6th AVCA 2006 Annual Venture Capital & Private Equity Conference

The Strategic Value of Investor Relations To GP Success

Tuesday, 7 November 2006

Dakar, Senegal

Contents

IR in a PE context

Core strands of IR

Governance

Operations

Communication

Measuring the impact of IR

Conclusion

IR in a PE context

‘THE STRATEGIC MANAGEMENT OF THE RELATIONSHIP BETWEEN THE GP AND ITS LPs; POTENTIAL LPs AND OTHER INFLUENTIAL OPINION FORMERS IN THE INDUSTRY’.

Core strands of IR

Governance

Operations

Communication

GOVERNANCE

Governance – Capital alone is not enough!

Reputational impact of investee governance scandal

LP avoidance of GP due to poor investee governance

Investment protection

Transparency and disclosure

Effective Board

Optimal exit strategies via legal contracts, vigilance, engagement

Element of good governance in the exit premium

Governance – AVCA member best practice

Sector acceptability for investment

Ethical investment

Reputation of investment partners

Integrity, legal and best practice observance by investee

Financial risk controls practiced by investee

Match between governance policies of investee and GP

Identification of an acceptable buyer upon exit

OPERATIONS

Operations – Dedicated IR resource

Driven by LPs now being viewed more like customers

IR has moved from the back office to the core in 10 years

Hiring of IR professionals at Partner level

New PE firms employ IR professionals from inception

Optimum asset utilisation through reduced role dilution

Keep LPs updated over life of the fund

Form new LP relationships to counter LP turnover

Operations – IR support during fundraising

Pre-follow-on vehicle LP perception studies

› firm› partners› performance› prospects

Gauge realistic target fund size

Managing of oversubscribed fund

Maintain LP relationships

Operations – IR due diligence support

LP view on level of PE market maturity:

› governance› stability› transparency› stable management teams› depth of quality management teams› proven repeatable track records› locally-based GP teams

Operations – IR due diligence support

LP view on GP:

› attribution analysis› decision making process› deal origination› cashflow› portfolio NAV› investee NAVs› portfolio company site visits› depth of culture/strategy› shared vision

Operations – IR due diligence support

GP view on LP:

› objectives of investment programme› quality of PE investments› financial robustness› potential conflicts of interest

Operations – IR screening/due diligence support

GP view on investee:

› quality of entrepreneurs› level of market attraction› market leading potential› strength of business plan› competitive advantage sustainability› bankability of exit route› convincing valuation

COMMUNICATION

Communication - Perception challenges

‘Information is a huge problem’

‘There is a perception that PE in Africa has not worked’

‘Prospective investors believe that PE in Africa does not work’

‘One of the biggest problems that PE faces is exits’

‘We need to promote and stimulate the domestic capital market’

‘Demonstrating competitive returns will attract investors’

Communication - Perception challenges

‘The tricky bit is to show capital can move in and out’

‘There’s a need to show that value can be protected’

‘A number of VCs are looking for investments’

‘Entrepreneurs do not know where to access capital’

‘Lack of information on how to access funds is a big impediment’

‘Trust is an issue of concern’

Communication – The basics for PE

Any communication must be:

› relevant › easily understandable› trusted› comparable

Communication – Privacy is not an option!

PE by definition prefers privacy

Privacy in PE is increasingly unfeasible

Media attention is transfixed

PE is a relationship business

Communication influences the quality of relationships

By definition therefore communication is critical to success

Communication – When?

Successful raising of new fund

Making of a significant investment

Exiting an investment

In a crisis

Maintain the discipline of ongoing media relations

Communication – Key messages

Reputation, Reputation, Reputation› good governance› sound business principles › quality LPs› quality portfolio› experience and ingenuity› thought leaders› depth of team quality› team stability

Perception is everything

Communication - Typical opinion formers

LPs

GP peer group

SMEs

Journalists

Potential employees

Policy makers

Investment banks

Communication - Typical platforms

AGM

Website

Media

Conference calls/one-on-ones

Annual reports

Newsletters

Case studies

Communication - AGM

Definitive IR exercise for GPs

Significant line item in marketing budget

A chance to differentiate

Reflects the ‘health’ of the GP

Pre-AGM soliciting to get the balance right

Communication – AGM – Summary best practice

Reaffirm LP reason for investing, and remaining invested

Present a unified message

Let LP get broad sense of GP team

Ensure LPs leave with your key messages clearly understood

Portfolio company CEO(s) presentations can add value

Be transparent about portfolio performance

Communication – Website – Summary best practice

Should inspire visitors to act on the information provided

Keep it simple, from address, to navigation, to software

Keep it within the legal and regulatory framework

Regularly update visitors with latest website developments

Provide information in timely manner, and date-stamped

Be able to monitor usage

Review your peer’s websites to ensure competitiveness

Communication – AVCA member website review

Make sure it works; is up to date and typo-free! Appoint a dedicated communications executive Team bios Background on LPs Resource balance for Investors and Investees Press releases News articles generated Governance facts Business principles

Communication – Media

Today’s media is a 24/7 window on YOUR world

Local and global audience, watching, reading and listening

Fundraising and exiting will be keenly monitored

Crisis will be punctuated

Invest in media training

Make time for media relations

Invest in and maintain media relationships

Recognise that to work well, the benefits must be mutual

Communication - Media

Be media-friendly

Be articulate

Realise the value of your ‘thought leaders’

Guide journalists

Understand the rules of engagement

Respect journalist deadlines

Communication – AVCA member media review

3 page Google and member website news search

› news articles covering 20 members › 114 news articles › 78 different publications › local and international publications › broadsheet, tabloid and trade press› print, radio, TV, wire and web exposure› themes – new fund/exits/investments/thought

leadership/contextual/conferences/LP movement in GP funds/hires

Communication – CRISIS!

A crisis disrupts the normal flow of business

Stems from lack of understanding of your world

Hampers fundraising ability

Impedes future investment activity

Inflicts measurable losses in value

Time consuming activity

Impacts reputation

Communication – CRISIS! – A port in a storm

Brand threat or brand opportunity; have a crisis plan:

› due diligence of situation› in house team/external counsel› trained credible spokespeople› SME involvement› 3rd party support› LPs first, then the public…..if you can› 100% honesty› factual

Less what happened; more how it’s handled

Critical to have friends in the media

MEASURING THE IMPACT OF IR

Measuring the impact of IR – At the fund level

Raise funds at minimum cost GP differentiation in competing for funds› degree of acquisition of new investors› degree of recommitment of current investors

Ease of exit Tracking public perception towards the GP Comparison of T&Cs with market benchmarks PE increasingly competitive against other asset classes

Measuring the impact of IR – At the macro level

Stimulates economic growth

Creates wealth

Generates employment

Nurtures skills transfer

Promotes productivity enhancement

Generates tax revenue

Alleviates poverty

Supports industrial diversification

CONCLUSION

Conclusion

Behind all of this is a Communications Plan

The Plan must be underpinned by a rigorous preparatory phase

An ongoing sporadic approach does not yield a return

An ongoing systematic approach yields a return over time

GP patience for PE returns suggests an inclination to engage

THANK YOU

Kojo Adomakoh

Business Development ManagerTel: 0044 (0) 870 703 6248Fax: 0044 (0) 870 703 0301Mob: 0044 (0) 789 993 8741