and Business Resources
JULY 1, 2002
INTERNATIONAL -- FINANCE
Q&A: This Risk-Taker Is Ready to Roll the Dice
The chief of 3i says it's a good time to back
Brian P. Larcombe, 47, started
at venture-capital firm 3i Group in 1974 as an executive
trainee and has been chief executive since 1997. The industry has been
through two tough years--London-based 3i, the grandfather of the European
venture-capital industry, lost $1.4 billion in the year ended Mar. 31.
But now Larcombe sees things turning around, and, in May, 3i scored one
of its biggest coups ever when it sold its share of British discount airline
Go. BusinessWeek London correspondent Kerry Capell spoke to Larcombe
about 3i and the outlook for the industry.
Q: How does Britain's venture-capital industry stack up with
A: Europe didn't see a private-equity industry until one began
in Brit- ain in the early 1980s, and Britain's remains the most developed
venture-capital industry in Europe. Venture-capital investment as a percentage
of gross domestic product is 0.8% in Britain, 0.4% in Germany, and around
0.5% in France. Last year, for the first time, more than half of 3i's
investment was made outside Britain, with $646 million invested on the
Continent and $218 million in the U.S. and Asia.
Q: After a rough patch for the industry, do you see a turnaround?
A: Three years ago, there were 80 to 100 venture-capital firms
just in Britain. Today, there are maybe 10 active ones. Few people have
been prepared to start companies, and even fewer venture capitalists have
been prepared to back them. But some of the best investment years--we
call them investment vintages--we had at 3i were right after a time of
uncertainty and low confidence. Today feels similar to 1994, which indicates
that it's a good time for us to be investing. Indeed, since September,
there are signs of greater business confidence. And we will see the positive
Q: With the big tech crash, what has been the return on your
A: We made about $1.8 billion from our technology businesses during
1999 and 2000, and we've given up most of that in the last two years.
Today, we have 20% of our portfolio in early-stage technology and another
10% in late-stage technology. With hindsight, it's clear we overinvested
in some previously fast-growing sectors, such as equipment supply to the
telecommunications industry, that have suffered from a collapse in demand.
The amount invested in early-stage technology has been cut by more than
50% from 2001.
Q: In May, you pulled off the most successful buyout in Europe
this year with the $553 million sale of Go.
A: We made $341 million on the sale to rival discount airline easyJet.
When we bought it in June, 2001, we liked that it had a strong business
model, a great management team, and good growth. It showed us that within
the airline industry there are different sectors, and the discounters
will continue to grow fast, probably at rates of 30%-plus.
Q: Which countries, or sectors, look attractive over the next
A: In Britain, we're seeing the strongest level of confidence we've
had in the last five quarters. There are higher levels of corporate activity
and more mergers and acquisitions among smaller companies. Confidence
in southern European countries, such as Italy and Spain, also is strong.
But it's not as strong in Germany, where there is still weakness in the
economy. We try not to focus on sectors, as there are always good and
bad investments to be found in each one. Go is a good illustration. It's
difficult for anyone to make profits in the airline industry, and that
has been the case for decades.
Q: Are there opportunities in Japan?
A: In the last three years, Japan has been developing a buyout
business, as the need for extensive restructuring is perhaps greater than
anywhere else in the world. The Japanese market will be very large, and
it is quite an interesting time to be there.
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