Tables and Chairs

Nigel Owens
Partner, YFM Equity Partners

If you’ve been out equity fund-raising, for a growth capital investment or a management buyout, you’ll have heard this before – “…and we always appoint an independent chair or non-exec as part of our investment”.

Why do funders do that?  And why would you want a non-exec at your board room table?

At YFM we make growth capital investments into businesses that are scaling up.  We also support the ownership transition of more established profitable businesses, and yes, at the time we make the investment we usually like the business to appoint an independent chair or non-exec.  I can’t speak for why other investors do it, but this is what I’ve learned over thirteen years of investing:

  1. It’s lonely at the top. 
    Almost all businesses above a certain size have a management team and most teams have a leader.  The leader can find that the experience is hugely empowering and fulfilling, but even the most outwardly confident will confess to moments of doubt about particular issues when it would be good to have a mentor in support.A quick story – I have a friend who is the MD of a fast-growing business – one without external shareholders.  Five years ago, she hired a “a part-time boss” – someone who mentored her but also held her to account for achieving her own plans.  I thought that was a brave decision.   But because she got to choose her “boss” she hired a really good one.  And her decision paid off –  half-hearted plans got improved, good ideas got lots of encouragement and there was an unexpected benefit.  My friend took her boss along to a pitch for a good project with a prestigious client.  Hearing of the attendance of “the boss”, the client brought their manager in too.  The MD’s hired “superior” didn’t have to say much but brought experience and gravitas.  Result:  higher level access, quicker decision, successful pitch.  Sometimes it pays to have someone else on your team.
  2. Journey experience
    Most people who have grown a business of any scale will tell you that it’s the new challenges that can trip you up – hiring your first employee is a big step for some, setting the commission structure for sales people for the very first time can be daunting. And the first time you buy another business, the learning curve can be huge.  As a consequence, entrepreneurs learn on the hoof – they have to.  But, having a chair who has actually done the journey before – growing a business from twenty people to a hundred people for example – can be invaluable.
  3. Filling the gaps
    Fast scaling businesses will often need to add specialist skills to their management team – a finance director or a properly strategic sales and marketing manager are common examples.  We sometimes find that the chairman can bring some of those skills in to play early, get the basic strategy set and then help the CEO recruit the right person to take the business forward.

The vital bit is  chemistry.  No matter how impressive the CV, what the journey experience or specialist skills, the team has to be able to work with the chair.  We’ve made over a hundred investments in the past 35 years and we know that if we get the chair role right then everybody wins.

 

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