by Real Business - Thursday, 30th August 2007

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There is nothing that Jon Moulton likes better than a bad manager. "Lots of venture capitalists say they're looking for 'good managers, good managers, good managers.' We look for bad managers," he says. "They're easier to spot and practically any change is for the better. Yup, we're into bad managers and there's certainly no chance of us going out of business because of a shortage."

Moulton is on fine form. It's Friday afternoon at five o'clock and there's birthday cake and champagne doing the rounds at the Covent Garden offices of Alchemy Partners, the private equity business he set up four years ago. One of his staff has turned 30 today.

"Give the photographer a glass," he says to his secretary as she places two champagne flutes on a small, round table in Moulton's office. "He'll be quicker then."

For a man reportedly worth "tens of millions", the 50-year-old northerner with a reputation for sarcasm and a "no-bullshit, no-small talk" approach to business, spends his London days in an office more befitting an HP Foods brand manager than a multi-millionaire. Twelve feet by twelve, cheap carpet, standard issue wooden-look desk, standard computer, shelves of books on tax, more shelves of deal awards, framed cartoons on the walls commemorating buy-outs and one of him and his colleagues to mark his 50th birthday. It's all rather dull, when you consider that, thanks to his abortive bid for Rover, he is probably the best-known venture capitalist in Britain.

"We have six partners and me and half a dozen executive staff. The team works well. We have a lot of fun - genuinely," he says. "We've kept the business small, deliberately. We have no committees, no boards, and no subdivisions. If we got even fractionally bigger, we'd have to."

Surely he has an investment committee to agree which companies to buy into? "Well, yes. But everyone's a member, even the secretaries. They can invest in every deal. The receptionist you met on the way in, she's invested quite a bit. Everyone has a share of the carried interest; it's not unique no, but it's unusual."

Since Moulton set up Alchemy, he has invested £700m on behalf of his investors, in around 50 deals. Turnarounds, break-ups and messes are what he likes to get his hands on, especially in the quoted sector. Pub group Innspired, electronics firm Instem, construction company Avonside, all fell out of favour with the public markets and into Moulton's hands.

Of his 50 deals, he has exited nine, on which his rate of return has been a staggering 106 per cent - a figure he admits is unsustainable, skewed as it is by AG Stanley, the Fads and Homestyle wallpaper business he bought from Boots for just £2.

"Our best deal? The most satisfying was AG Stanley. We exposed £2 and made £38m. It's an easy sum, a nice relationship between the figures. Our worst? ESP, a US exhaust-fume testing business. The regulators changed the rules. The government decided people didn't need to have their exhausts tested anymore so that was the end of that business. We had £50m in it. It's still trading but it's not worth much."

He would have expected to have exited more deals by now, he says, but given the state of the markets, floating companies is not an attractive option.

"The markets are rubbish and when markets get unsettled, it doesn't matter if they're going up or down, but if they're changing rapidly, deals get difficult and M&A work turns down. People buy and sell companies not because of some fundamental law of finance, they deal because they feel comfortable with the price."

The upside for Moulton and his crew, is that in trickier economic climes, bad managers are easier to spot and, no doubt, easier to oust. Not that he has many problems spotting them in the first place; the UK, he believes, has a surfeit of poor management.

"You see amazing stories all the time. Cammell Laird, BT, Marks & Spencer. I first knew M&S was going into problems when I stuck my finger through the side of my underpants when I was putting them on. I thought, hang on, that hasn't happened before."

So should we expect to see Alchemy emerge as a bidder for M&S? Or even BT? No. M&S is too complicated even for him, he says. And BT is too big. Deals of a few hundred million are about as big as he can go, although he doesn't rate Peter Bonfield's chances of survival as BT chief executive. "He had a fairly strong, proven record of failure at ICL and he seems to have continued in the same mode."

But if Moulton's right, why are there so many poor managers? "A bit of it is education, a bit is structural, a bit is inevitable; many a good manager becomes bad, many a company outgrows its management," he says.

"In the UK we have poor corporate governance structures to change management. If you want to get philosophical about it, the fact that we do a lot of public-to-privates probably reflects that the institutions prefer corporate governance through somebody who consolidates their purchasing power - us - because we can actually fire a chief executive, an institution can't. If you only have three per cent of a company it's bloody hard to work up the enthusiasm to fire the chief executive."

At Baird, the quoted textile group, for example, Alchemy is a 29 per cent shareholder. The company is struggling and chief executive David Suddens has faced calls for his departure but, as long as he has Moulton's support, he is safe. At the moment, Moulton says: "It would be hard to describe Baird as an unqualified success but I have worked with David Suddens and have confidence in him."

Moulton has walked the venture capital road since the late seventies. The son of a master engraver, he trained as an accountant at Coopers & Lybrand then moved into its corporate insolvency division.

"I spent my entire time running bankrupt companies in Liverpool," he says. "Great fun. Huge power, no responsibility. No-one knows in receivership if you balls it up or not."

Then he headed for New York, and fell in love with the straight-talking, long- hours work ethic, ratcheting up his 60 hours-a-week Liverpool habits to 90 hours-a-week. When he "bumped into" the nascent LBO business at Citicorp, he was intrigued. "It was novel and growing. It was quite an arithmetic game and I've always been quite good at numbers."

Moulton returned to Britain and helped build Schroder Ventures into one of the UK's most successful private equity operations. After ten years he left to join Apax before starting out on his own. Previous stories suggest he fell out with both Schroders and Apax. Is that the case?

"No," he says. "Schroders pretty much fell out with themselves. I discovered they were trying to liquidate Schroder Ventures to the disadvantage of the investors and the individuals within the partnership. I advised my partners to settle with Schroders on particular terms. I trousered a fairly large amount of money out of them from the departure and moved on in life." Apax, he says, was more of a cultural mismatch. "They were trying to get very big and I wanted to do my own game."

Moulton has a wife and two kids, he runs half-marathons, plays tennis, owns a Porsche, a house in Kent and a place in the French Alps. But the big thing in his life is investing. When he's not doing it for Alchemy, he's doing it for himself. As an angel investor, he currently has around 50 investments in all sorts of sectors: biotech, electronics, telecoms, personnel. And his idea of a perfect day?

"A good day at the office. An exit achieved. A major investment signed up. We've reached a level at which I am perfectly content. If I could keep things as they are I'd be very happy forever. But I'll probably fail.

"If I wasn't doing this," he says, "I'd sit at home managing my own portfolio and doing more or less the same thing." And if you didn't do that? "Erm, I'd, erm, die?"

GOLD NUGGETS

What's your biggest investment mistake?
"Newbridge Networks, a Schroder Ventures investment. We made six and a half times our money. If we'd waited ten months, we would have made 72 times our money. That mistake cost me more than every write-off I've ever been involved in. The exit is where the money is."

What do you read?
"About 30 magazines a month. New Scientist, Scientific America, The Lancet. It enables me to either appear intelligent or to actually be intelligent. I know a little about a lot."

What do you look for in managers to head your investments?
"A mix of personal skills, ambition, willingness to work hard, rational approach to the business, ablity to work with a team, willingness to work in an environment where control isn't absolutely with the manager."

Did you learn anything from your attempt to buy Rover?
"It's only at close range that your cynicism about politicians is totally reinforced. They are influenced by little other than their desire to stay in power."

Amanda Hall is a regular profile-writer at the Sunday Telegraph and Real Business.

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