Our conversation starts with a quip when I ask Nazo how she views female leadership participation in the European venture capital and private equity markets – a segment she has been working in since she joined The Carlyle Group in 2000.
“A snapshot in time in Europe’s private equity market points to an industry where just 6 per cent of the leadership are women. That’s just slightly higher than the percentage of female longshoremen!” exclaims Nazo. “In all seriousness, there is quite a bit of work to do to improve diversity in venture capital and private equity.”
Relative to most other industry sectors, female leadership in private equity still has a long way to go but over time. Nazo has seen enough signs to suggest that this is starting to change. In her early career at Carlyle, as an Afghan female, discussions around diversity were rarely heard. “You just got on with your job,” she says. “The fact that I was the only woman in the technology buyout fund at Carlyle was largely ignored.”
“Now we see everything from panel discussions at industry events to reports published by the BVCA, but one of the most powerful levers is being pulled by LPs; they are now asking diversity questions in their DDQs and this is making managers pause and think about it more closely. I would encourage limited partners – who are custodians of public money – to continue to exert pressure on GPs that lack diversity in all its forms.
“Secondly there is greater participation by women at all levels and we should expect more as the first generation of private equity firms, which were essentially run as family businesses, mature and professionalise.”
Organisations such as Level 20, which take a holistic view toward improving representation in private equity, are helping inspire women through mentorship programmes but as Nazo points out, the solution to the problem of diversity has to go further than that. It needs to start as early as primary and secondary school and extend into the early middle period of women’s careers through mentorship programmes.
“One of the ways I’m involved with Level 20 is acting as a mentor to give women in the early stages of their career as much support as they need to make sure they succeed,” says Nazo.
“They need to feel inspired. They have to feel like there is at least some representation, and that there is a path for them to follow. I had my own role models, which really helped in some ways but once I entered finance, those female role models were not there; or rather, there were very few of them.”
Also, there are more ‘woke’ organisations starting to emerge. GPs such as Energy Impact Partners in the US, for example, are following a profit motive with a traditional fund structure but with culture at their core and diversity an integral part of their DNA. “The eagerly awaited arrival of emerging manager programmes into Europe will allow more diverse managers to launch maiden funds,” adds Nazo.
At the age of nine, following the Russian invasion of Afghanistan, Nazo and her family moved to the United States. She went on to earn a BA with honours in International Economics, from the University of California, Los Angeles, followed by an MBA from Columbia Business School.
Nazo explains that she comes from a family of entrepreneurs and financiers and watched her father start and run a number of businesses.
“More unusually, my mother also owned her own business in Kabul as did my aunt and a number of other influential women in my life. Whilst I had these role models nearby, I – like many women – did not understand the importance of the mentor,” reveals Nazo.
I ask how it was she ended up going down the path of a successful investor, rather than becoming an entrepreneur like her father.
She explains that shortly before studying for her MBA, she worked briefly at a medical devices firm, where she quickly appreciated how difficult operational jobs are. Suddenly, the idea that she would one day see herself as the CEO of a company began to fade and got her thinking about the investment side of technology, rather than entrepreneurship.
“My entry into tech investing took a circuitous path starting as a consultant. I began investing at a small growth fund in San Francisco where the managing partner had seen my work as a consultant and asked me to join him after graduation from Columbia. He thought laterally and did not hire uniformly from the investment banking mould which is what allowed me to enter the industry,” she explains.
“Another factor was that Columbia has a terrific PE programme. It was there that I developed a taste for private equity and from that point on I knew what I wanted to do, which was to focus more on the investment side but also working closely with entrepreneurs: in effect bringing those two worlds together.”
There is greater participation by women at all levels and we should expect more as the first generation of private equity firms, which were essentially run as family businesses, mature and professionalise.”
In June 2000, Nazo joined Carlyle as one of the initial members of its first European technology fund. It was an interesting time, with the markets having experienced a sharp correction following the dot.com implosion, which in turn tarnished the technology sector. Out of the ashes emerged global behemoths such as Google and Facebook, but at the time, it was a period of uncertainty.
“It was quite bleak, especially where I was in San Francisco. There was not a lot happening in technology. People were thinking twice following the exuberance of the late 90s that gave birth to the commercial internet, and there was a sense of ‘how much of this is real, did we over-invest?’,” she says.
In Europe, there was less of a downbeat feeling and spotting an opportunity, Carlyle raised its first technology fund in the region, growing to EUR750 million in AUM.
“Carlyle were brilliant in hindsight,” states Nazo. “They looked at the US market and saw that growth capital was already a large market but in Europe it didn’t really exist. So being one of the first large alternative asset managers to enter the segment gave it a huge advantage."
Nazo spent 12 years at Carlyle, investing in numerous technology companies, some of which included P&I (acquired by HG Capital and then Permira), Transics (IPO followed by sale to WABCO), LBi (acquired by Publicis) and Apama (acquired by Progress Software).
Over the years, she could see that the PE industry was becoming highly bifurcated. In her view, in order to succeed funds either had to become large and global in the tech buyout space, or try to innovate against the background of a maturing sector.
“The one strategy that seemed to make a lot of sense to me was sector specialism; to really develop domain expertise and a specialist network. That was part of my thinking behind leaving Carlyle and starting something that was a lot more entrepreneurial in nature,” she explains.
This resulted in Nazo joining C5 Capital, Europe’s first cybersecurity fund, as CEO and Managing Partner. Two reasons led to her decision to join what was then an unknown fund. The first was to focus on what she felt was a rather abandoned part of the market – tech companies that require less than EUR25 million of equity. The second reason was that she felt “ready to manage a fund”. “Carlyle is a tremendous place to learn and practice the business and after 12 years I was ready to lead a different type of organisation.”
That ability to focus on investing in younger, more disruptive technologies was an exciting prospect and, moreover, it allowed Nazo to laser in on a single domain: cybersecurity.
In 2013, there were no cybersecurity funds in Europe and the portfolios of most generalist PE funds had very little cyber exposure in them. “Not that the companies weren’t there to invest in, but the funds themselves lacked the internal knowledge or experience,” she explains. “We felt it was the perfect opportunity to focus on domain specialism as a strategy and what better domain than cybersecurity.”
The domain specialism experience Nazo fostered at C5 Capital proved to be highly rewarding and in 2017, she teamed up with Natalie Tydeman to set up v|t partners.
As Nazo explains: “It is a specialist investment vehicle for tech entrepreneurs to tap into for expansion beyond the initial spurt of growth. We provide EUR5 million to EUR25 million of equity to software companies that are harnessing data and intelligence to transform industries such as healthcare, energy, and transportation.”
Over the years, the global economy has gone from a handful of sectors embracing disruption and becoming almost fully digitised – such as the media, music and film industries (and latterly retail) – to a wider array of sectors in what Nazo refers to as “laggard industries”; these being the asset-intensive and process-intensive industries referred to above.
None of this is possible, however, without cybersecurity, especially with respect to critical sectors like energy where cybersecurity is now at the heart of maintaining security against hostile actors.
“Digital adoption can be stymied if you don’t have the right cyber protection. This is a key aspect of our investment strategy,” says Nazo, who refers to the UK as the “Israel of Europe” in terms of cybersecurity which excels in both the quantity and quality of cybersecurity companies.
“It is a market where you have not only the highest number of cybersecurity companies, but once you layer the number of advanced technology companies with mature management teams, the UK is way ahead of Europe.
“A number of exciting companies have formed out of individuals leaving organisations such as GCHQ and BAE, for example. A hands-on government policy and the quality of British universities provide a powerful engine for technology innovation and top-level talent. This has been hugely beneficial for the 'third wave of cybersecurity companies', which use some level of AI, such as machine learning. The UK’s excellence in this area and other relevant sectors has spawned a number of global leaders, such as Digital Shadows, Prowler and Dark Trace.”
Advisory support is a key aspect of the work that v|t partners does with the companies it invests with. Bringing something beyond just money to help build success is vital, especially if they are first-time entrepreneurs. Nazo emphasises the point that the strategic decisions a successful B2C company makes in order to scale from 50 to 500 people are very different from those that a deep tech company makes to scale up with 20 additional employees.
“We take the advisory role very seriously,” she says. “A key part of our due diligence is ascertaining whether there is a human connection. You’re going to spend a lot of time with management teams over many years so there has to be a level of respect and openness to giving and taking advice, for both parties.
“Also, this is a business where experience is really key. Generally, fast growing companies tend to have certain flight patterns. Pattern recognition is perhaps the most important reason to take money from a venture or growth investor. Experienced investors know these patterns in high growth companies and what actions tend to lead to success versus failure.”
In her view, the next generation of entrepreneurs know what they want but are also open to advice and direction. “This is good for the relationship, for the investment and for the industry as a whole,” she says.
“Secure Code Warrior operates in the cybersecurity and eLearning sub-sector. The company is growing at well over 100 per cent year-on-year and has the leading banks as its client base. We continue to look for new opportunities and the pipeline is terrific,” confirms Nazo.
Given the relentless energy and commitment needed to be a successful technology investor, it is hard to imagine there is much opportunity for down time. But at the end of our conversation, I ask Nazo how she unwinds: “I love going to the theatre in London. Contemporary dance is one of my favourite things to watch. I regularly practice yoga and I enjoy walking my dog in Hyde Park. London benefits from a world leading culture scene and beautiful parks.”
©Global Fund Media, published October 2019.
© Global Fund Media 2020