Bhanu Choudhrie is founder and chief executive of the C & C Alpha Group, an international private equity business with a strong focus on emerging markets. He oversees investment strategy, working with a group of experienced venture capitalists.
In this interview with Bhanu we find out more about his business philosophy – and the challenges for venture capital in turbulent economic times….
What is the focus of the C & C Alpha Group’s investments?
At the C & C Alpha Group we have a very diverse portfolio, but we invest primarily in aviation, hospitality, real estate, banking, health care and utilities. We have an international footprint, with a significant presence in the UK; the US; India; and UAE. The team analyses global economic trends and find companies in market niches that are on the brink of expansion. We were early investors in emerging markets and, for several years, sponsored The Emerging Markets Symposium at Oxford University.
What is your philosophy as a venture capitalist?
The C & C Alpha Group has always believed in long-term investment and that has shaped our philosophy for the last 18 years. We incubate and grow companies by believing in them and committing to them. We invest in strong management teams and then trust them to deliver. Our ethos is to not seek quick exits and, because we invest for a longer period than most other venture capital firms, that allows us to support and grow our investments to achieve their maximum potential. A good example of that is Alpha Hospitals, a provider of specialist mental health care, which was an idea we first discussed around the kitchen table and then spent 13 years incubating and scaling up the company before selling it to a US company, Cygnet Health Care, for £95m in 2015.
What do you look for in a company?
We want to be partners, not just investors. In some cases that might be a start-up, which needs not only capitalization, but also guidance in developing its market presence and managing its growth. In other cases, it might be a more established company looking to expand into new markets; we can bring an infusion of capital, but we will also provide added value through our expertise, international contacts, and management support. We have a team of experienced consultants, project managers, project developers, and financial analysts, who have the expertise to help companies achieve their potential.
What was your first major investment?
We invested in Air Deccan in 2003. At the time, it was a low-budget Indian carrier with just one plane in its fleet. The airline was a risk. Four of us invested and we said to each other at the beginning, ‘If it doesn’t work out, at least we can say we had an airline,’ but it played a pivotal role in opening up the airline industry in India. There was a massive boom in aviation because journeys that had taken up to three days by train were now within reach of more people who could afford to fly. Five years later, when Air Deccan was sold to Kingfisher, it was running 200 flights a day and transporting 7 million customers annually.
What is your approach to risk?
As an investor, I am always looking for new ventures that excite me, but, for every two or three opportunities we invest in, we will probably turn down 100. We minimize risk by going in small and increasing our investment incrementally. Once your base is sound, the time is right to take higher investment risks. When I started out, I was willing to take more chances, but as you get older you become more cautious with your investments.
How do you decide on the right growth trajectory for your companies?
This is a dilemma for many venture capitalists. We examined this question at our 2019 annual conference in Dubai, which was led by Professor William Kerr, of Harvard Business School. He suggested one way of looking at this was by asking: ‘Have I earned the right to grow?’ He suggested a four-question framework, which can be summarized as: Is my business ready? Do we have the resources we need? Have the leadership team bought into the vision? What is the cost of standing still?
Another useful way to approach the question is to ask: What was the first thing that worked for my business? Every business has core competencies, but what is your distinctive competency – what do you do better than your rivals? Make growth decisions based on your distinctive competency, not on your core competencies.
As the coronavirus crisis has shown, cash flow is usually the biggest challenge to growth. Sometimes it is better to be less profitable if it allows you to keep hold of capital because raising capital yourself can cost you more than the profit you have sacrificed.
Where do you see the potential in your current investments?
Alpha Aviation Group is a world-class pilot training business, which we have grown over the last 14 years. We identified a clear gap in the APAC market, caused by a shortage of commercial pilots at the very time when passenger demand was increasing dramatically and invested substantially in the business. Alpha Aviation has trained nearly 2,000 pilots from 40 countries. Last year, we opened an $11m simulator in the Philippines, our sixth in the country, and more than any of our competitors. Alpha Aviation Academy UAE, which celebrated its 10th anniversary in 2019, has earned an outstanding international reputation for the quality of its cadet training, giving unprecedented opportunities to female cadets, and forming partnerships with key carriers in the region.
Coronavirus has had a devastating impact on aviation and we are likely to see a consolidation of the pilot training sector; only those with strong cash reserves will survive the pandemic. But in these very difficult circumstances, there is an opportunity to think about how pilot training companies like ours can help airlines. All airlines need to cut costs and pilot training providers need to be more flexible with their price offering to airlines, providing differential pricing. Airlines will need to rethink their pilot training strategy, with more outsourcing and decentralising to ensure they are streamlining and managing their costs. Ultimately, this will be a new opportunity for us.
I am also excited by the growth of Alpha Utilities. We own and operate a desalination plant in Sharjah and we have developed world-beating expertise as a water technology company. Demand for desalinated water is increasing rapidly and is essential for industries in the region. We believe the company will continue to grow, finding new markets and new opportunities to expand in the Emirates and beyond. Global warming poses a significant threat to human health, but it also has the potential to become the single biggest driver of economic transformation.
What impact has coronavirus had on your business?
Our annual conference last year was entitled Business Sustainability, Emerging Risk Analysis and Growth in a Changing Climate. We examined several different scenarios that might threaten business, including Brexit and regional instability in the Middle East, but I don’t remember a global pandemic being one of them!
What we discussed at our conference was adapting to change, whatever your circumstances. If you are running a successful business, it is tempting to think you do not need to change anything about your business model. But in today’s fast-moving world, if you wait until you need to change it you will already be too late. The best CEOs anticipate disruption even before it has happened and are not afraid to change their business to adapt to it, however, counter-intuitive that might seem.
The aviation and hospitality industries have been hit very hard by coronavirus and will feel the impact for years to come. It will have far-reaching repercussions on how we travel, how we holiday, and how we choose to live our lives. But every crisis brings opportunity and the chance for re-invention. I am confident we are well placed to weather the storm and adapt to the new business landscape.
Want to know more about some of our work with Venture Capitalists? Then click here to see how we raised the profile of Consilience Ventures and its alternative start-up ecosystem.