MASTERMIND VSL ?? 7 DAY CONTDOWN - MY #SETBACKS AND #COMEBACKS DAY - 2 NO 5 : THE PALIO IPO JOURNEY AND AN UNPLANNED FRENCH HILLSIDE STOP

It was May 2012, and during the past 4 years I had the following business achievements to my name:

founded Palio Capital September 2009 in London to enter the private credit field which intuitively felt 'under-served' in the UK -

the UK private credit space expanded more than 10x 2010-2020;

in March 2011, submitted a fully financed (by a US hedge fund with a London office) ￡370 million bid for a substantial credit portfolio (over 30 underlying borrowers, almost exclusively PE backed MBOs) being sold by Lloyds Bank - we were adjudged 2nd and the portfolio was sold to a private credit off-shoot of Bain Capital;

December 2011 : signed a contract with European Investment Fund for a Euro 30 million cornerstone commitment to a proposed new credit fund : Palio Superflex I;

in March 2012 Palio Capital was a footnote to the Red Book the UK Government's official Budget as one of seven companies (the only privately owned startup, the others were all substantial institutions, mainly from the USA) shortlisted for commitments under the Business Finance Partnership ("BFP"), a whopping ￡1.2 bn Government initiative to boost lending to UK private companies, especially SMEs;

• a formal due diligence period commenced and the Whitehall mandarins informed the Palio Capital team that of the 7 tenders submitted and shortlisted for the BFP, our bid 'was the clear number 1' and all indications suggested that we could likely anticipate a BFP allocation of ￡100-125 million;
• in late May 2012, the Palio Capital team was informed via phone call from one of those same Whitehall mandarins that unfortunately there would be NO allocation to Palio Capital under the BFP - our strategy was deemed 'not wholly debt' (see comments later in this para) and therefore our bid was effectively disqualified. Nevertheless, the UK Government did allow the USA institutions to include 'capital already on their balance sheet' to qualify as 'matched funding' (all Government allocations in the UK have to be a least matched ￡1:￡1 by non-Government funding) thereby the UK Government had created a wholly 'un-level playing field,' completely prejudicing newcomers like Palio Capital, as we still had to achieve matched funding in the private markets.
• In order to attract that private funding we had proposed a blended portfolio : 50-60 debt/ 20-30% Mezzanine / 5-10% Equity creating a blended target return of 14% gross irr which we deemed would be attractive to institutional investors (and we were correct - see Palio Capital stock market listing below).

Now you may say, so what? Check the original mandate of the BFP : its mandate was "to encourage new UK based institutions to enter the private credit market". In fact the BFP did nothing of the sort - it simply allocated over a ￡1 bn of capital (taxpayers money) to well capitalised US institutions. An unprecedented failure to stick to the mandate, and one of many examples of how that famous Special Relationship is a completely one-way street. Don't hold your breath waiting for a US Government to award $1.5 bn of capital to UK fund managers seeking to compete on US soil with local fund managers. That'll never happen.

Calamity : up to 4 years now appeared wasted.

Within 3 hours my team was in the offices of Oriel Securities.

"But didn't Oriel Securites focus 'back in the day' on the public markets, listings, IPOs?" you cry!

Indeed they did.

By the Fall of 2012 my Palio Capital private credit team had 'soft circled' ￡135 million (firm commitments awaiting an approved prospectus) from institutional investors for a Special Fund dual listing in London and (off shore) Guernsey, to attract the Investment Trusts.?

That was a remarkable turnaround. I actually fondly recall speaking to Darren Gibson (then Palio COO) - he was in the 42 Brook Street office - from a Marbella beach restaurant appropriately called "Heaven", issuing instructions on where he could find various files from our Palio Capital Superflex I Fund PRIVATE Memorandum - these business plans were now to form the backbone of a Prospectus for a proposed listing on the London Stock Exchange.

Then I returned to my sun lounger (right beside a stunning girl) and I ordered a large beer - actually I think it nay have been a couple of beers (that bit's just for Darren).

Oriel Securities had a superb Specialist Funds team at that time, with much of the day to day work being led by the talented James Brodie now Executive Director at Goldman Sachs in London. One key element of the Oriel advice was that the listing would have to be a DUAL listing : London plus an off-shore jurisdiction. We had several off-shore jurisdictions to choose from and had established strong relationships in Luxembourg and Jersey. We selected Guernsey - for the life of me now, I can't tell you why but I wish we had not. Or do I?

I know what you’re thinking. You’ve never heard of Palio Capital. Correct. All our plans and dreams smashed on the 'rugged rocks' of Guernsey, lost in the fog created by a rogue regulator, Nik van Lueven.

https://www.gfsc.gg/news/director-general-retire-june-2013

"Rogue?” I hear you say, "quite strong”??

Well, I'd argue 'quite balanced' actually, when someone’s (un?) professional inefficiency (incompetence?) costs you personally nearly ￡2 million in cash, 4 years of your life and a broken business dream, let’s see how balanced your reaction is?

Nothing malevolent I'm sure. Speculatively, Nik was mitigating any personal downside from "green lighting" a new business just a few months before a (likely long) planned retirement.

Either way, said regulator took 2 months to flip an amber light to a green light, screwing our planned IPO in the process.

The learning? It’s not how often you fail at business that counts or even why.

For sure there’s things I wish I had done differently.

When I personally signed an unconditional commitment (addressed to the GSFC) to cover the costs of the IPO, should it fail (knowing at that time that we had secured ￡135 million of 'firm commitments'), I should have INSISTED on performance of a rapid formal UNCONDITIONAL "green light" by the GSFC, say WITHIN 5 business days.

Problem being that whilst capital flows IN QUICKLY for strong business plans led by experienced management in the capital markets, equally capital flows OUT EQUALLY QUICKLY if there's an UNFORESEEN DELAY.

You can't keep an IPO 'on ice'...and our IPO melted around our feet as Nik van Leuven, my absolute all-time fav regulator (British irony!) dilly-dallied. Or perhaps he just was just aimlessly ordering 'one more for the strasse' in his preferred Guernsey 'watering hole'. What did he care, his (long planned?) retirement (yes, he was 65 yo) was just around the corner - but no one had told me that!

What’s been your greatest setback and more importantly how did you comeback?

Then commenced a wearing 'false White Knight' escapade early January to mid February 2013 (designed to rescue the IPO but all very half-heartedly) led by Loic Fery and his team at Chenavari (named after a hillside near Loic's home town) - Chenavari IM were at that time allegedly Europe's leading (liquid) Credit Hedge Fund.

We should have realised that the French capacity for retreating is second to none. True to form, Chenavari duly retreated a month or so later (the retreat was well-executed I have to say, practice I guess?) saying they'd prefer to run our private credit strategy on their 'well-capitalised private hedge fund platform'.

All fine. Except that despite a proverbial "hillside" of French prevarication, it wasn't. Wasn't what? Wasn't well-capitalised - they had technically negligible funds set aside for our private credit strategy.

So now my "battle weary" (after four years of fundraising meetings) Palio team had to commence fundraising yet again :

"Once more unto the breach" (Shakespeare's Henry V, Agincourt)

a word in your 'shell-like' : don't mention Agincourt to the French, it didn't end well. Although, one upside, no mass retreat 'necessaire'. Estimates suggest up to 10,000 Frenchman died on the battlefield. The English losses estimated at 400 or so.

Allegedly according to Loic - ironic that his christian name is only ONE 'g' away from LOGIC - I couldn't possibly comment further - well I could say he claimed many times in my presence that

"no-one ever leaves Chenavari"

I guess he wasn't referring to the hedge fund Chenavari IM, because staff turnover was approximately 20% pa at that time. So I guess he was referring to the attractive hillside close to his home town of Montelimar. We can speculate that "peut-etre" the hillside is so beautiful, no-one ever leaves.

In one further irony, Montelimar is twinned with my father's home town : Aberdare in South Wales.

There's really not much worth reporting about the worst year and a half of my career at Chenavari. Other than it was such a BAD experience that I actually hankered after the Gresham Private Equity days of yore, despite having been working with an extreme narcissist there for 9 years. French narcissism is worse, for sure.

On the deal side the French liquid credit guys had zero appetite for our illiquid private credit. Best summed up by my team's valiant attempt to gain credit approval for a debt facility on the LDC backed re-financing of U-switch at a very attractively priced c.￡70 million EV (EBITDA was in excess of ￡15 million on a run-rate basis). My team was proposing a ￡5 million equity investment alongside our c.￡25 million credit instrument. Within 18 months U-switch was sold for over 2x that EV and our proposed "equity kicker" would have been very much 'in the money'.

The third and final time the U-switch deal was rejected at Credit Committee (you can't say we were anything other than (I can't do the French accent) "persistant") my abiding memory is of the Head of Risk commenting that :

"after all, the internet is UNSUSTAINABLE"...

Read that again!

It transpired that the expensively educated Parisien 'frat boy' mathematicians of Lycee du Parc and other similarly decorated institutions

KNEW LESS ABOUT THE INTERNET IN 2013 THAN DAVID BOWIE KNEW IN 1999.

After that b-s I really couldn't take any more. I remained on that small French hillside (that no-one ever left allegedly) 12 months longer, but it was a soulless experience, except for many cafe lattes with Darren Gibson at a nearby Starbucks plotting the future.

One COMEBACK that I certainly never plotted was 8 years in FAST FASHION. Tune-in soon for the 6th and final SETBACK AND COMEBACK.

Along with Phil Harwood CEO/Founder, the our team (I was CFO) raised ￡9 million plus for a fast fashion scaleup called Fabify.com which operated in most of the countries in the belt to the west of Ukraine, and WAS well on the way to a planned IPO by March 2022. We expected in Q1 2022 that a valuation of 'in excess of ￡0.25 billion' was very achievable by mid 2023. My c.15% being ￡35-40 million or so. I was not hankering after that French hillside. PAS UN PETIT PEU.

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Answers on a postcard Babyboomers

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