Firm of the month: Advent Venture Partners

The $240m purchase of Swiss mobile payment service Zong by eBay saw the venture backer reap a stellar 7.7x multiple in the process. No, this was not achieved in the dot-com heyday, but in early July, just as the debt markets were cooling down rapidly and buyout houses across Europe contemplated their frenetic deal pace.

It was against this darkening backdrop that Advent Venture Partners achieved this remarkable trade sale. However this outfit is no one-trick pony: it is actually the third outstanding exit for the firm in just four months, all from its tech growth equity portfolio.

It is down to the skill the firm has honed in its three decades of existence: unlike most of Europe's venture outfits, London-based Advent is celebrating its 30th birthday this year. And to ensure its continued longevity, the firm has undergone a generational change to make sure succession is not a concern on LPs' minds for future fundraising efforts.

As the founding partners passed the torch to a younger team as the firm closed its £128m Advent Private Equity Fund IV (APEFIV) in 2005, Advent adopted a dual-sector, dual-team model to better tailor its investment strategy. The life sciences team has a multi-stage strategy focused on innovation, while the tech team provides growth equity to proven businesses already posting multi-million revenues.

The two teams currently share the £128m APEF IV vehicle raised in 2005 -a clever proposition for LPs as it offers both riskier high-potential life sciences and an attractive risk/return profile through the later-stage element.

Tech is the word
But it is the tech side that has been very kind to Advent this year, allowing the firm to record a hat-trick of exits to make any GP jealous. These divestments generated a 6x return for Advent on average, and in aggregate returned over 1.5x the total amount invested in APEF IV's tech portfolio.

The firm kick-started 2011 by selling UK-based visual effects software developer The Foundry to Carlyle, merely two years after backing its MBO - although undisclosed, the exit valuation was thought to be in the £75-100m range. Advent general partner Mike Chalfen calls the investment a ‘poster child' for multiple levers of value creation.

Advent then realised half of its stake in French video sharing website Dailymotion when Orange bought 49% of the company for €58.8m. "We were pleased with the way that we could create value in a market so dominated by YouTube," notes general partner Peter Baines. "Dailymotion was able to solve its copyright issues, then scale and monetise its audience, and build a profitable model - all of which obviously helped secure an attractive exit."

Then came the sale of Zong to eBay. The company was a spin-off of media solutions provider Echovox, which Advent originally backed with a $7.5m investment in 2007. The Zong unit was created to capitalise on a new mobile payment platform, but Advent remained invested in Echovox as well. "We split the company into two separate entities creating two pure-play businesses, in mobile payments (Zong) and mobile media (Echovox). Zong took the bulk of the team, network and technology and provided massive upside, while Echovox remained as a solid profitable stand-alone business" according to general partner Frédéric Court.

A blueprint for success?
Despite the wow-factor of these exits, the Advent tech team is under no illusions of possessing a ‘magic formula' to generate strong returns. "The key is making sure you bring a solution to entrepreneurs' problems, and sometimes only bringing more money is not it" explains Chalfen, who recalls the anecdote of a German entrepreneur being offered $45m by a large US venture firm - and left wondering why he would ever need such a large amount of capital.

Advent's ethos also doesn't involve casting the net wide just to hope for a few lucky wins, with 16 companies left in its tech portfolio. "We like the idea of a small team running small funds, doing fewer deals but providing those businesses with real support," says Court.

Instead, the team prioritises flexibility, which was crucial in the recent three exits. "There is no blueprint, but it is very much a tailored process," notes Chalfen. Court concurs: "We like to have various levers to drive value, and not just top-line growth, as is often the case with venture."

It would seem that both the focus on tech growth equity deals and the new team built up over the past ten years have worked well for Advent. Rather than mess up with the formula, the firm looks set to further focus its strategy: it has closed its first life sciences-only vehicle on £75m in December last year, and a tech-only growth equity fund should soon follow.

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• Topics
• Early-stage
• Expansion
• Exits
• Advent Venture Partners