As the head of one of Europe’s most exclusive private investor clubs, it seems fitting that David Giampaolo’s office lies slap in the middle of the heartland of London’s most prestigious gentlemen’s clubs, St James’s Street.

But Giampaolo, a trim American of 48, cuts a rather different figure to the whiskered denizens of the White’s and Brooks’s clubs further down the street. And his company, Pi Capital, has made its mark by offering a value proposition that’s very different from that of the typical private equity firm.

Pi’s remit is to invest in profitable companies looking to undertake buyouts or needing development capital of between €3m and €6m, and which have an enterprise value of up to €30m. This puts it in a different league to the multi-million-euro private equity deals that have grabbed headlines in recent months – but what really distinguishes Pi from the competition is its unique business model.

The firm has round 280 members, principally in the UK and Europe, who act as its eyes and ears. “What we set out to do as a club is to think about and source unique investment opportunities using the knowledge, expertise and connections of these individual members,” says Giampaolo.

Pi Capital’s members are high-net-worth individuals who include some of the European business world’s biggest names: Brent Hoberman, founder of lastminute.com, Sir Martin Sorrell, CEO of advertising group WPP, and Stuart Rose of Marks & Spencer are all members.

This resource gives Pi its cutting edge, explains Giampaolo. “Thematically, there are about 20 investment sectors where we have very significant expertise,” he says. “This helps us to find investment opportunities and, more importantly – since many of these opportunities come to us – to properly diligence them, to know where we want to invest our capital.”

Individuals invest on a deal-by-deal basis as they choose; the minimum investment per deal is €3m. They also pay a £4,000 (€5,845) fee per annum to be part of the club and to participate in social and business meetings, usually held in private dining rooms. On average between 50 and 70 individuals invest in each transaction.

“Investing is a right, not an obligation,” says Giampaolo. “We invest in about four or five transactions per year, almost always in the private equity arena, though occasionally we may cover a property-related deal or a hedge fund transaction.” The core focus is small, high-growth businesses – but not start-ups. “This isn’t venture capital,” Giampaolo explains. “Normally we take a significant minority stake in the region of 30% to 40%.”

Giampaolo is not the founder of Pi, but like Victor Kiam, he liked the company so much that he bought it. He approached the founder, Michael Stoddard, with a plan to buy Pi late in 2001.

Prior to buying Pi, Giampaolo had previously founded, built up and sold several businesses and health club chains in the US and UK. In 1998 he co-founded Fitness Holdings Europe, which was acquired 18 months later by 24 Hour Fitness Worldwide.

Getting a piece of Pi was a bit of a fluke, admits Giampaolo. “I came along as a prospective member in late 2001, having some business success previously and therefore having some knowledge of this space,” he says. “I was so intrigued by the business model that, along with another individual, I approached the owners of Pi to see if I could buy a controlling stake and then grow the business.”

At that time Pi was a much smaller entity, with around 70 members and an average investment of about €1.5m per company compared to today’s €4.4m. Giampaolo orchestrated the evolution from an informal network of deal makers to a private members’ club. Through hard work and a shift in focus away from venture capital-type deals to those involving developing capital growth and buyouts, he has succeeded in quadrupling the club’s membership. The company is now estimated to be worth around €10bn.

Giampaolo is a strong advocate of Pi’s “small is beautiful” philosophy, which has two main drivers. “First, it’s our belief that it’s easier to make money in inefficient markets than it is in efficient markets,” he says. “It’s also a fact that the institutional investment community is not, generally speaking, rewarded or incentivised to do smaller deals, as you really have to put the same effort into a €5m investment as you do into a €25m investment. Most professional investors would prefer to put more money to work, rather then less.”

So how does a typical Pi deal germinate? “A member says, ‘I’m aware of an opportunity in waste management,’ for example, and this company’s turning over a couple of million and looking to raise another couple to open a few more offices,” says Giampaolo. “We’d then meet with the management team and look at their proposal, and if we like what we see, we’d involve three or four members who we think have direct experience in this area.”

If the selected investors become comfortable with the prospective investment, they continue to diligence and eventually put in a firm offer to invest a set amount of money on certain terms. Once agreed, they write a private placing memorandum and send it to all members, who then have the opportunity to choose to invest or not.

Giampaolo is unlikely to be launching multi-billion-euro buyouts of large high-street retailers, but he is a staunch defender of the private equity model. “There can be no doubt that what we do is as good as it gets for Europe plc,” he says. “This is about job creation – we have never, ever invested in a company and then reduced employment. Every time we invest, it’s to hire additional people – to grow faster, to buy products or services. There’s no downsizing, plant closures or layoffs.”