Meet John Bailye (The Side by Side Partnership)
- On June 18, 2019
- By GrowthInvest
The Side by Side Later Stage EIS Fund (SBS) is a new EIS Fund specialising in taking proven high-potential companies and developing them into successful commercial businesses. We sat down with entrepreneur, investor and Partner John Bailye, to get his insights on start-ups, scale-ups, and the philosophy behind the Side by Side Partnership.
Q: John, give us the story of your career journey so far.
I arrived in the UK after leaving Australia and taking a 30-year detour in the US, where the exposure to building a successful young business formed the education of a lifetime. Those lessons in turn helped me grow a start-up to a large multinational business, but also refined the personal investment processes I followed in other young company investments.
Investing in start-up companies can work, but investor losses can happen for a number of reasons: the idea might be too early for the market, the entrepreneur not able to deliver, or the funds not available.
However, a substantial value creation often occurred later, after the company had refined its offer but was not able to appeal to the commercial or mainstream market. These companies had proven their product or service, had established customers and were earning revenue. However, many of these companies had stopped the rapid growth phase – not because core things like their product suddenly went wrong, but because the demands of growth were different and the skills and people that had made early success possible were no longer enough.
In this market, companies which had access to the right resources, people and skills were able to avoid many of the traps and pain that stole the growth path from others. If the entrepreneur listened, they were many times more likely to lead to commercial success. This is the mission of the Side by Side Later Stage EIS Fund in the UK.
Q: You grew a business from a start-up to a billion-dollar company. What did that journey teach you about the nature of entrepreneurship and early-stage investing?
Speeches to entrepreneurs and young business owners, in my experience, rarely touch on the realities of the choice they have made.
Entrepreneurs will miss children’s birthday parties, anniversaries, and even family holidays. They will suffer self-doubt almost weekly. They will struggle with the learning pace, when they are just ahead of the people they are leading, and one day they wake up and realise they are not the best person to run their company. All this has to be accepted as positive affirmation that they and their team are building something special.
The range of skills they have to master is enormous if they are to make their company all it can be, and they need resources to help them get there. In my opinion, the very best sources turn out to be the people who have been through this challenge before and are 5 to 10 years ahead of the entrepreneur’s position.
Few discussions touch on the emotional aspects of leading a growing company. Fewer on the reliance on others to help reduce the pain of poor decisions. These issues are as important to success as any aspect of the product or service. To support these companies, therefore, takes time and a wide range of experienced resources. This is why we will only have 8 companies in the fund and will spend one day every two weeks with each management team, to help them with the demands they face for the first time.
Q: Having personally invested in several companies, what inspired you to launch the Side by Side Partnership?
Prior to launching the Side by Side Partnership, I invested with other successful entrepreneurs and Family Offices. This experience helped me learn about the UK market and its demands. Mostly, it reiterated the learnings of all those previous investments, and the nature of successful investing in this early stage of the market.
New risks appeared here – with the tendency of many promising companies to take a premature exit, and the need for exceptional levels of diligence prior to a decision to invest.
The positive side was that the Enterprise Investment Scheme had indeed created a large pool of companies we could see as having the potential for transitioning to commercial successes.
Q: Working very closely with high-growth businesses is a key part of the Side by Side philosophy. What drives this hands-on approach?
Having been fortunate enough to have had some very experienced operators as early stage investors when I started Dendrite 30 years ago, I have witnessed first-hand how crucial advice and mentorship is to the leadership teams of fast-growing companies.
In our opinion this is the core reason why companies in the UK have historically failed to grow to commercial success, as opposed to companies in the USA where it is much more of a common occurrence. It is not because of the size of the market, or access to more growth capital (although both are important), it is the access to people who have been there and done it before. This is the fundamental reason why companies don’t reach their potential and fail to “cross the chasm” from a start-up or scale-up into a mainstream commercial company.
So, to help our companies in this difficult transition we provide our companies with deep expertise and mentorship. As well dedicating at least one day a fortnight of my own time with each company, we bring in people to help with governance, finance, legal, online presence, sales, marketing and technology. Just one example of our mentors is Grant Allen who was part of the original team that built Google Maps.
These experts may see the company several times through the post-investment years. This is a much broader scope of engagement than normal for investors, but it again reflects the aspects of this market space that we find unique. We also may add in operating skills for longer periods if there is an unplanned change in the senior ranks to help ameliorate the damage sometimes caused by a slow or unplanned transition.
Q: What differentiates Side by Side from the rest of the market?
As well as our extensive mentorship and operational experience, the Fund self-limits to investing in only eight companies and meets with each portfolio company at least 2 days a month. This helps ensure that we have the time to help nurture all our companies and management teams.
We also have the highest performance hurdle in the market at 160% (net) at which point we charge a 20% fee. We then have a second hurdle at 400% (net) at which point a 33% is charged. Performance fees are calculated as a fund and not on a per investment basis, so investors are only charged performance fees once they have received back £1.60 per £1 invested.
This demonstrates how serious our ambitions are about making exceptional returns for investors, as we will only invest in a company if we think it can deliver outstanding returns and get above our 400% hurdle. Investors also pay no initial fees, no admin fees or annual management fees so they can maximise their EIS relief.
Q: What do you see as the major opportunities and challenges for financial advisers in this market?
My father was an IFA in the UK many years ago, and it always amazed me the responsibilities that he was held to, compelling him to provide the best advice he could, not just offering the latest ‘new’ investment idea. However, he regularly complained about the lack of transparency in the market which hindered his ability to do this.
We believe the power in this market should lie with advisers and their clients, and at Side by Side we want to provide all the insight we can to help them make better decisions.
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