PER’s Women’s Breakfast Club held a special end of year event with guest Paul Traynor, author of “In Search of Thursday,” based on his experiences of investing with 3i. Paul’s stories are of investing at a time when private equity was in its infancy and was a male-dominated, less structured world where the personalities were big and the opportunities were numerous. PER’s Women’s Breakfast Club guests enjoyed an interesting conversation with Paul that touched on gender diversity as well as how the world of private equity has changed (or not) since the 1980s.
Paul started his career in private equity and venture capital (they were the same at the time) in 1985, working mostly in Birmingham and the East Midlands. Paul told us why he decided to write the book; he felt his time in the industry was great fun, and realized that the books on the industry didn’t really reflect that, focusing instead on the technical side of investing. He also has a great affection for 3i itself: 3i trained generations of investors, had noble aims, coming into existence alongside the welfare state and the NHS.
Paul’s book is frequently amusing and always self-deprecating. He is candid about his own occasional “failures.” It is illuminating and revealing how this was dealt with within 3i’s unique, supportive culture. He illustrated this with a story of a call he received from a family business looking for GBP125,000 of new capital. Paul met the family, thought it was a good business, and duly made what he felt would be a successful investment. He was then invited to the son’s wedding, a lavish, memorable affair. Promptly thereafter, the company went under (3i’s investment having presumably been blown on the canapes and floral arrangements for the wedding!) On hearing about his first failed investment, there was genuine mirth on the part of his colleagues, while Paul’s director told him: “we don’t do witch hunts.” 3i had no personal track records, a deliberate policy to give its team the confidence to make investments, learning from the failures.
This appreciation of failure as a corporate policy often meant that individuals had very different risk appetites from each other. There were those who would invest in anything, and those who would invest in nothing. Paul’s “Search for Thursday” is about seeking commercial judgment, the elusive, instinctive ability to weigh up the factors in front of him and make the right investment decision.
PER’s Gail McManus introduced the subject of diversity, asking Paul jokingly if female investors were plentiful at 3i. Paul estimated that there were about six out of several hundred investment colleagues, acknowledging a lack of gender diversity. Paul feels that, for whatever reason, the industry hasn’t changed too much, and still has a long way to go in terms of ethnic as well as gender diversity. He believes that this also translates into a homogeneity of backgrounds and personality types among people in the industry. He feels that 3i in the 1980s had more diversity of background and personality than is likely to be the case now. During our webinar, Paul made the case for diversity as a competitive advantage. “Deals start with a human connection. Today’s homogeneity detracts from the ability of private equity teams to win deals by forming real relationships.”
In an informative, amusing hour long session, there were plenty of questions from the audience. PER’s Kate Goodall asked about the occasionally negative perception of private equity in the market – will the bad name ever be shed? Paul noted how private equity was similarly unpopular in the 1980s, albeit for a different reason: it was asking for equity in people’s businesses. Business owners viewed this as anathema; since then, this has changed. Paul suspects that today’s unpopularity is linked to the extent of the profits it makes, and justifying it versus the lot of others in society. Interestingly, he believes that private equity may have been less popular in the 1980s than it is now, quoting Prime Minister Harold MacMillan by saying to the attendees: “You’ve never had it so good!” In Paul’s book, he quotes another British Prime Minister, Winston Churchill, in his description of investment success: “Going from failure to failure with undiminished enthusiasm.”
Marion Bernard, MD of The Firmament Group, asked about validity bias in investment decision making. Here, Paul stressed the importance of individual advocacy and personal accountability. Investment committee’s at 3i would always begin by asking if Paul wanted to do the deal. If he wasn’t passionate about it, there was no need to even discuss it. He thinks that in some funds there is too much collective emphasis and not enough of the personal. In a collective decision-making environment, Paul believes there is a vulnerability towards extra due diligence and validity bias. It’s a reminder to us all to be passionate about what we believe in and display personal accountability and conviction.
PER and the Women’s Breakfast Club, extended a warm thank you to Paul for his frank and insightful comments. And Paul finished by telling us that he is working on a sequel, set in the wild days of the dot com bubble, which we are all eagerly looking forward to.
Paul Traynor is a private equity investor, author and investment trainer and can be reached via LinkedIn: