The founding team at Tusker had spotted that the cumbersome and principally manual process for specifying, requesting and approving a company car could be moved online – so optimizing the process and generating superior management information for corporate customers. Amongst other innovations they had built a sophisticated web-based customer quote engine from scratch, which remains at the core of the business today.
Back in 2000, we saw a great opportunity to put capital to work in a high potential company, and looked forward to working closely with management to scale the business.
However the initial thesis was ahead of its time: internet speeds were still slow; fleet managers saw the approach as a potential threat to their jobs; and the business struggled to execute against its business plan – making slow progress towards breakeven.
Other investors in Tusker were losing patience and began lobbying for an exit.
As with many start-ups, Plan A wasn’t smooth. We are lucky that our funding model allows us to continue to back businesses over the long term, and not be tied to specific exit timelines.
We are also fortunate that we have a large enough fund to continue to back businesses which may be struggling for a while, but which we believe have an exciting long term future.
Salary Sacrifice for Cars
In 2005-6 we injected additional capital into Tusker, and took the opportunity to buy out all of the other institutional investors. We promoted David Hosking from Sales Director to CEO, and worked with him and new Financial Director, David Brockwell, on a mandate to accelerate growth.
A much stronger culture of customer service excellence was driven into the business, using external benchmarks. Initial progress remained slow, with Tusker just making it through breakeven before the financial crisis hit.
During the credit crunch, vehicle finance for Tusker and its non-bank competitors became expensive and difficult to obtain – Smedvig worked with advisors to strengthen the balance sheet with a capital reorganization that helped maintain banking lines. Encouraged by the non-execs, David started spending more time thinking what the Plan B growth strategy could be.
This thinking time out of the business resulted in the launch of Salary Sacrifice for Cars – an innovative product giving the opportunity for employees not normally entitled to a lease car to drive a brand new car for a fixed monthly amount that includes all servicing, maintenance, insurance etc. at prices that typically substantially beat high street options.
Tusker continue to be market leader in this area, which is now widely regarded to be the biggest single growth engine in UK contract hire.
A new growth phase
Tusker’s innovative new proposition, salary sacrifice for cars, its focus on customer service, and award winning technology drove rapid growth over the subsequent few years.
Smedvig worked closely with management, providing hands-on support and strategic advice as they continued to develop the salary sacrifice for cars proposition.
It was agreed that the profits the business was generating would be reinvested in improving capabilities and securing growth. Smedvig worked with the team and external advisors on an internal and external rebranding exercise, and on building B2C capabilities which are new to contract hire when packaged as salary sacrifice.
In 2012 Smedvig invited Sir Trevor Chinn to take the chair at Tusker. A leading figure in the automotive industry, having built Lex Vehicle Leasing and later chaired both the RAC and Kwik Fit, Smedvig had previously worked with Sir Trevor on their investments in ITIS and Streetcar.
Tusker has now reached almost £100m revenue, with a fleet size of over 11,000 vehicles from over 200 corporate customers. Over 370,000 employees are now covered by a Tusker salary sacrifice for cars scheme, and rapid growth has led to strong profitability as the business reaches scale.
We are delighted with Tusker’s success to date, and to have been able to provide the long-term support which the business needed during its growth years. Tusker has been acquired by ECI, an investor that both Smedvig and the Tusker team hold in high regard, and we wish both the team and their new investors all the best with the next phase of their growth story.
The deal environment
Whilst we are very pleased with our return on the Tusker investment, there are always mixed feelings about letting go of strong businesses with proven teams. Finding new places to invest capital effectively is never easy and particularly in earlier stage growth capital opportunities.
There are a few reasons why this is the case. First, the universe of companies that fulfil the sort of criteria most VCs look for is not huge.
Second, many of these transactions are not intermediated so having visibility of a significant portion of those companies is not straightforward.
Lastly, whilst at one time there was felt to be a ‘funding gap’ for development capital, there are now a number of credible possible capital partners in the marketplace.
Fortunately there are a few mitigants to these challenges.
There is understandably a strong correlation between the state of the entrepreneurial market, and the number of capital providers. Hence one of the drivers of the increased number of VCs in the London market is the thriving early stage market place here.
Over the last few years there has been a dramatic growth in the community of early stage businesses in many sectors and in some, such as fintech, London is genuinely one of the global leaders.
This means there are many more businesses that are attractive to the VC community. This relationship is clearly self-reinforcing. Moreover, the strength of the different entrepreneurial hubs makes it easier to connect with a greater number of relevant companies than in the past.
In terms of the number of capital providers, the important thing for getting deals done is a legitimate point of difference. Different companies, quite rightly, look for different things when seeking a capital provider over and above the basic economic deal.
Chosen well, the right partner can materially improve the chances of, and scale of, success – and that may well dominate any basic economic differences in financing offered.
In Smedvig Capital’s case, unusually, we seek only to do 3 or 4 deals a year. This allows us to get deeply involved in investee companies providing hands on support in multiple areas, in a way that is not possible with much larger portfolios. Not all entrepreneurs want that level of involvement from their capital partner but where they do it provides us with a compelling proposition.
So whilst we are sad to let a great company like Tusker go, we are excited about our remaining portfolio – including our recent new investments such as Quill, Vive Unique and Profile, along with what lies ahead.