Working with Your Capital Partner After the Deal Closes
Taking on an outside capital investment is a significant undertaking, often done in part to boost revenue growth through organic or inorganic means.
While such investors are most often thought of as financial partners, great investors are partners in much more than just the economics. Prior to consummating a deal, agencies and brokerages should evaluate the extent to which they will be able to leverage these partners to help boost the top line or contribute to the business in ways other than just the financial infusion.One of best ways to think about a financial partner is in high-level strategic terms rather than on a daily operating level. Your partners will be on your board of directors and will review the monthly and quarterly operational reports, but they will not typically be focused on daily decisions. Instead, they will focus on long-term strategic moves that increase value over years, not weeks. The right financial partner can link you with vendors or service providers that may be able to add value to your business, or they can help find talent in senior leadership functions that are outside of your core strengths (think of the high-level CFO or the strategic HR leader). But most of all, the partner should bring an analytical rigor and a level of accountability necessary for sustained long-term growth.
For example, let’s think about an investment to acquire revenue, which is inorganic growth. If your strategic plan calls for 10% inorganic revenue growth per year (in addition to organic growth), the financial partner can help fund this but only with a realistic, well-thought-out plan in place. The partner will want to know who is responsible for deal origination and who is responsible for closing. What’s the sales pitch to prospects? What’s the targeted market (e.g., niches, geographic, revenue size)? What’s the integration model post close? And once these are built out and the plan is put into motion, the partner will want to know what the acquisition pipeline looks like on a regular basis. Where talent is lacking, perhaps on legal or financial staffing, the financial partner may be able to connect you with talent in this space but will not be in a position to do the heaving lifting. This financial discipline will help increase the odds that the plan is successful and that the partners—all of them—achieve target returns.
The key takeaway here is to make sure you have this discussion with your potential partners before you take on their investment. Create a list of the things you want in a partner and discuss each one, making sure you understand their skills and abilities. Also, be sure to review the investor’s version of this list so you are clear on their expectations of you as well.