- guardian.co.uk, Friday 17 March 2000 13.49 GMT
An investment company that invests its shareholders' money in new companies and other risky but potentially very profitable ventures. Alchemy Partners, a private capital venture fund, uses money from private investors such as Chase Capital Partners and the British Aerospace pension fund. Set up just three years ago, Alchemy invests in most business sectors, but has specialised in brewing, pubs, restaurants and hotels.
Alchemy says it will not asset-strip Rover. What is asset stripping?
Analysts believe that Alchemy will keep the profitable MG sports car brand and eventually get rid of the loss-making Rover cars - the 25, 45 and 75 models. In the jargon of high finance, Alchemy is stripping Rover of its money-making parts and getting rid of the rest.
Isn't this similar to the activities of 'corporate raiders'?
Yes. In the 1980s, or the decade of greed, figures like Carl Icahn and Ivan Boesky achieved notoriety and wealth by buying up companies, getting rid of the loss-making parts and then selling what was left for a hefty profit. They were reviled as corporate raiders who were out to make a quick buck instead of staying with a company for the long haul. But they did serve a purpose. They put the fear of God into bloated and inefficient companies, forcing them to become more competitive.
Is Alchemy a typical capital venture firm?
What Alchemy is doing with Rover is quite unusual. According to the British Venture Capital Association, most - 50% - of venture capital finance projects are for expansion, specifically to help existing businesses grow and compete. A lot of US venture capital has arrived in the UK in the past two years, fuelling and taking advantage of the internet boom here and in Europe.
How big is the venture capital market in the UK?
The UK industry is the largest and most developed in Europe, accounting for nearly 50% of total annual European venture capital investment, and is second only to the US. The UK venture capital industry has invested over £28 billion (nearly £23bn in the UK) in up to 18,000 companies since 1983. A record £4.9bn was invested in 1998, in over 1,300 companies, 26 times the amount invested in 1984.
Are venture capital companies regulated?
Unlike banks, venture capital companies do not accept deposits from customers so their investment activities are not regulated. In the case of Alchemy, the company would only come under the purview of financial regulators in so far as it invests money from a pension fund. The regulators would intervene if they thought the pension fund was putting too much money in Alchemy. But as far as Alchemy is concerned it can invest in what it likes and the people investing in Alchemy cannot expect any help if they lose their shirts. Minimum investments are £3m.
Shouldn't venture capital companies be more closely scrutinised?
There were calls for tighter regulation when Long Term Capital, a US hedge fund (investment group), nearly collapsed in 1998, threatening to destabilise the financial system. It had borrowed huge amounts of money to invest, but was caught in a financial squeeze when its bets went awry. It if had gone bust, it could have dragged major financial institutions with it. It survived thanks to a rescue package orchestrated by the US federal reserve. The crisis came and went and hedge funds remain fairly unregulated. As capital venture funds deal in much smaller amounts of money, they will probably be left to their own devices.
Useful links
Alchemy Partners
3i.com, a venture capital firm
British Venture Capital Association
