Twenty-Two is A Lot
We received some deal feedback recently that while our bid on something was thoughtful and well-received, we wouldn’t be invited to participate in next steps because we had been outbid by a few other groups by a material amount. That’s fine. That happens. But when Emily asked how many “a few” was, we were surprised to learn that “a few” was 22. Because 22 is a lot!
Now, if you’re doing anything professionally and 22 other professionals do the same thing but reach a wildly different conclusion, then one of the following has to be true: (1) you’re doing it wrong; (2) you’re an idiosyncratic genius; (3) the world has gone crazy (you can decide on your own which one you think is the case here, but I know what I think). That, however, frustratingly enough, is also how markets get made.
An interesting point is that the process by which any private equity firm ultimately makes an investment is pretty standard across the industry:
Step 1: Origination – identify and source potential investments
Step 2: Qualification – assess the viability, fit, and readiness of your originations
Step 3: Outreach – strategically engage with qualified leads
Step 4: Gather Information – ask for and receive the information you need to evaluate an opportunity
Step 5: Evaluate – use that information to arrive at a potential valuation and structure
Step 6: Make an Offer – usually in the form of a written indication of interest (IOI).
Step 7: Sign a Letter of Intent – this formalizes the intent of the business deal in preliminary agreements.
Step 8: Do due diligence – to make sure that you’re buying what you think you’re buying (we’ve open-sourced our due diligence process here).
Step 9: Close
So a good question to ask if you’re a private equity professional (or an aspiring one) is how might I gain a leg up in this standard process without being one of the few (or 22) who just pay more? For us, that opportunity comes in steps 1, 3 and 8. For example, we use content like this to tell the world about us in the hopes of attracting proprietary investment opportunities. That’s one way we do origination differently, but we are also constantly experimenting with others.
As for outreach, we like to have lots of different personality types on our team because we know that some people do better interacting with certain types of people than others. We want to be sure we’re meeting potential sellers on their terms, using their language, and also that we’re entertaining and likable.
Finally, we feel strongly about doing all of our due diligence in-house. This means we drive the process and we do all of the work, without outsourcing anything to an army of lawyers and accountants. We believe this helps build a relationship with the people we will be working with post-close and also helps us to really get to know the company, which is a prerequisite to being able to be helpful.
In the end, we know we’re not going to win every deal. And again, that’s fine. That happens. But whether we’re competing with a few or even 22 others, we know that by offering something different, we know we at least have a chance to win every deal. That’s why we do what we do.
See you Friday.
– Tim
