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Additional Insights
[Ed. The following is a continuation of the Antiphony
Insights June 2002 Spotlight column by Howard Ross, a Partner with LLR
Partners Inc. It was adapted from a discussion of the editors with Mr. Ross.]
Investors provide capital. However, private equity investors provide much
more to help an emerging company grow and prosper. Here are Four
Critical Things that Private Equity Investors Contribute (other than Capital):
- Strategy
Many investors are good at stepping back and helping with the strategic
direction of a company, unencumbered by the challenges of daily operations.
This perspective allows private equity investors to think about a company
1 to 2 years out. In addition, private equity investors can provide
valuable advice about capitalization, balancing the company’s
needs with the cost, structure, and timing of capital.
Acquisitions can be an effective tool for growth, and some investors
can help with many aspects of acquisitions - from due diligence to deal
structure. A knowledgeable investor can help determine and suggest the
right balance between organic growth and growth through acquisition.
- Experience
Many private equity investors are mature executives with years of experience
in a broad array of businesses. Entrepreneurs and management should
look to understand the expertise that their investors can bring to the
table in all aspects of their business.
- Connections
By nature of their experience, private equity investors have large,
well-established networks that are a valuable resource for entrepreneurs
and their management teams. An investor should be able to introduce
entrepreneurs to people who can help them with problems and who have
the experience to resolve issues.
- Exit
Many private equity investors can strategize with and advise the board,
ownership, and management (which may be three different groups) on the
best approach to an exit. Whether it’s an IPO, being acquired,
or a recapitalization, an investor that has seen enough to know what
feels right can be a valuable resource in negotiating and orchestrating
a sale.
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