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While Chartered Accountants are typically considered risk-averse, they are a natural fit in the high-risk world of venture capital. 
 
 
If you’re looking for the complete opposite of the conservative, risk-averse Chartered Accountant (CA), you could easily start in venture capital (VC), an industry where high risk and dynamic variables are the nuts and bolts of the business.  
 
Venture capital is where an astute and experienced group of managers directly invest equity in a venture, typically the expansion of an existing business or the buy-out of a corporate unit by its managers. Having made the investment of between $3m and $50m the venture capitalists have to grow the value of the investment and exit for as much as they can.  
 
Venture capital is a business that many professionals are not cut out for. In order to make money – and most VCs aim for upward of 30% internal rate of return (IRR) – they have to raise a fund, which is usually subscribed by pension funds and other institutional investors. Then they have to find small, private firms who need capital, they have to ensure they don’t overvalue the investment, they then assume all the market risks of being shareholders in the business. If everything goes to plan, the VCs have to time their exit to maximise their return on equity. If they get it wrong, there is no safety net.  
 
CAs are one of the major professional groups in the Australian venture capital scene. As publisher of the Australian Venture Capital Journal, Victor Bivell, says: “Chartered Accountants are like furniture in the venture capital business. They’re everywhere.”  
 
Australia’s venture capital industry had 147 professional firms with about $5bn to invest in 2004, and as many as half of the people working in the industry are accountants, says Robert Radcliffe-Smith CA, of Advent Management Group. “We’re a hybrid of the UK and US venture capital industries,” says Radcliffe-Smith. “In the UK, 80% of the people in venture capital are Chartered Accountants, and in the US they’re mostly consultants and business people. In Australia about 50% of us are CAs.”  
 
Director of investments at Advent, Radcliffe-Smith says the life of a venture capital professional can be hard, with the rewards coming to those with patience and a focus on fundamentals. “I’ve been in venture capital for eight years now, but it took me two years before I did my first deal.”  
 
It’s this dynamic tension between caution and risk that sets venture capitalists apart. Far from the swashbuckling image of the gut-feel investor, Radcliffe-Smith says the successful VCs work incredible hours and take seriously their undertakings to their investors and the businesses they invest in.  
 
On the risk-taking side, Radcliffe-Smith says CAs are at an advantage. “So much of what you do is getting a feel for the numbers - profits, cash flows, market share. People with a grounding in accounting and audit can pick up that side fairly quickly.”  
 
He also says that CAs in public practice could and should play a much greater role in connecting their cash-constrained clients with the venture capital community. “There’s a natural link there because of the dominance of CAs in our industry.”  
 
One of the reasons that the CA profession stays strong in venture capital is that elite firms such as Quadrant Capital make a point to seek them out. George Penklis CA, investment director at Quadrant, says CAs have the right background and skills for private equity. “We have focused on recruiting Chartered Accountants who have had broad experience across key sectors within the profession.”  
 
Penklis - whose company has $250m in funds under management - says the whole concept of risk can be a difficult subject for newcomers and not everyone is suited to the business. “It’s all difficult. The interesting thing about private equity is that you hold the transaction from start to finish. You are not just buying or selling a company. You retain ownership of a business through a complete lifecycle, which means the practitioner needs to be a jack of all trades.”  
 
An example of this dynamic tension between risk and assurance is Andrew Savage CA. A director of CHAMP Ventures in Sydney, Savage started his professional life in the late 1980s when he was recruited off-campus in Brisbane for the Sydney offices of Price Waterhouse where he gravitated towards the insolvency practice. “What you learn in a big insolvency practice is the difference between good risk and bad risk. Your job is risk identification, business analysis and finding value.”  
 
Savage – whose firm invests between $5m and $20m – says many CAs have earned their image by associating risk as something to be avoided at all costs. “People in venture capital see risk as something to be harnessed, not something you run away from.”  
 
It’s not surprising then that the CAs who do go into the private equity field are slightly different. Notably, says Savage, while CAs in the Big Four firms work what they consider to be long hours, they are nothing compared to how venture capitalists live. “I’m over-seeing six investments at the moment, and none of them are in Sydney. When I first started here in 1992 with Bill [Ferris] and Joe [Skrzynski], I was struck by the kind of workloads they were getting through. There’s nothing nine-to-five about this business.”  
 
Perhaps like Hollywood producers who always have a pile of screenplays that might just yield the next big thing, venture capitalists are never idle because that growing stack of business plans and pitches might just contain the opportunity they’re looking for … such as the $9m position CHAMP Ventures took in Dexion in 2003, which was turned into $49m when the company was floated in April 2005. And like movie producers, VCs can spend days on the phone. Savage says the endless phone-time is largely because while venture capital is a finance industry, it’s all about people – VCs usually invest in management teams.  
 
It’s the people-facing and problem-solving part that venture capital veteran Vanda Gould FCA, says is at the heart of successful VCs. “You have to like dealing with people and their problems and coming up with solutions,” says the founder and chairman of CVC.  
 
Gould says that the CA profession has cornered the venture capital industry not just because of their analytical skills, but because they are business generalists. “If you go and work in a big - or even a second-tier - accounting firm, you are working with lots of different people, lots of companies with lots of different issues. That makes us well-prepared for this industry because we know how to deal with personalities – it’s not just a theory.”  
 
CVC is now publicly listed and holds 15-20 investment positions at any time; it also manages the Australian Government’s Renewable Energy Equity Fund (REEF). Gould started his accounting career with one of the Ernst & Young predecessor firms before starting his own tax practice. “I came to a point where I had to decide if I wanted to invest the time into staying current with all the tax law changes.”  
 
He decided to go into private equity: from his high net-worth clients he raised $5m and won one of the first MIC licences in 1985. The business has grown and along the way Gould and co. have invested in everything from nuclear medicine to property companies; it was the latter - Sunland Ltd - which CVC made a $7m investment in, which subsequently grew to $150m.  
 
“We don’t usually look at property companies, but with Sunland we were backing the person, a very smart Iranian immigrant who we thought was going places.”  
 
Gould says the VC business is not for everyone and for every success story there are scores who last a year or two and leave. One reason is the whole approach to risk: “A CA is usually risk-intolerant. But we are risk-tolerant; we are the risk-taker. Not everyone likes that.”  
 
But Gould says the workloads are not to everyone’s liking either. “Ideally, you have this vision of a portfolio ticking over with all the business plans working out successfully. But in reality, when things go wrong in businesses we have to sort them out. You can find yourself getting more involved than you envisaged and next thing you know, you’re spending a whole year just grinding it out. It can be a very difficult business … and I love it.”  
 
DISCLAIMER: The views and opinions of the authors appearing in Charter are not necessarily those of the Institute of the Chartered Accountants and should be viewed as such.