A Non-Executive Viewpoint: Adding Value to Software Businesses

David Gilbertson, Non-Executive Chair of two LDC-backed technology businesses – software platform RightSpend and data analytics provider Horsefly – and previously Non-Executive Chair of former LDC portfolio company and education software specialist Texthelp, has over 25 years’ experience helping businesses in the technology sector to grow.

Here, he gives his views on the ingredients of successful, fast-growing technology businesses, the game changing impact of AI and what management teams considering private equity investment should consider.

“Technology today almost defies separate definition from business. So much of business is not only driven, but in so many ways determined, by technology that defining it separately is become increasingly difficult. Does the business make the technology or does the technology make the business? Its often impossible to say. There are very few parts of life that technology doesn’t profoundly affect today.

There are three key ingredients successful technology businesses need. Firstly, a distinct market proposition, such as a proprietary data set, which delivers unique value to users and will allow the business to establish their own individual price point.

A well-founded, multi-talented senior management team is also essential. This goes beyond the CEO to include heads of departments – from finance to sales and marketing, to customer success. And finally, they need a clear strategy: evidence of a track record of cash generative growth alongside a compelling plan to continue achieving that growth.”

AI – Opportunity and Threat

“AI could have a similar level of impact to the advent of the internet, with McKinsey now predicting that up to 30% of currently worked hours could be automated by 2030. This makes AI both a great opportunity and a significant threat, and technology businesses will have to make brave choices around their core offering. Management teams must be prepared to change their ways of doing business and sacrifice products that are no longer fit for purpose.

For the data-driven businesses I work with, having their own proprietary, high value, intellectual property is the best way to manage competitive threat as the pace of AI advancement accelerates. LDC-backed Horsefly, for example, uses AI to power its global labour market data provision. Over a decade it has collected market data on job profiles, salaries, vacancies, and candidate availability. AI driven analytics trained on that data bank now equip Horsefly to create a complete taxonomy from a single data point which enables it to identify job market conditions by geographic location. That creates a powerful aid for clients when it comes to making objective, data backed, workforce planning decisions.”

How the Non-Executive Perspective Adds Value

“The role of a Non-Executive Director in my view is to be supportive and energetic, and import relevant experience from outside, explaining it in a practical way to add as much value as possible. That means more than turning up to a board meeting once a month. It requires a real understanding of the business and what makes it tick to ensure Non-Executive Director contributions to strategic and operational discussion are relevant and informed.

A Non-Executive Director’s vantage point affords a great position to help identify when a business may be shifting its commercial position from its strategic growth plan. With many attractive potential distractions for an already busy management team to pursue, particularly in the fast-moving technology space, an effective Non-Executive Director will help to keep everyone focused and on track.

A Non-Executive Director also has to be ready to repeat and repackage their messages if they are important and do not land immediately. We tend to overestimate the effectiveness of verbal communication. Willingness to revisit and represent important input is a key aspect of Non-Executive Director contribution.

In short, Non-Executive Directors bring a mix of value-adds. They should make sure that the strategic direction of the business is clear. When things are going smoothly, this can be very light touch, but in more challenging times, experience is essential to help guide a business, constructively.”

Technology Sector M&A

“The M&A market constantly evolves but there is durability and predictability in the exit environment for good technology businesses.

Economic and geo-political uncertainty in 2023 meant the clients of medium-sized technology
businesses were more cautious – this inevitably led to the slowing down of technology and
data-buying decisions. There are signs already though that 2024 will see a return to more
confident trading conditions. However, these more challenging times have once again
reinforced for investors the value of recurring revenue streams and strong margins of
businesses which are not exposed to discretionary spend and have lower cyclical
risk.”