The Importance of Risk/Reward Profiles in Private Equity Investing

How can you improve the chances that your investments will succeed? That’s the question every investor is probably asking themselves, all the time, every day. And yet, consider the fact that over three-quarters of investment firms apparently don’t even bother to measure risk quantitatively. Private equity risk is a big deal, but most investors simply base their evaluations on experience and gut feeling. That in itself is not a bad thing, as the results speak for themselves, but it’s worth taking a look at ways to mitigate the downside.

The Value of Pessimism About Private Equity Risk

How do you ensure, then, that you’re not taking unnecessary risks? Techstars Founder David Cohen offers a useful insight:

I want a table full of optimists, but I also want at least one respected pessimist sitting there. That pessimist should carry a general lack of confidence in humans to behave logically or ethically… Without a pessimist in the room, with a seat at the table where the big discussions happen, there is no balance. The optimists provide the energy and create the gains, and the pessimist ensures we consider our risks and can help us avoid disaster.

It’s important to have the advice of someone who knows the answer to “what could possibly go wrong?” It’s the fodder of comic strips throughout the ages.  Are you prepared for an investment that ends with ants eating your picnic as thunder rumbles overhead and you discover you forgot the mayonnaise?

A good pessimist on your board is the one who at least checks the weather report before you head out.

You don’t need to reject everything, but you at least need some feedback on how to manage the risks a new portfolio company might bring.

Generating Optimism Through Optimization

Private equity risk can be managed effectively in many ways. The most obvious is to reject unacceptable proposals. There are a lot of possibilities out there, though, for streamlining marginal companies in ways that reduce your exposure to potential catastrophe.

Because of that, Boomsourcing partners with private equity investors to help their portfolio companies scale faster and more efficiently. Our sales development teams supplement in-house sales and supercharge the top of their funnel with warmed-up leads. We also provide powerful back-office solutions that reduce costs and boost flexibility.

Contact Boomsourcing today to improve your entire private equity risk profile. The rewards for your whole portfolio are too good to pass up!