PART 1
Infrastructure investors are increasingly building companies from the ground up, in response to macro trends, such as the energy transition, ageing population and digitisation. But growing a company from a pre-scale position brings a host of different challenges, including assembling a management team that combines startup agility with institutional discipline and the capacity to evolve as a venture meets new scale milestones.
The infrastructure sector has traditionally been known for its predictability and stability, but that perception is changing, as macro trends influence what society is demanding from critical social and economic infrastructure.
Revolutions in energy, mobility and digitisation mean that existing utilities, transportation, and telecommunications infrastructure are not the stable, reliable, lower-risk investments they once were. Net zero targets are driving urgent demand for renewable energy, charging networks, microgrids, and battery storage. Meanwhile, the rise of AI and society’s dependence on digital connectivity means data centres and cellular networks can’t be built fast enough. All these bring new opportunities and risks for investors, who are having to adapt where they put their money, and how they operate.
New infrastructure markets offer fertile ground for investment yet getting a foothold isn’t straightforward. There are fewer established companies to acquire, and those that do exist attract competition, and price premiums, or, indeed, may not actually be the source of compelling new infrastructure innovations of the future. To overcome this challenge, and widen the opportunity landscape, investors are increasingly getting in on the ground floor - backing credible entrepreneurs and management teams with the institutional capital needed to build and operate infrastructure at scale from an embryonic base.
From a leadership perspective, ‘platform builds’ present different challenges for infrastructure investors, often requiring more people changes or interventions to reach an optimised management structure, than a more traditional corporate buy-out.
This is magnified by the situational dynamics of an early-stage build-out where the objective is to create a company with institutional credibility and scale. What are some of the questions that investors and leadership teams need to ask during the different phases of development?
Does the leadership team have the agility, curiosity and adaptability to respond to the many setbacks and layers of ambiguity during the start-up phase?
As the business forms, will they instil discipline, repeatable processes, controls and embrace the institutionalisation phase, whilst always maintaining a focus on value creation?
How do investors balance the need to keep leadership costs down in the early days whilst ensuring functional specialists are brought in when they are needed by the business?
The temptation for traditional infrastructure investors is to build a leadership team that can span every phase of business growth, but does such a team exist? In our experience, a more agile and dynamic approach to leadership team building is called for.
We’ll explore this challenge in our next article in the coming weeks, with input from leading industry commentators.
If any of the themes in this article resonate with you and you would like to discuss them further please be in touch. You can email me here.
Adam Mahmood
