Could you describe the genesis, the philosophy and the positioning of your investment firm, Gaia Capital Partners? How does the firm stand out in the competitive landscape?
Gaia Capital Partners is a new investment firm, launched within Sycomore AM’s ecosystem, dedicated to supporting the new generation of responsible entrepreneurs in the fields of technology and innovation in Europe. While historically, innovation in Europe has lagged behind the United States, the region’s companies have made some major breakthroughs in recent years. An increasing number of companies that have emerged in Europe in recent years are now experiencing strong growth, eased by technology, digital transformation and new ways of using tech, and are poised to become the leaders of tomorrow. While they naturally have large capital needs, they are nevertheless very careful when it comes to choosing their investors, as they require support and guidance as they expand, beyond mere funding.
Gaia is an investor particularly suited to this new generation of entrepreneurs. Our fund stands out for its entrepreneurial approach, its focus on responsible investment and its international ambitions.
Furthermore, the portfolio construction process is unique: while the core is made up of privately funded companies, the fund also invests opportunistically in listed companies. As such, it benefits from the analysis conducted by Sycomore AM and from a longer investment horizon, which is inherent to the fund’s private equity profile.
This positioning creates strong synergies between our two entities: the underlying companies are given financial support and can naturally raise capital, but they can also benefit from our in-depth knowledge of listed markets - where they may find major clients, leading business partners, potentially future strategic buyers, and for some, future funding options.
We are therefore fortunate to be working with a committed partner such as Sycomore AM, a firm that has a reputation for being an active, responsible and conviction-driven investor. These are values intrinsic to Gaia’s DNA as well.
Finally, our focus is on companies operating within the digital technology sector, as they offer many growth opportunities. Over the past ten years, tech has been a key generator of added value for stock markets in the US and in Asia. It is highly likely that this potential for value creation will spread to European markets — both unlisted and listed — and become a leading driver for tomorrow’s real economy. Having made this observation, it is important that we consider the responsibility of these innovative companies with respect to major societal and environmental issues, which are also disrupting our traditional take on corporate management.
How is your responsible approach embedded within the investment strategy? What is your view on tech companies’ accountability?
It has to be said that many business models within the tech sector address highly worthy issues: the circular economy, healthcare and well-being, energy efficiency, access to technology, etc.
In this environment, our ambition is to support companies with business models that are sustainable financially, but also from a broader perspective. These companies contributing positively to leading societal and environmental challenges will benefit from a powerful lever able to drive value creation in coming years. We are therefore targeting the most virtuous business models — from a financial and an extra-financial point of view.
Furthermore, whatever their business model, it is important to urge companies to implement best business and governance practices as early as possible. For example, the issue of data centre energy consumption may appear rather irrelevant for a start-up, but will take on much more prominent dimension as the company expands.
Another example in a different area: based on current trends, more and more decisions are to be entrusted automatically to algorithms. The algorithmic models currently available on the market already carry biases: for instance, gender or socio-cultural discrimination has been reported in recruitment processes. Major inconsistencies can appear if the companies fail to make a firm stand at the earliest stage. We believe these issues should not remain solely in the hands of developers, but should be addressed at a higher level by the company’s governance bodies.
It is particularly important for the tech industry to consider extra-financial issues today, as the largest risks weighing on key industry players – notably on Gafam and BATX - are extra-financial risks (data protection, governance, in-house practices, etc.). It is therefore essential for corporate players to make as much headway as possible in this area, as this will help measure and minimise risks, but also create value in the best possible conditions. Furthermore, we believe a company’s level of accountability is not unrelated to its financial ambitions. On the contrary, it is because these companies have ambitious objectives that they need to act responsibly.
At Gaia, we focus principally on companies that generate a turnover ranging between €5 and €10 M, display very strong growth — mostly a threedigit figure, that have started to operate internationally and employ around one hundred people.
We believe we have more impact if we encourage these companies — which have not necessarily embedded extra financial criteria at the onset — to adopt best practices while they are still at a human size and in full expansion. At this point in their development, they are still very nimble and changes are easier to implement than in mature or turnaround companies, that tend to be weighed down by more inertia. As the company grows, becomes more international and more visible, the change is compounded.
It’s particularly exciting to be investing responsibly in our market segment: we have access to powerful levers to persuade management teams as part of our engagement dialogue, notably via the Board of Directors on which we sit in most cases. Importantly, we find that company executives are particularly keen to address issues of responsible innovation as they belong to a new generation themselves and show genuine concern over the role and mission of their company. actually, this mindset now features among selection criteria for candidates and has become a factor in attracting and retaining talents.
In concrete terms, how do you take into account these extra-financial aspects in your investment process?
When we advise companies within our market segment on implementing best practices, we do not start from scratch. We can rely on the cutting-edge work that Sycomore am’s teams have been conducting for several years on listed companies. This is formalised through the SPICE and NEC frameworks (cf pages 37 to 40) and in the ESG integration, proxy voting and engagement policies. We can also benefit from an easy access to Sycomore’s ecosystem and partners who rank among leading SRI authorities (SIF, PRI, GIIN etc).
Our role is to adapt all of these elements to ensure they are consistent with the issues faced by young companies operating outside of listed markets, as the latter are certainly more open to change but are also having to address new challenges in light of their innovative business models.
Within our methodology, extra-financial and financial criteria are given equal importance. Our due diligence work systematically includes an in-depth ESG and positive contribution analysis, which we then use when drawing up our roadmaps, identifying the next priorities for the companies we target. We are careful to consider precise and quantifiable criteria which enable us to monitor change over time. This includes keeping track of data touching upon talent retention and how the added value is shared through employee shareholding schemes (increasingly the norm considering the profiles targeted), male-female equality (tech has remained a male-dominated sector), the environmental impact, the promotion of socio-cultural diversity, etc.
While ESG, as such, is a simple term, it covers a large range of different and complex realities. For example, the issue of how data are processed and protected has become a key consideration as the GDPR comes into force and carries many implications: how can data be effectively protected? How can it be valued? How can the user give his or her informed consent? In actual fact, ESG challenges enable us to become better investors.
Can you tell us about your own development? What does the firm aspire to?
We completed our first closing during the summer of 2019, our goal being to increase the fund’s assets to €200 M by the summer of 2020. The fund will invest in 10 to 15 companies in total. Our dynamic team of 5 professionals, with assistance from two interns, receives daily support from Sycomore AM’s teams and should be strengthened shortly.
In regional terms, we aim to build a balanced portfolio: half exposed to France, with the other 50% providing diversification into Europe, covering the German, Scandinavian, British and Southern European countries (Italy and Spain).
We believe it is essential to build more bridges between mature and younger companies, as these are instrumental in helping the leaders of tomorrow grow in a sustainable and responsible way.
The market for funding growth in Europe, and particularly in france, is enjoying a strong momentum: since the middle of 2018, we have been able to examine over 150 investment opportunities. Our objective would be to make between 2 and 4 investments per year, in other words we would like to be highly active during the first years of the fund; the average holding period of our ‘private-equity type’ investments being around 5 years.
Looking at the unique positioning chosen by Gaia — combining unlisted and listed investments — it seems clear that opening up investment horizons helps to capture a great deal of value… Europe currently boasts around sixty unicorns (tech champions valued at over €1 billion), half of which are privately owned and the other half listed on the stock market. As an investor keen to gain exposure to this asset class, it seems perfectly consistent to have a finger in both pies. As far as portfolio construction is concerned, a wider perimeter also helps to even out the risks: the fast-growing ‘core’ of our portfolio offers moderate valuations when companies are first introduced (our target is to multiply our initial investment by 3x or 4x) and a variety of options upon exit (strategic takeovers, IPOs etc). The opportunistic segment, focusing on companies that are more advanced in their growth cycle, involves fewer risks and lower support needs, but offers exposure to the highest-performing companies in their respective markets - companies with growth trajectories and practices that can inspire us and guide our efforts as we support the start-ups in our portfolio. We believe it is essential to build more bridges between mature and younger companies, as these are instrumental in helping the leaders of tomorrow grow in a sustainable and responsible way.
Click here to read the Responsible Way 11 "The Good in Tech"
Elina BERREBI co-leads the Gaia team as Founding Partner. Prior to founding Gaia, Elina was an investor at Eurazeo Growth, the growth equity arm of Eurazeo where she supported leading tech companies such as Farfetch, PeopleDoc, younited Credit, etc. Including her previous experience at Bpifrance, she participated in the financing, structuring or the oversight of 10+ growth companies. She sits on the board of TechnoFounders, a deep tech startup studio and Degrenne, a France-based tableware brand and manufacturer. Elina graduated from Ecole Polytechnique in Paris and also studied at Columbia University in New york.
Alice Albizzati co-leads the Gaia team as Founding Partner. Prior to founding Gaia, Alice was an investor at Verlinvest in New york, a familyowned consumer-focused investment company where she supported leading growth companies such as Vita Coco, Frichti, and Sir Kensington’s. Her previous experience includes participating in the financing, structuring and the monitoring of 10+ private equity companies at LBO France and Bpifrance. Alice graduated from Ecole Polytechnique in Paris and also studied at Bocconi University in Milan and McGill University in Montreal.
 Amazon, Apple, Facebook, Google, Microsoft and Netflix accounted for 37% of the value created by the S&P 500 over the past five years. Source: zerohedge, April 18th 2019 https://www.zerohedge.com/news/2019-04-18/five-companies-represent-35-all-sp-500s-value-creation-over-last-5-years
 Google, Apple, Facebook, Amazon, Microsoft
 Baidu, Alibaba, tencent, Xiaomi