RDCP’s 2019 Annual Letter

The following are my key learnings from RDCP’s 2019 Annual Letter.

12 months into RBS, both left
Unsuccessful fundraising trip to Dubai prompted alternative strategy of putting savings together, taking on some bank debt and acquiring very first nursing home
In 4 years, from 2015 to 2019, took EV from £0m to £40m, at 157.2% IRR
Jun 2016 to Feb 2017 from launch of RDCP Care to first transaction
In Feb 2019, grew RDCP Care to £30m EV, critical mass without giving up shareholding

Religious on increasing and re-investing cashflow, using bank debt, finding undervalued opps

Didn’t want to be overshadowed by mega-funds and compartmentalized into “emerging fund manager”, accepting 1% fee and 10-15% of profits post-hurdle, didn’t want to spend time raising funds (as opposed to building businesses)
Values aligned more with Warren Buffet or Bernard Arnault, rather than Steve Schwarzman or David Rubenstein
Problems with VC

Morphing into a ponzi scheme, companies relying on investor subsidies, ‘businesses that make no money aren’t businesses but are hobbies’, founders forgetting that a company’s revenue should fund 100% of the costs

Whilst VCs focus on the above, RDCP focuses on finding businesses with demonstrated history of cash-flow, negotiating to buy this cashflow for little as possible, then re-investing this cashflow for more high-cashflow businesses
Capital and resource allocation is the single most important driver of a business’ success
Importance of radical transparency in creating an idea meritocracy

Lessons Learned Segment

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1. Hold on tight to your equity

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2. Understand the pecking order of your balance sheet

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3. When hiring advisors, never opt for a Tier 1 firm

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4. Avoid chasing the same goals as the majority

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5. Focus on growth rather than optics

Lessons above are contrarian and counter-intuitive, simple way of doing business that vast majority can’t fathom
Every investment firm needs a compelling reason to start. RDCP’s was UK healthcare.
Why infrastructure?

Core aspect of economy, capital constraints by gov entities increase attractiveness of private participation
Civil engineering and construction businesses underpriced, see opportunity for acquisitions