Sunday 24 June 2018

This one's a keeper: Dunphy start-up aims for €170m

Former schoolboy football star, Waterford native and serial entrepreneur Martin Dunphy, sold his company for €355m and he tells John Reynolds how he's investing in small businesses and biotech

Martin Dunphy
Martin Dunphy
Martin Dunphy
Martin Dunphy
Martin Dunphy

Any business is fraught with risks that are many and varied, but Waterford schoolboy football star Martin Dunphy decided that pursuing a career in business in the late 80s and early 90s was less risky than relying on his talent as a goalkeeper.

There's little doubt that it was a wise decision: he's now worth an estimated €35m.

After banking most of that from the sale last year of his remaining stake in stg £295m (€355m) valued Marlin Financial Group (a firm that invested in non-performing consumer loans that he founded in the living room of his Wimbledon home in 2002) his next main business goal is to help nurture start-ups and other owner-managed businesses here and in Britain, through his newly established firm Ascot Capital Partners.

Working alongside several similarly experienced and successful partners, Dunphy has put in a sizeable chunk of his fortune into the initial €40m that it has to invest. He plans to raise an additional €70m to €140m in further rounds by the end of next year, and a number of family wealth management firms are interested in investing between €1.5m and €7m at this stage alongside other backers.

"My team and I know how to hire people, train them and build businesses, and we'll put in the capital they need to scale. There are a lot of good companies that need hands-on support and mentorship, operations experience and smart capital so they can get to the next level.

"While looking at various opportunities in the UK, we're also talking to a number of Irish businesses and start-ups in tech and other areas at the moment. Ireland has plenty of good, fast-growing companies in all sectors, and we're keen to invest there in our first round," he affirms.

He and his partners have previously invested in other sectors including retail, home furnishings, wholesale, emerging tech and professional services. A US social media start-up that he's backed personally, Social Toaster, is growing fast and counts media giants Sony and Viacom among its clients.

A second venture that he's just established is a €7m hedge fund to invest in biotech shares, and it too has had some interest from family offices, some of whose clients are Irish.

His plan is to grow the fund to between €20m and €30m over the next 18 months, after hiring additional key research staff and establishing a proof of concept and track record.

"Biotech hedge funds are typically event-driven, with their investee firms aiming for FDA approval or milestones in clinical trials.

"The biotech sector has done well over the past 20 years, and there's no reason why that can't continue. As with any investment, there's a level of risk involved, but the successful ones invariably are acquired by bigger companies that need their team and their specialist knowledge," he explains.

The sector is booming at the moment according to a recent report by PwC. Of 71 US companies that had IPOs last year, even those experimenting with drugs and treatments for rare diseases surpassed €1bn valuations.

Biotech shares in US small caps and the Nasdaq have risen by 300pc over the past five years, compared to just 50pc for the S&P500 - and last July US Federal Reserve chair Janet Yellen took the unusual step of warning that, like social media shares, their valuations were "substantially overstretched".

While much bigger funds may be earning large returns on their biotech bets, Dunphy's success with Marlin may suggest that there's no reason a relatively small fund can't make healthy profits.

Some of Marlin's competitors did basic debt collection work, largely the kind that involves lots of phone calls from heavily staffed call centres and even more letters in red ink. Bigger ones such as Towerbrook Capital Partners - a spin-out from billionaire George Soros's US private equity outfit - and the CarVal financial arm of the €135bn global food, agri and commodity behemoth Cargill, were by no means short of experience and money to invest.

But Dunphy, with no prior experience - and having recently sold a telecoms business he had started during a stint in Taiwan and then Beijing with his wife, an international development consultant ("the brains of the family," he jokes) - saw the opportunity to take a different approach.

He assembled a team that included data analytics and legal experts to form Marlin. Starting off with relatively small loan books with which to establish processes and analytical models, they then convinced a number of banks - understood to have included Northern Rock, Barclays and HSBC - to do deals with them that were among the biggest at the time.

"China had been an adventure. In the mid-90s, it was exciting, wild, unpredictable, big, tough, and you learned a lot, particularly about yourself. Fast-forward a few years and to Marlin - and with no capital, no data, no track record, brand or analytics initially, we were the smallest in the industry.

"We built slowly buying small deals at the right price - and then when we had everything we needed in place, we bought big."

In total, over 12 years, they bought over £2bn of loans, invested over £280m to buy them, and got back 2.3 times their invested amount - and key to that success was the data analytics team, which became one of the biggest departments of the company.

Its value was recognised by private equity firm Duke Street Capital, which bought a majority stake in Marlin in 2010, and again when its biggest rival - owned by US private equity giant JC Flowers - acquired it for £295m, allowing Dunphy to cash out last year.

Did he treat himself to anything with his windfall?

"My friends laugh at me because I drive a 14-year-old VW Sharan," he laughs.

However he joined with a friend to buy a racehorse that went on to beat a horse belonging to Camilla, Prince Charles's wife, at Ascot this year.

"I can see how horse racing sucks you in," he laughs.

He's also run several marathons, done yoga retreats in Thailand, bike rides in Tibet. Other than that he and his 14-year-old daughter climbed Kilimanjaro for charity and along with his son he competed in a pan-European car rally for another good cause.

If he hadn't achieved success in business in Britain, Dunphy's goalkeeping skills could have led to a professional football career there, perhaps working towards similar sporting accolades to those of his parents.

His mother is a former All- Ireland golf champion, while his father, a former manager at Waterford Crystal, had been goalkeeper for Waterford FC. But Dunphy also took inspiration from legendary Liverpool 'keeper Ray Clemence after reading a book about him when he was 11.

"The idea of going to England and making a living playing football never appealed. I wanted a good education to fall back on, and US football scholarships sounded ideal - you trained for the university team five days a week and played midweek and at weekends during a three-month season and they paid for your studies," he adds.

At George Mason University, close to Washington DC, his mentor was Gordon Bradley, a coach who bad brought legends Pele and Beckenbauer to the US in the late 70s. Dunphy went on to captain the university team - and still holds a record for the most saves in its history.

It provided plenty of memories to reflect on when he returned to his alma mater last month with three students and a teacher from his old school, De La Salle Waterford.

It was their prize after winning a competition for Transition Year students that he set up last year called the Poleberry Scholarships, named after the area of Waterford city where he grew up. With 122 students taking part, the challenge aims to provide hands-on education in teamwork, motivation, presentation skills, enterprise and leadership as they work on solutions to local economic challenges.

"We visited start-up accelerators, the Irish Embassy, the State Department and various companies where we met inspiring educators, inventors and entrepreneurs.

"This year we'll have a business plan competition, aiming for 500 entrants. Through Ascot Capital, we'll look at providing seed-funding for the best ideas, as well as mentoring and advisory services in areas like legal and accounting," he enthuses.

What is his economic outlook at the moment for Ireland?

"I feel high taxes across the board might be choking a lot of new growth. Allowing start-ups to avoid all bureaucracy and certain employee and other costs for about 18 months until they get up and running, is one idea I'd like to see," he concludes.

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