This is why I’m putting my family money in private businesses

Over the years, I have become deeply concerned by the way listed companies mislead investors in their desperate attempts to support their share price.

Briefings to shareholders have become politically charged and misleading. Independent analysts are thin on the ground. Investors get spin before substance.

I believe we are returning to an era where trusted private businesses will continue to regain the prominence they enjoyed generations ago, with the help of disruption.  This is why I have redirected my family money from stock picking to private investment in hot industries, starting with an investment in the clothing maintenance and eco home care market. The movement is growing. And I won’t get fooled again.

You only find out the real opportunity once you go through the door

I recall a large healthcare company, whose board screwed over its shareholders by attempting a ridiculous merger in 2018 after a previous deal had failed spectacularly. The mergers only made sense to the board and its CEO, who agreed to it on condition they retained their posts and huge bonuses.

It appealed to the owners of the targeting company, who knew a flailing fish when they saw it and an opportunity to bag a listing on the NYSE. The stock now trades 95% lower than 5 years ago. Closer to home outsourcing companies like Carillion, who have been brought to their knees by poor management – plus named retailers who failed badly at Ecommerce.

Reassurances by directors in hard times amount to little more than an outright lie, to stop a stampede out of their stock. Rather than deals made on sensible terms, companies strive to “get the contract at any price”. Share price above share value. It has become almost impossible for investors to get a genuine edge. I did not get into stock picking to become the recipient of lies.

Fortunately, there is a better way to invest, as I learned during eight years of negotiations to secure family access to a portfolio of Yorkstone quarries.

For years to come, the deal will produce a supply of the stone, viewed as the world’s best paving material by builders. Yorkstone paves cities across the world. We are contracted to supply 10m tonnes over 60 years.

Our team has learned to ferret out the suspect behaviour which exists in every business. Unlike listed companies, there aren’t many places to hide for owners in a private company.

The first thing you can check with CEOs is their level of transparency. If they are evasive, it’s almost always a bad sign. If we ask for sales reports that don’t come, or can’t be explained, that’s also a bad sign. So are high staff turnover rates.

But you only find out the real opportunity once you go through the door.

That’s not possible to see during an investor pitch, which is akin to making the car look as good as possible. Our job as owners of a private company is not to polish it up, but help it travel in the right direction, and at the right speed.

We need to know the foibles, the challenges and assess if they can be met.

The devil is in the detail. For example – manufacturing – something the UK was, and is, pretty good at  – usually only works when stressed fully.

And investors offering precious capital deserve to know what ethos is in force. Is it hard or soft? A duvet-day culture gives workers the chance to take time off on a whim. I believe its time has been and gone. Thankfully. It does not work when parts have to be assembled in products at an exact time and to an exact specification.

I am very wary of soft management, I think it has little place in high-growth business. High growth business needs high energy, highly driven problem-solvers who can also inspire others with their work ethic.

Having watched listed markets struggle to move higher over the last twelve months, we have put together a strategy that focuses on finding private companies with high growth potential.

This is no simple feat. However, using our years of business experience in technology, engineering and telecoms helps. My experience of making businesses world class and internationally focused in several sectors has lead me to conclude our mission as an investment fund is at the vanguard of this movement. Our analysts and team are second to none in this regard.

We believe we are in a strong position to evaluate opportunities which have the chance to succeed. Capital raising is no guarantee of success. On the contrary, if deployed incorrectly, it can decide merely how big the “bang” is when things get overheated.

We have created a company called Thames Capital which is seeking co-investment opportunities with family offices, and others. We expect to raise £200 million by 2021, and are receiving 15 to 20 pitches a week, some of which appear exceptional.

We seek to understand a target behind the pitch deck through full disclosure and due diligence, which needs to involve its founder. Successful companies receive a small investment and the services of a Thames Capital expert, who is out to know the business from within.

This allows us to see everything we need while adding value and expert advice from the day we invest. Once a venture meets our targets, we invest more money. Our strategy is to help the companies grow so they are ripe for take-over or IPO. We call this our “full visibility” approach.

We have used this approach to invest in Clothes Doctor, the UK’s first digital clothes repair company. The sector is highly fragmented but worth £ billion in the UK, and £30 billion worldwide.

It is dominated by “ma and pa” businesses that operate their workshops through an old fashioned offline approach. Clothes Doctor can dominate this market.

We believe Clothes Doctor’s strong brand, IP and loyal customer base will form a strong moat and dominate its markets. Our involvement has allowed Clothes Doctor to develop into the hugely profitable £10 billion a year eco-laundry detergent market, exits in this field include Ecover to SC Johnson andThe Laundress to Unilever at $200 million in 2019.

We believe the best is yet to come.

Marcus Thompson is an award-winning entrepreneur turned investor with a background in environmentally focused businesses in the engineering and telecoms sectors. He recently set up Thames Capital, a private investment office.