Scale-Up Collective: Evolving Leadership Dynamics in a New Economic Landscape

Peter is a founder with extensive experience in the medical devices, venture capital and private equity industries, and has multiple successful turnarounds and exits under his belt. He tells us about the changing investment landscape, how this is driving a new approach in portfolio companies, the mood among investors, and why this environment demands a new style of leadership. He also provides insights into the ‘magic ingredients’ for scale-up opportunities, and how he identifies founder teams to work with. 

Does your industry background influence how you engage with companies in your portfolio?

“There’s no doubt running a company is hard and being a CEO is a lonely role. Having the empathy for that, and most importantly, having a leadership role within a venture capital firm, is about helping the rest of my colleagues to understand the position leadership teams are in.”
“It’s too easy to look in the rear-view mirror and to look at numbers – there are many other important parts and the key phrase we use here, is ‘we should be putting an arm around and supporting our leadership teams’ and always looking forward, rather than looking in the rear-view mirror.”

What’s the mood among investors toward the current economic environment?

“We’re seeing the good, the bad, and the ugly. A number of companies are looking for Series B and C funding – that’s a challenge at the moment, but the seed Series A stage for good companies is still quite competitive, so there is capital out there. We’re seeing a number of competitive processes for new investments, and for good companies the M&A environment is still happening. For example, we sold what was our largest asset in May to a US-backed PE acquirer with great outcomes for our fund investors.”

What are the implications for businesses looking to scale in the current economy?

“Most companies are now being advised to manage their cost base and their runway. Certainly Series B and cross over funds are very focused on burn rates, whereas it used to be growth rates, and growth at any cost – those days are gone, which is probably a good thing. In my opinion, you grow a company to make a profit, and up until now I think it’s possibly gone too far the other way, not focusing on profit and cash. The change is arguably a good thing in the long run.”

Do you need a different kind of leader in this environment?

“It’s more about ensuring the leadership and the wider board are listening, and understand the macro environment. I’ve seen a few cases of genuine disagreement over whether times have changed, and in those cases we’ve reorganised the board. It’s similar to the Covid-19 period – we really saw some management teams react well, and we’re seeing it again now.”

Are you adopting a different style of leadership?

“Each case is different. I’m on five boards of portfolio companies. We take each case on its merits. Sometimes we’re hands off because we have full trust over what’s delivered by the board and the CEO. Sometimes we’re more hands on to affect change in certain cases – we’re representatives and custodians of our investors’ money, so ultimately we’re looking to support companies around value creation that’s good for all shareholders.”

What are the magic ingredients you look for in the business, products, and people, for scale-up opportunities?

“It’s about backing great people. When we meet founders and leaders, if they use the pronoun ‘I’ instead of ‘We’ it’s usually a red flag – the great scale up CEOs recognise it’s a team sport.

This is where Odgers Berndtson comes in to make sure there’s an A-team around them to execute and scale, and making sure people understand their strengths and where people need additional support.”

Is there a willingness of founder teams to let go and hand over?

“That’s often what we’re testing in early meetings. Asking different question from different angles – we’re assessing the answers to these questions, but no VC gets this right 100% of the time.”

“Importantly, in all of our meetings we’re talking about people, rather than numbers. People really appreciate that culture is going to drive shareholder value, which is something I’ve been passionate about within Mercia and its portfolio companies.”

“When choosing an investor partner, it’s important for any entrepreneur to ensure good ‘fit’ – it’s going to be a seven-year partnership, so it’s critical that gut feel is felt on all sides of the table. Investing time for all the parties and bringing together alignment of mission is paramount.”

What are some of Mercia’s recent success stories?

“There’s a few examples of where we’ve been right at the beginning with investment. OXGENE, a synthetic biology business, Faradion, a sodium battery business, and C-7, a diagnostic service provider, to help shape and build out the C-suite and the board. All of these have grown, scaled, and exited successfully in the past few years.”

“We also have Nucleus; our value add proposition. This looks at talent in the company, how we do continuous professional development with the company, and knowledge sharing with other members of the portfolio. It also looks at discrete joint growth projects for companies to partner on, as well as identifying experts anywhere in the world.”

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