Accessing high-growth private companies

When a San Francisco-based alternative protein company launched a funding round in May, it was met with high demand from both individual and institutional investors. As the first company to sell alternative meat that’s lab-grown rather than plant-based, it’s leading the field.

Many private companies are capitalising on the opportunity to easily raise money in the private markets at a time when investors are keener than ever to invest. Successful growth businesses can deliver eye-watering returns to investors long before they reach the public equity markets.

Aiming to raise capital for young companies and offer investors access to a steady stream of unique investment opportunities, Julius Baer launched a private direct investment service at the beginning of 2021, hiring a veteran team from another bank. For intermediaries such as multi-family offices, the team provides exclusive access to pre-screened, pre-packaged direct investments seeking to exploit rapid changes in large addressable markets.

“We are looking for companies that capture megatrends,” explains Dr Giuseppe De Filippo, Julius Baer’s Head of Direct Private Investments. “Feeding the world in a more sustainable manner is one example of this. There are a number of alternative protein companies, like lab-grown meat producers, who are disrupting traditional animal farming but these companies require private capital in order to scale and commercialise their businesses. These are the types investment opportunities we bring to our clients.”

The private markets phenomenon

Over the past decade, private direct investments have flourished as a higher risk route to higher returns, often linked to technology. Young entrepreneurial businesses increasingly raise capital privately, leaving public markets starved of early-stage growth companies. According to Julius Baer analysis, the number of companies backed by private equity globally increased by 10.7% a year from 2008 to 2018, compared with just 0.4% in those listed on stock exchanges.

Some 83% of single-family offices and 30% of multi-family offices across the globe consider investing directly in private companies, according to research from FINTRX.[1] Both the potential for superior returns and interest in working closely with company management motivate them. They are most interested in technology sector investments, but other sectors ranking highly include consumer goods, business services, and healthcare and biotech.

Yet banks and intermediaries are overlooking this, as they still tend to focus on public markets investing. As De Filippo explains: “If you are an intermediary you can call your client and talk about volatility in the market. He will listen to you for three minutes. But if you talk about a company that has a technology or business model with the potential to disrupt the status quo, or a company bringing positive environmental change, like crowdsourcing efforts to remove and recycle plastic from the ocean, that is a more exciting discussion.”

Selecting the best

In the past half year, De Filippo and his team have brought a stream of deals to investors. They include one of the largest US accounts payable software companies, a US Montessori school expanding online and in China, a med tech with lab-free PCR Covid test kits for the UK, a developer of co-living homes, a cryptocurrency exchange and a lab-grown meat business. Additionally, the team marketed a bank’s syndicated debt assets being sold to lighten its regulatory capital load.

The Julius Baer team focuses on fast-growing companies with established business models rather than start-ups. Often these businesses address a sizable market and set themselves apart through niche and proprietary technology. Opportunities are sourced from across the US, Europe and Asia.

[1] Analysing family office direct investment activity, FINTRX.

However, the competition in deal sourcing is fierce. As Samantha Naleski, Executive Director in the Direct Private Investments team notes: “Deal activity over the past three quarters has never been this high, but as an individual investor gaining access to the right deals can be a challenge. This is why we are here. Our team helps investors by curating a pipeline of interesting investment opportunities.”

Valuations pose another challenge to private market investors. “A key focus for us is not just to find great companies, but to find great companies at an attractive valuation. This is why our scope spans across different geographies and sectors; so that we can find mispricings and great deal opportunities.” says Naleski.