused and climate-conscious. This is a trend that is unlikely to reverse itself anytime soon and should persist well after the Russia-Ukraine conflict abates.</span></span></span></span></span></span></p> <p><span><span><span><span><span><span>There is also an ongoing focus on sub-strategies/niches such as supply chain technology where, for example, artificial intelligence and robotics are being deployed - be it in driverless lorries or enhanced/live tracking of shipments. We also continue to see strong investment in the biotech and pharma sectors as health remains at the forefront of our minds. A further development is the ongoing diversification of typical private equity (buyout) and debt managers. We are seeing such managers enter the venture capital space (building or buying expert teams) as they hunt for yield. </span></span></span></span></span></span></p> <p><span><span><span><span><span><span>So, the acceleration of investment in healthcare and technology continues through 2022 and its important and encouraging to note an increasing sense of responsibility within the industry and to consider that a lot of this investment will likely benefit the planet and each of us in the years ahead.</span></span></span></span></span></span></p> <p><span><span><span><span><span><span>**********</span></span></span></span></span></span></p> <p><em><strong>Alex Di Santo</strong> is Group Head of Private Equity at <strong><a href="https://www.crestbridge.com/">Crestbridge</a></strong></em></p> <p><em><strong>***</strong></em></p> <p><em>The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group</em></p> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-tags--features.html.twig * field--node--field-tags.html.twig * field--node--features.html.twig * field--field-tags.html.twig * field--entity-reference.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-tags field--type-entity-reference field--label-hidden field__items"> <div class="field__item"><a href="/venture-capital-guest-articles" hreflang="en">Venture Capital Guest Articles</a></div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=9571&amp;2=bookmark" token="eBhCHROSY1PVR-g2w-qi3XAmyU3vKz2FJHwiMR_ASqA"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/alex-di-santo" hreflang="en">Alex Di Santo</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">Public</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Mon, 12 Sep 2022 04:47:55 +0000 AlphaWeek Staff 9571 at https://alpha-week.com How Loan-To-Own Is on the Rise With Debt-for-Control https://alpha-week.com/how-loan-own-rise-debt-control <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--title--features.html.twig x field--node--title.html.twig * field--node--features.html.twig * field--title.html.twig * field--string.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <span>How Loan-To-Own Is on the Rise With Debt-for-Control</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--title.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--created--features.html.twig x field--node--created.html.twig * field--node--features.html.twig * field--created.html.twig * field--created.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <span>Tue, 05/03/2022 - 11:05</span> <!-- END OUTPUT from 'core/modules/node/templates/field--node--created.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--body--features.html.twig * field--node--body.html.twig * field--node--features.html.twig * field--body.html.twig * field--text-with-summary.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><span><span><span><span>Investors seeking new opportunities have been fuelling the rise of debt for control – also known as loan-to-own – strategies. </span></span></span></span></p> <p><span><span><span><span>Under this strategy, managers seek to take control of a distressed company by investing in its debt, typically a senior debt tranche secured on the company’s assets, with the ultimate goal of converting it into equity at a later date. Managers carefully plan where the fulcrum security is in a company’s debt structure to successfully execute this strategy. The fulcrum security is the amount and type of debt most likely to convert to a controlling equity stake by the end of the strategy. </span></span></span></span></p> <p><span><span><span><span>Debt to equity conversions can take place through a consensual out of court process, bankruptcy proceedings or local law processes binding to creditors. If the manager’s claim to the equity is successful through one of these routes, the debt is then converted to equity under its plan of reorganisation (if in the US) or the jurisdiction’s relevant restructuring or insolvency frameworks, through which third-party equity and (usually unsecured) creditor positions are usually exited. </span></span></span></span></p> <p><span><span><span><span>In each scenario, managers need to have a clear path to a controlling equity stake to ensure success as they could find their plans thwarted if their position is less than 100% of the outstanding debt or they fail to establish a majority stake at all. Without a controlling interest in a debt tranche, managers may seek to convince other holders in the tranche to adopt its restructuring plan. </span></span></span></span></p> <p><span><span><span><span>Managers will have to solve a myriad of questions on their path to value, not all of which can be answered a priori given that vastly different companies can be the target of a debt for control strategy. For example, a small senior debtholder may not be so co-operative if they have a large junior debt holding. An investor who bought in at par will have different objectives to one who did so with a deep discount in the secondaries market. </span></span></span></span></p> <p><span><span><span><span>Despite this, the framework of a loan to own strategy is tried and tested, so there is a common process. This includes understanding the extent of the target’s cash runway, the fulcrum debt, composition of other creditors and the details in the terms of debt, public perception where relevant, the scope of a deal, whether all liabilities are resolved through the process or not and whether the company will need to be restructured (if solvent) or insolvency proceedings started. Wherever issues can be looking into in advance, they need to be thoroughly investigated before any investment is made in a potential target company's debt, though some managers do take tentative “toehold” positions that can be grown in the future.  </span></span></span></span></p> <p><span><span><span><span>Either way, debt for control is a viable and successful strategy that can be used by managers to gain control over a company’s equity, especially in a world of high valuations and a competitive issuance market. It's a manager strategy that has been rising in prominence for some time and one that we are seeing more regularly. </span></span></span></span></p> <p><span><span><span><span>In Europe, past high-profile examples of targets of debt for control strategies, with varying degrees of success, include Countrywide in the United Kingdom, Belvédère in France, and Monier and Almatis in Germany, following the Global Financial Crisis in 2009. More recently, high-profile examples can be found with Tacit Capital’s $80m debt to equity exchange for control over the US gym chain Town Sports in December 2020. Another with Cirque du Soleil’s creditors led by Canadian fund Catalyst Capital Group, who injected around $350m into the circus and agreed to reduce its debt from $1.1bn to just $300m. In each of these profile examples, the companies were allowed to move forward, putting their past financial missteps behind them. </span></span></span></span></p> <p><span><span><span><span>Given the nature of debt for control strategies and the possibility of insolvency proceedings or corporate restructuring, where expert knowledge and speed is of the essence, managers will want to work closely with advisers who are knowledgeable and have experience in the space. Such partners need to be able to collaborate closely with other advisers and stakeholders to manage key processes, ensure deadlines are met and regulatory requirements are satisfied.  </span></span></span></span></p> <p><span><span><span><span>Skilled lawyers but also skilled fund administrators have much to offer managers pursuing this strategy: during the restructuring planning process, around court dates, in taking direct control of the company, its assets, remaining debts and responsibility for employees and of course future exit - all of which will have to be provisioned for.</span></span></span></span></p> <p><span><span><span><span>**********</span></span></span></span></p> <p><em><strong><span><span><span>Alex Di Santo</span></span></span></strong><span><span><span><span> is Group Head of Private Equity at <strong><a href="https://www.crestbridge.com/">Crestbridge</a></strong></span></span></span></span></em></p> <p><em><span><span><span><span>***</span></span></span></span></em></p> <p><em>The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group</em></p></div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-tags--features.html.twig * field--node--field-tags.html.twig * field--node--features.html.twig * field--field-tags.html.twig * field--entity-reference.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-tags field--type-entity-reference field--label-hidden field__items"> <div class="field__item"><a href="/private-equity-guest-articles" hreflang="en">Private Equity Guest Articles</a></div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <drupal-render-placeholder callback="flag.link_builder:build" arguments="0=node&amp;1=9330&amp;2=bookmark" token="qHC2VzQK0GMtl5E4PVNI2USH0wmmCm99Abd-EpjNetI"></drupal-render-placeholder> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-author--features.html.twig * field--node--field-author.html.twig * field--node--features.html.twig x field--field-author.html.twig * field--entity-reference.html.twig * field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <a href="/author/alex-di-santo" hreflang="en">Alex Di Santo</a> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field--field-author.html.twig' --> <!-- THEME DEBUG --> <!-- THEME HOOK: 'field' --> <!-- FILE NAME SUGGESTIONS: * field--node--field-content-role--features.html.twig * field--node--field-content-role.html.twig * field--node--features.html.twig * field--field-content-role.html.twig * field--list-string.html.twig x field.html.twig --> <!-- BEGIN OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> <div class="field field--name-field-content-role field--type-list-string field--label-above"> <div class="field__label">Content role</div> <div class="field__item">Public</div> </div> <!-- END OUTPUT from 'themes/gavias_vinor/templates/fields/field.html.twig' --> Tue, 03 May 2022 10:05:39 +0000 AlphaWeek Staff 9330 at https://alpha-week.com