Archive for the ‘Investor Relations’ Category

Lifting The Cloak Of Private Equity Secrecy

Monday, June 26th, 2017

 

 

How do you tell whether a private equity investor is “absolutely credible”? Realised investments, success stories, lists of co-investors, testimonials, references etc. are all valuable but can I actually see their intellectual property? I am referring to the availability of tangible communications (articles, presentations, models, audio, video etc.) encapsulating the investor’s best ideas, experiences, education, managing cultural change etc. – their intellectual capital – synthesised or recombined  into value for the would-be seller or top management. In almost all cases, the answer is a resounding “no”. You are asked to take it on trust.

I asked a serial CEO, and now Board Chair and Senior Adviser to many of the world’s largest private equity firms, how the secrecy helps the private equity investor? He was largely at a loss to explain it apart from avoidance of past PR bloody noses.

Would you allow a surgeon to operate on your heart or the school to teach your child without a pretty clear understanding of how they think and operate, beyond the odd PowerPoint presentation or a few lunches? The time has come for more humility from private equity investors of all shades. That doesn’t require them to diminish their own worth rather to accept that greater transparency upfront is an accelerant to higher levels of trust with their key constituents and superior short and long-term performance.

© James Berkeley 2017.

In The Eye of A Private Investor

Monday, June 5th, 2017

 

You are a C-suite executive or senior manager (probably with a successful career in a mid and large organisation) flirting with future advisory roles (Operating Partners, Senior Advisers and so forth) with private investors (Family Offices, Ultra High Net Worth individuals and some funds) and their portfolio companies. I meet half a dozen a month. Are you looking through your lens or that of the investor’s? When I ask bluntly, “why would a private investor be interested in you?”, most default to regaling their past (skills, expertise, accomplishments) or they way they like to work (imparting advice, influence, guidance). Here is the tough news, most private investors really don’t care. They want to know about

  • the “transformative value” (TV) for the investor after the Adviser has applied their past to the future of their investee businesses (logical reasoning – increased revenues, stronger brand, faster growth etc.)
  • the speed and quality of the “validation” (V) for the investor’s own reasons to back or not, a specific business (emotional reasoning – “am I going to look good”, enhanced credibility, mitigate personal risks, obtain future opportunities or relationships with peers, other investors, investee businesses etc.).

TV * V = Private Investor’s return on investment or “Great Deal”

“What”, “where”, “when” do you score highest as a potential Senior Adviser? Why? How do you get to those private investors with the highest need for that value?

Keep that equation and those critical questions uppermost in mind BEFORE you walk into your first meeting with a private investor.

© James Berkeley 2017

The Uncomfortable PE Investor

Friday, May 19th, 2017

Whoever taught a young investor how to create great relationships? The thought dawned on me leaving a meeting with two forty-something European mid-market private equity investors. One was open, welcoming, used self-disclosure and possessed a mindset that actively encouraged reciprocal exchange of ideas, names and insights. The other, hid behind a corporate ethos of privacy, rarely showed interest in reciprocity and maintained a mindset that he knew everyone worth knowing. The former is a top performing fund manager running a $500M fund with over 6 closed deals in the public domain this past 18 months, the latter recently closed his first $200M fund with zero visible public success. If you were a limited partner or an entrepreneur, wouldn’t you have expected the exact opposite traits given the track record and profile?

Private equity is first and foremost a relationship business. Relationships based on trust and value. Developed by creating a seductive rapport (personal chemistry, powerful intellect, effective use of language) with entrepreneurs, limited partners and advisers. Manifest by converting that seductive rapport into deals closed, value created and profitable exits that create a “win-win” situation for the firm’s key constituents. Yet it seems a great many leaders in European private equity firms are totally complacent about their fund managers’ relationship building skills and behaviours, believing that financial acumen and capital alone will lure outstanding entrepreneurs with outstanding businesses. That is crap but hey, they’ll wait for 10 years to find the errors of their ways. In which time, the Fund Manager will have collected his monthly check, been promoted twice and sit smugly admiring his or her personal bank statement.

© James Berkeley 2017. All Rights Reserved.

 

The Investor Casting Couch

Wednesday, March 22nd, 2017

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“The Investor Casting Couch”: a mindset that says we are best served at our first meeting, acting cagey, and getting the other party (co-investor, adviser or entrepreneur) to reveal themselves to us first to protect our own self-interest, at all costs. In extreme cases, we must do as little as possible to reveal our own past, ideas or intellectual property.

Reality: Your actions merely serve to show that you have close to zero interest in building a trusting peer-level relationship, collegiality or collaborating in anything other than constant “fear” (stolen IP or contacts). You might, of course, be right on the odd occasion when you have a rogue across the boardroom table. However, 9 times out of 10 assuming that you have done your due diligence properly, you are merely revealing the depth and breath of your own insecurities. Why would you create that first impression? In the misplaced belief, it projects your superiority when all it does is project your stupidity. Why would anyone, except the desperate, choose to spend a millisecond further in your company?

I see this mindset widely adopted by experienced bankers, corporate financiers, private equity and venture capital professionals to the point of huge irritation. They have been a success in their career but they refuse to act like a success. Stop, in the name of common sense!

© James Berkeley 2017. All Rights Reserved.

 

 

Framing Your Ideal Investor

Monday, February 27th, 2017

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“We need more investors, can you help?” is a request I hear daily from entrepreneurs and executives, co-investors and seasoned corporate finance experts. The obvious response is “yes, maybe or no”. Sometimes the obvious is not the most helpful to gain control of the conversation and kick start movement. Let’s frame the real “need”. Remove the irrelevant, focus on the relevant information. You will get dramatically quicker towards your goal.

  1. You’ve asked for capital raising assistance. Are you talking about your ability to attract follow-on investments from your current investors, new investments from your current investors, new investors for your current businesses or new investors for new businesses? What is it exactly?
  2. Then, I am curious where is your current marketing time and money being deployed? Is it being directed to all investors, or those within a specific geography, deal size, stage, investor type? There are 5 generic types of investor for you. Those that are apathetic, pretenders, aspirants, serial developers and leading-edge investors. The first three make up the majority of your audience and are the most price-sensitive, the final two are highly value-driven. Who exactly are you currently talking to? Would you recognise the differences (past relationships, capabilities, substance, style etc)? Let’s agree who you should be talking to?
  3. Then, what are the existing or anticipated needs or needs that you can create for your ideal investors that you are uniquely able to address? How is your investor better off or personally better supported after realising their investment with your help? (Financial, intellectual, social, cultural improvements)
  4. Then, who ideally has a need now or one that could be readily developed for that “return” on their investment? Who has the means and authority to approve the investment? Who can move quickly? Who is not overly prescriptive about the your “past”?
  5. How do you best reach those investors and they you? (referrals, networking, publishing, speaking, awards, media interviews etc)
  6. How do you create the ideal conditions? (eager to meet you, strong word-of-mouth)
  7. How do you create the ideal time? (no disruptions, no delays)
  8. How do you create the ideal location? (neutral, zero distractions)
  9. How do you create the strongest first impression? (impressive content, credibility, rapport)
  10. What competitive, distinctive or leading-edge offerings do you have to draw them in as a current or a future investor? (increasing investment, intimacy)
  11. Are there gaps where you need to add new offerings or to create greater differentiation (value) between existing investor offerings?
  12. What have you jointly agreed to do next? (exchange information, call, meeting)

You can see quickly here that framing your investor question, creates a dramatically sharper point on your arrow.

 

© James Berkeley 2017. All Rights Reserved.

Startup, Startdown

Monday, January 23rd, 2017

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Are you taking advice from an experienced entrepreneur as you proceed (business growth, raising capital, building partnerships and so forth)? Have they done what you want to accomplish successfully? Can they translate and transfer their expertise, knowledge and contacts to me? Never hire anyone who you cannot confidently answer a firm “YES” to those questions. There is a huge cottage industry of fawning advisers, business brokers and connectors, prying on startup and early-stage entrepreneurs with lousy and unproven advice. A great many entrepreneurs are drawn to these individuals by people they assiduously trust (family, friends, past colleagues and so on).  The giveaway is a promise to introduce the entrepreneur to a “celebrity” investor, adviser, potential client etc. The entrepreneur signs away a monthly retainer, and lo and behold they are taken on a merry ground, laced with excuses and failure. There is close to zero commitment because the economics don’t justify it.

You are building a “start-up”. Make sure that you are not consciously or unconsciously now in a “start-down”.

© James Berkeley 2017. All Rights Reserved.

 

Compelling Investors

Thursday, December 15th, 2016

“Please feel free to share investment opportunities in the future….” or “This isn’t right for us at this stage we have a prefer businesses with positive EBITDA” The problem with so many investors is there is no “siren call” to them. Their language is weak, their feedback is meaningless, and there is visibly close to zero commitment to a future relationship with the introduction source. In return, there is no compulsion to make you THEIR priority. To put you at the top of their call list. To keep you uppermost in their thoughts. To reciprocate, in a meaningful manner.

If the game is about identifying, attracting, evaluating, and applying impressive levels of knowledge to high-quality investment opportunities and making wise decisions consistent with an investor’s strategic goals, there is a need to constantly nurture referral sources. You don’t achieve that with bland throwaway sentences or anaemic feedback. You do that best by providing something of value to the introducer quickly (ideas, insights, other investor names, a promotional opportunity and so forth). Of course, that assumes your real intention is to have an ongoing relationship and not banish the referral source to Siberia.

© James Berkeley. 2016 All Rights Reserved.

Losing The Potential Investor

Monday, November 7th, 2016

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Why do so many executives and entrepreneurs lose control of discussions with potential investors at an early stage in the capital raising process? Most don’t have a route map. A set of small steps that starts from the first approach direct or by their adviser and takes them through and beyond committed capital into the value creation phase. Since they have no way of knowing where they are, they don’t know when they are lost.

Here is three common mistakes, and quick ways to avoid the landmines:

  1. A Failure to Identify the “Economic Investor”. Definition: The individual within the investment firm with the ability to approve the investment, the ability to sign off on the terms sheet, whose fund  will support the investment into your business, who will be held accountable for success or failure and so forth. In large firms, private offices and funds, of course, there may well be multiple “economic investors”. Obstacle: Too much time is spent with non-investors or worse, you are caste as a peer of the junior folks, never welcome in the inner sanctum. Next Step: It is your job and that of your adviser BEFORE you enter the conversation ideally to know, who the economic investors are specifically and to work out the ideal conditions (warm referral) in which they will respond favourably to your request to meet. Thereafter, the goal is to build a comfort level and sufficient trust that an informal or informal relationship can ensue.
  2. Hiccup or Fatal Diversions. Having broken the ice with the “economic investor” in a first call or meeting, he or she asks that you meet with some of his junior analysts to qualify the investment opportunity, as he is currently “travelling / busy this week / unable to respond quickly” (code: you are not my priority). You have two options: say, “No, quite frankly, we are both first, making a strategic decision on whether to invest in a potential relationship, unless I am wrong we don’t need others to decide that for us. If not now, when can we meet or talk next?” or “Yes, we will happily agree to talk to them but we must have a definitive time and date for us to speak again. Specifically, to compare notes on what we hear and more importantly, to agree the nature and direction of our relationship.” The mistake many entrepreneurs make is once they meet the junior folks with a propensity to please them, they start engaging in a more detailed conversation (sharing follow-up information with them, agreeing to their next steps). They are now a “plaything” of the junior people, which is great for them but potentially deadly for you. The economic investor watching from the sidelines is quite happy to allow this to happen because it is one less priority for them, creates distance (another layer of protection) and the unpleasantness of rejecting your proposal. You have now descended from the executive floor to the second floor, not only had a conversation when the elevator doors open, you are now following them through the corridors on the second floor, at their speed and direction, getting further away from the executive’s office. I find that entrepreneurs of an amiable disposition or those that somehow feel fortunate to be in the building are most susceptible. There is also a cadre of restless entrepreneurs, who won’t take heed of their adviser’s warnings. Bye bye!
  3. Talking About Valuation Before Defining The Investor’s Objectives – I see this so often it is almost laughable. Unlike a game of monopoly or snakes and ladders, this isn’t bad luck, this is self-inflicted pain. You know the question is coming your way, you either choose to neatly sidestep it, by re-framing the conversation in the investor’s self-interest or you allow yourself to tread on it at your peril. Think about this way. How many times does the investor respond, “Wow, you are massively undervaluing your business” or “That is an eminently sensible valuation”? Perhaps, 1 in a 100. I’d say, 30% respond “that’s way too rich for us” (immediate termination), 40% respond “we are struggling with those kind of valuations”  (highly probable termination) and the final 29% “tell me where did you get that valuation from” (needs a lot of convincing). You are left constantly defending rather than explaining your approach to making your investors money. If it comes up early on, you are wise to say, “it would be unfair to throw a valuation at you without first explaining how we intend to accomplish your objectives and secondly,  determining whether a relationship is in both of our best interests. If you are willing to listen, we’ll happily address it at the appropriate moment.” (Note, if they won’t listen, they almost certainly see you as a commodity. Do you need that kind of investor relationship?).

© James Berkeley 2016. All Rights Reserved.

 

Interview With Me: Do’s and Don’ts of Investing in Private Comanies

Tuesday, September 27th, 2016

In an interview for U.S. News & World Report with the former longtime staff writer, editor and columnist at the Chicago Tribune, Lou Carlozo, James talks about why many investors in private companies jump on the bandwagon of out-sized returns while overlooking the inherent risks.

http://money.usnews.com/investing/articles/2016-09-20/dos-and-donts-of-investing-in-private-companies 

 

 

Fishing For Investors

Monday, August 22nd, 2016

 

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In August the docksides and inlets in North Norfolk are lined with kids casting bait (bacon or salami are highly effective) on primitive fishing lines to catch the abundant crabs that lie close to the surface. Perhaps the crabs know the odds are stacked in their favour or they are so greedy but little boys and girls pluck them out at will before returning them to the sea.

What would entrepreneurs and executives give for a similar ease with the capital raising process? The reality today is that unless you are a well known “brand” with a powerful investor network, raising money is hard. Investors can be very choosy, they largely congregate in locations with big clusters of potential businesses to invest in and they are drawn to people, who have demonstrably made investors serious cash on cash on multiple occasions.

1. What are you doing to dramatise your value to your ideal investor(s) and the singularity of your investment proposition? (Use of powerful language, a peer of opinion makers, harnessing evangelists, creating excitement and so forth)
2. Why invest in you? (“Hot” proposition in the investor’s sweet spot)
3. Why invest now? (Brief window of opportunity)
4. Why invest in the manner you are proposing? (Special circumstances).

Time is the most precious commodity. You cannot rely on the kids fishing line, you must caste a fishing net to attract potential investors. You need to know where the high potentials reside. You need compelling “bait”. You need multiple conversations to be constantly moving in parallel, not sequential stages. You need to be constantly replenishing the investor pipeline with high quality leads. This is not a kids sport, this is your wealth at stake. Time to get serious.

© James Berkeley 2016. All Rights Reserved.