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Investing and management wisdom from pioneers in private equity and venture capital


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In The Masters of Private Equity and Venture Capital, the pioneers of the industry share the investing and management wisdom they have gained by investing in and transforming their portfolio companies.

Based on original interviews conducted by the authors, this book is filled with colorful stories on the subjects that most matter to the high-level investor, such as selecting and working with management, pioneering new markets, adding value through operational improvements, applying private equity principles to non-profits, and much more.

Published in: Economy & Finance, Business
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Investing and management wisdom from pioneers in private equity and venture capital

  1. 1. A ppe ndix 8 “ cA rlisms”: ke y p rA cT i c e s for p riv A Te -e q u iTy inves To rs Carl D. Thoma Thoma Bravo, LLC and predecessor firms Golder Thoma & Co.; Golder Thoma Cressey Rauner, LLC and Thoma Cressey Bravo, Inc. Carl Thoma, of Thoma Bravo, is a person of few but memorable words— plain-spoken expressions that have become familiar to the partners, entrepreneurs, and advisors with whom he works. These phrases, heard frequently by anyone who works with Thoma, seem designed to focus attention and serve as a shorthand of success in a competitive, fast-moving private-equity marketplace. Listed here are some of the best Carlisms. Buy and Build. Partner with great management teams to grow com- panies in consolidating industries. Grow cash flow over time via a three-pronged strategy of (A) operational improvements, often identi- fied during due diligence and completed quickly post-close; (B) add-on acquisitions; and (C) organic growth. How Can We Pay More? A private-equity firm should develop a spe- cial, unique angle it sees in the business and leverage the experience and other resources that only it has. Make sure our return is higher than the next investor’s. That way, we can afford to pay more if necessary. • 297 •
  2. 2. 298 • Appendix 8 Can We Get It for Less? As a value investor, figuring out how to cre- atively pay a lower price is part of adding value. You get what you negotiate. Learn More. Never be caught off guard by surprises. When interviewing management, management candidates, customers, or competitors, go off the list of typical questions and points of reference. Track specific perfor- mance at prior stops. Challenge answers. Quality of earnings at close is important. Send in your best accounting team; look under all stones. Improve Multiples. Add-on acquisitions, operational improvements, organic growth, and/or expansion through merger and acquisition bring size, scale, a better company, and higher exit multiples. The Game Plan Is Simple; Sticking to It Is the Tough Part. Making money and building value stem from a relatively simple set of tenets. The challenge comes in discerning when actions and strategies are be- ginning to divert from plan. Have the wisdom to know and the disci- pline to stay within the guard rails of strategy. When You Can, Stretch It Out. Looking at companies over time and as long as possible through a cycle can be helpful. If a slower pace does not put the deal at risk, do not go too fast. Press hard on key items. Don’t Make Mistakes. This isn’t venture investing, where a few highly successful investments will offset a large number of failures. Avoid the mistakes that create the losers, and aim for returns from every investment. Inexperience Can Be Very Costly. Try to know what you—and your team—do not know. Use study and experience to focus on sec- tors you can know as well as any strategic investor. Keep in mind that younger personnel likely have not been through economic cycles and volatility. Acknowledge your limits. Recruit people who will do the same.
  3. 3. Appendix 8 • 299 We Can Raise All the Money You Can Spend Responsibly. If a CEO or founder can develop a strategy that will create a return, an institutional investor can raise virtually unlimited resources to make that happen. Show me the returns, and I can show you the money. This comes as a revelation to CEOs or founders with no prior private- equity experience. Doesn’t Matter How, Just Get It Done. Process and organization are not goals unto themselves, just means to the end of making a good investment. As staffs get larger, the risk rises that people will focus on process and lose site of the real goal. Within the vital limits of law and ethics, it’s getting the deal done that counts. No Deal Is Done Until It Is Done. Have the discipline to divorce any emotion or sense of obligation from a decision to close, even if you have signed a letter of intent. If performance erodes or you find out that something is not as represented, be willing to walk. Work due diligence until pencils are down. Keep challenging the investment case until the deal is done. When Are You Moving to Akron? If a deal is not performing, the deal professionals may well find themselves living with it—moving to the headquarters, if necessary. This is a form of internal threat or gentle re- minder that if management is not fixing the problem then we need to. Are You Building Personal Equity? I Can Help Dwarf What You Make Now. This is the basic case for why a CEO or founder should accept an infusion of private equity. If we can make them more money than they can make themselves, that should be the basis of a productive partnership. The Only Person Above a CEO Is the Owner. While management’s skill, experience, and dedication are critical, the controlling investor ultimately is responsible for the business. When necessary, step in as an owner to make the tough decisions.