FINANCIAL DIRECTOR INTERVIEW - King of the jungle

If there is such a thing as an action accountant, Richard Farr is it. He thinks fast, talks fast and likes nothing more than getting stuck into a challenging deal. He has been involved in three IPOs and one corporate collapse. Now, as CFO of pan-European internet business accelerator GorillaPark, he’s thriving in the fast-moving, new economy world.

Farr looks excited and at home in GorillaPark’s open plan offices in a converted warehouse off Brick Lane in east London, but e-business is a new adventure for him. His three IPOs involved two car retail businesses – Western Motor Holdings and The Car Group – and IT services company Parity.

It was Western that in 1987 initially tempted Farr away from Price Waterhouse, where he had completed his accountancy training. As Western’s FD, he helped grow the business from a #5m to a #100m valuation in three years, importing Ladas and launching Proton cars in the UK. The management team had their sights on a management buy-out in 1989, but Farr pulled the deal when he spotted the market slowdown. “We found a plc to acquire us at a high price, so the shareholders were happy,” he says. “But of course, once we were taken over, we (the management team) were all fired. So having done my job correctly, I was out of a job.”

Happily, HSBC, which had been advising Western, recommended Farr for the role of group FD at Prebon Yamane, a privately held international money-broker, which at the time was in difficulty. Farr was brought in to turn the business around. He worked on restructuring and arranged an MBO in 1991. He also spent 12 months in New York, evaluating the North American operations and overseeing an office relocation to New Jersey.

However, Farr missed the excitement of public company life, so in 1993 he sold his equity stake to his partners and took three months off in France, having fun with his family and planning his next career step.

“Then I got a phone call from the same merchant bank, HSBC, offering me a deal, an MBI at Parity,” Farr says. “We bought the business for #4m and within 18 months we had grown it to a #100m valuation.”

Despite this success, in 1995 Farr decided to focus on his own consulting business, Bluesky, advising business entrepreneurs on achieving growth.

“It was a one-man consultancy, what with hindsight I call a one-man accelerator,” he says. “I looked for rescues or start-ups.” He took a 10% stake in the businesses he advised and became their chairman. His major success was with MES Holdings, a supplier of stands and electrical equipment to the exhibitions industry. Farr advised the management team on a successful #9m MBO and played a key role in achieving the subsequent sale of MES for #23m in 1997.

Bluesky is an on-going venture and Farr continues to work with companies in a non-exec capacity, but in 1996 he was drawn back to car retailing, inspired by the aim of building up a business and taking it public. He approached an old contact, Peter King, who had 30 years’ experience in the motor industry at Ford, Rover and Proton, and who agreed to become chairman of such a venture. Farr found a one-site, used car operation called The Motorhouse at Cannock and engineered a BIMBO (buy-in management buy-out) in March 1996. Renamed The Car Group, the used car supermarket floated on the stock exchange in November 1996.

“Car Group was my biggest success so far,” says Farr. “We bought it for #25m and floated for #43m within six months. Everyone said it would be impossible, but we did it. It peaked at #75m in May 1998, with a quarter of a billion turnover – built up from nothing in two years. I thought I had made it, but unfortunately the used car market didn’t think so.”

The market suddenly slowed and Car Group lacked the balance sheet strength to survive. In October 1998 the receivers were called in. “I was determined to have a dignified funeral rather than a rout and I am proud that I achieved that,” says Farr. “It was a very clean disposal, but I was wiped out.

I had about #5m of assets in shares and collateral at stake and on October 2nd I lost everything. I had to sell my house. I was physically and mentally exhausted, frustrated, totally distraught. I had never failed before in my life.”

Understandably, he took time out to recover his energies and consider his options. Although he was anticipating taking on another IPO or turnaround opportunity, towards the end of 1998 he became impressed with the internet.

In May 1999 he responded to a job ad in the Financial Times seeking a CFO for Tornado-Insider.com, a young Amsterdam-based organisation setting itself up as a pan-European omni-media group to inspire entrepreneurship and facilitate information-sharing between players in high-growth, high-tech sectors.

“I got an e-mail back to come over for an interview,” says Farr. “At the time, I had already been offered a good old economy job, but I went off to Amsterdam. I went to this old car dealer building – three storeys which were empty apart from six people, a carpet and about four desks. I thought, what the hell is this? Jerome Mol, the founder, saw me and told me about his vision.”

Mol, a committed entrepreneur, wanted to create a Silicon Valley in Europe.

Tornado-Insider was to be the vehicle for uniting European entrepreneurs, writers and analysts – an intellectual capital focal point for IT and communications technology. In addition to this virtual network, Mol wanted to create a physical environment where entrepreneurs could bring their ideas to life in a vibrant, Silicon Valley-type atmosphere. This was the rationale behind GorillaPark. Farr was immediately inspired by the vision.

“I knew I would join within five minutes,” he says.

One of deciding factors was the strength of the team. “You are as weak or strong as the weakest link in the chain,” says Farr. “The reason I failed at Car Group was that I didn’t have enough IPO-class people around me. We had a lot of ambition, but when it came to the crunch we failed. The reason we won’t fail at GorillaPark, I believe, is that we have IPO-class people in all functions.”

GorillaPark was formally launched in January 2000, backed by an initial $13m of venture capital funds. The company received a further $40m funds injection last autumn.

The names of both GorillaPark and Tornado-Insider were inspired by the writing of marketing strategist Geoffrey Moore. According to Moore, a tornado is a “compressed period of hyper-growth that occurs once in the life of a market, coinciding with the first surge of mass market adoption of any new technology”. He says the resulting market dynamics frequently catapult a single company into an dominant position. This company is the gorilla, which can generate exceptional returns over an extended period.

GorillaPark aims to be a breeding ground for market dominators of the future, identifying strong entrepreneurial ideas and then nurturing nascent companies – baby gorillas – through to IPO. By the end of December 2000, 16 such baby gorillas were being grown in the GorillaPark environment.

These include Moonshake Technologies, a provider of technical services to internet start-ups and PushLoop, a managed technology platform that enables on-line businesses to outsource logistics and fulfilment.

As an accelerator, GorillaPark provides a comprehensive package of funds and services to help take these internet-based businesses towards IPO as fast as possible. However, aspiring entrepreneurs first have to make it through the vetting process. “We receive around 200 ideas a month and do one deal a month,” says Farr. Business ideas must fit into GorillaPark’s market focus – predominantly internet and wireless infrastructure. They must be start-up or early stage, be led by a visionary entrepreneur and have first mover, high growth and international potential.

Once entrepreneurs are welcomed into the park, GorillaPark applies its trademarked acceleration model – “Eight Steps to IPO”. This takes business ideas through early stage development, initial and subsequent capital raising, growth and international expansion and finally preparation for an IPO.

Entrepreneurs receive a mixed package of support, including straightforward incubator services, such as office space and equipment – “the physical stuff you see and which is a commodity we can price”, Farr says. Secondly, they receive acceleration services. “This is where we provide consultancy advice and active management,” Farr explains. “If you came to us as a start-up and you were the CEO and you had a strong finance guy, we would provide you with the technical and marketing support. If you need a finance guy, we can help you there. The result is you have IPO-class people around you, so you can move faster and develop your idea.” Baby gorillas also receive seed capital of EUR0.5m.

In exchange for these funds and services, GorillaPark typically takes a 25% stake in the new company. Businesses that have grown in value can later call for another EUR0.5m injection in exchange for another 5% holding.

Baby gorillas enjoy further benefits from joining the GorillaPark environment.

“We are conduits to the outside world,” Farr says. “We cut deals with large suppliers, such as accounting firms or legal firms, at a lower price (than an entrepreneur could get). Also, a ‘big firm’ person wouldn’t normally have the time to deal with a start-up, but they will deal with us, so the start-ups get experienced people to advise them. Most importantly, one of the biggest problems I have found in aspiring to grow or rescue companies is that the advisers don’t have enough time to understand your business. So part of our job is to reconcile the needs of adviser and entrepreneur.”

Milestones are established for every stage of the development of portfolio companies, enabling the GorillaPark team to monitor progress. This is no nursery – rather a jungle hothouse where each baby gorilla has to start performing or face expulsion. “We only put forward high quality deals to the venture capital community,” Farr says. One baby gorilla has already been killed and two others are “in cold processes where they know they are no longer on the fast-track”. Cooling involves withdrawing some services, leaving the babies to their own devices.

Although Farr retains non-executive involvement with Tornado-Insider, since November 2000 he has concentrated his attention on GorillaPark.

His role at the accelerator is a broad one. “I get involved in more than just finance,” Farr says. “I also deal with legal, tax and risk management, and I am involved in the credit assessments for the businesses. I also focus on making sure, with the ones we kill off, that it’s done properly.”

Those with a pessimistic outlook might speculate that GorillaPark could itself be killed off by waning market interest in dotcoms, but Farr is not perturbed. “Don’t be lulled into a false sense of security by the dotcom collapse – it’s irrelevant to the trillions of dollars of gross national product which will be shifted into the new economy,” he says.

Regardless of the froth that has been blown off internet stock market valuations, he insists that the “underlying wave” supporting the e-business momentum is still there.

Farr has ready reasons why GorillaPark will make it. “First, we started before anyone else in Europe,” he says. “Secondly, we are entrepreneurs, not consultants, and we aren’t doing this as a quick opportunity to make money. It is to build a business, first and foremost. We believe we can relate better to the entrepreneur market than our rivals do.”

Farr also points out that GorillaPark’s focus is not on B2C ideas. “The perception of the (dotcom) market is based on the result of a few high-profile successes and failures,” he says. “We have always been focused on the technical infrastructure – the plumbing of the internet. We have never gone for the B2C high-profile dotcoms.” GorillaPark prefers businesses involved in wireless and internet infrastructure and e-business services.

“My only frustration is that the rash of incubators that came out as a response to the gold rush has damaged the sector,” Farr says. “Part of my job is to try to educate people. We are not incubators; we are accelerators. We were the first to say we were accelerators, and we said that right from the start.” The theory is that incubators lack the active management and consultancy expertise that GorillaPark believes sets it apart.

Farr is content with GorillaPark’s performance so far. Offices are now open in Munich, Paris and San Francisco, as well as London and Amsterdam.

“The task in our first year was to establish the brand,” says Farr. “That’s been done. In 2001 our task is to prove we can generate re-financings for our baby gorillas.” This involves raising external venture capital, a precursor to an IPO.

Although there had been talk of a speedy IPO for GorillaPark itself, no such move is imminent given the depressed market sentiment. “We don’t need the money from an IPO,” says Farr. “But I have done three IPOs in the last 13 years and that’s been a very persuasive selling point for the entrepreneurs who join us. Our logo is ‘from idea to IPO’, so unless we do an IPO ourselves, how can we really look you in the eye and say, as a team we have done it, so can you? So we will do an IPO. The market will not recover in the first or second quarter of 2001; we think the earliest it will recover will be the summer, so we are looking for an IPO in the autumn.”

Farr is philosophical about the timing of such a move. “I am pleased with what we are doing at the moment,” he says. “We are in the right space, at the right time, with the right people.” And, if his conviction is anything to go by, then GorillaPark could well emerge from the passing new economy tornado as king of the accelerator jungle.

CURRICULUM VITAE

Name: Richard Farr

Age: 43

Qualification: FCA

Career:

2000: CFO, GorillaPark and non-exec of Tornado-Insider

1999-2000: CFO, Tornado-Insider and GorillaPark

1996-1998: Chairman, The Car Group plc

1995: Bluesky

1994-1997: Chairman, MES (Holdings) Ltd

1993-1995: FD, Parity plc

1990-1993: FD, Prebon Yamane

1987-1990: FD, Western Motor Holdings plc

1978-1987: Price Waterhouse, culminating in senior manager position

Farr on getting to know a business: Anyone who tells you they understand a company in the first two or three years is lying. You have to go through the cycles – industry cycles and personality cycles with your colleagues.

Farr on the collapse of The Car Group plc: I had the bizarre scenario of trying to turn around my own start-up. Before, I had been a rescuer of companies, but this time I was dying. It was like having a post mortem while you are still alive.

Farr on why GorillaPark will succeed: We understand the space, our customers, the issues. If we are fortunate, we will emerge as the gorilla of our space. That’s our plan.

Farr on the features of his job: I have a pan-European brief, which is unusual. Secondly, it’s a high-tech sector so there are lots of intellectual property issues. Thirdly, there’s pressure of time.