What Should You Look for When Investing in a Company?
Private equity investing is more of an art than strictly financial science. Yeah, there’s a lot of money at stake, but even the best financial models turn out wrong sometimes. How do you make sure that the company you’re looking at investing in is actually worth it, then? There are several key characteristics that will make or break your ROI.
Private Equity Investing is Not About Current Numbers
It’s really all about growth potential. Where they are now does not matter anywhere near as much as where they could go; what they could become.
“The #1 thing we consider when evaluating a potential investment is ‘How can we grow it?’. This encompasses many things — industry and trends, size of market, existence of qualified add-on candidates, etc., but most important in our assessment of our growth possibilities is the quality of the human capital. Backing solid and successful entrepreneurs and management teams who are hungry for growth and are partnering with us to achieve more than they can on their own is of utmost importance in investing.” – Gretchen Perkins, Huron Capital Partners
That potential is all a very subjective thing. No one has a crystal ball that reveals the future of the economy, and no one can predict precisely how things will go. There are at least as many variables as the number of individual people acting in the marketplace, multiplied by all of their myriad wants and preferences that you can appeal to. That’s such an incomprehensibly huge and ever-shifting quantity that it makes no sense to even worry about it.
That’s why private equity investing is about what your gut tells you is a good idea that could be great.
We all hope for the very small startup that transforms into the billion-dollar unicorn, but those are rare, and volatile. What’s better is to find a company with solid fundamentals. If they don’t have the fundamentals, do they at least have a good idea? If they do, along with a willingness to change and strengthen their position, then that’s a good candidate.
And what are those fundamentals?
Quality Management is the Key to Success
What makes or breaks a company’s growth is the competence of those who are running it. You, the investor, are competent, which is why you have the money to spend. But you, the investor, are not going to be running the day-to-day operations of your portfolio companies. You need someone else—someone who is also smart about money—to sit in that chair.
Why? We just got through saying that this game is not about numbers, which is true. But profits and growth do matter. You’re not here to waste your money; you’re here to multiply it. The trick is to understand that the multiplying is only as good as the people working to make it happen.
“The #1 thing I consider when evaluating a business is the integrity and capability of the management team. You can do never a good deal with a bad person.” – Jordan Bastable, LongWater Opportunities
So you’re on the lookout for a company with a solid management team. You’re looking for transparency, clean bookkeeping, and high standards. You need a management team with passion and drive, but that doesn’t take shortcuts that could derail everything. You want people who know how to sell, who know how to negotiate, who know how to buy, and who know how to treat their customers and suppliers well.
In short, you’re looking for a company with good ideas, that generates good will.
Generating Transformation, Growth, and Efficiency
When you find a company that has good ideas but needs improvement on the management side, there’s a solution that can make the situation ideal.
When your gut tells you that “this investment would be a good idea if only they had a better sales funnel,” then Boomsourcing’s SDR teams can fill in that gap and discover more prospective customers faster.
If you love the way they run everything, except that their ledgers are a mess, our bookkeeping service brings it all current. When they just need to take better care of their customer communications, we do that too.
In fact, Boomsourcing is your one-stop shop for any business process that needs to be streamlined to make room for accelerated growth.
Contact us today to start making your private equity investing more efficient than ever before!