Kelly Power is the author of Courage to Lose Sight of Shore and the founder and partner of MacLaurin Group.
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As a founder, a private equity deal is probably the most life-changing event for you and your company. A well-matched private equity partnership means money in your pocket and incredible growth opportunities for your company, employees and customers.
But securing private equity is not easy, especially now with downward valuation adjustments and expensive debt. In private equity, as with most things, timing is everything. Now that we’ve taken a bow in 2022, the market has cooled significantly. With higher interest rates and borrowing costs, I see the industry moving from a strong seller’s market to a more buyer-friendly one.
While the good news is that deal closings have continued, I see investors are more cautious as we enter the new year. In my experience with deal teams with private equity investors, many are looking for acquisitions that are similar to past deals with proven track records, rather than taking a risk for companies outside of their typical investment criteria. Pitch Books predictions for 2023 echo my observations. With implications that we could try to hit the 15-year low, many private equity firms are likely to switch to smaller targets.
What does this mean for you as a founder? Your role is more important than ever. There’s a lot you can do to prepare and stand out. To entice investors to place a bet on you and your company, tell your growth story and show them that it’s worth it. How do you do that? Know the numbers.
Data tells a story
My passion for data started at primary school. My father gave in to my relentless pleas to go with him to college where he was pursuing a degree in computer science. At the time, they used cards for larger-than-life machines to process the code. I still remember the feeling of pride when my father trusted me to hold the deck of cards and put them in the machine towering over me. I physically held the entire database of his research in my hands.
I didn’t know it at the time, but those experiences became the foundation of my career. They were also my first insight into the power of data. Data is more than just numbers; it’s what those numbers tell us.
Knowing the numbers can help you grow your business faster. If you’re seeking private equity, you must be prepared to demonstrate that you understand what sets your company apart from others in both customer acquisition and retention. Emphasize your proven success and how it will translate to future success. Understanding the data that drives your business is critical to strategizing new product development and recruiting and retaining top talent, all of whom are attractive to potential investors.
Your numbers tell a story, and stories are compelling because they paint a picture of what’s possible. The more you learn about the road to success in your business so far, the more you can convey future success to private investors.
Recording the relevant data
As with those cards, you first need the relevant data to tell your story. What is “relevant”? Everything related to the success of your business. At a minimum, you should know the following as it applies to your business.
• Revenues and costs.
• Your company’s preferred customer profile.
• The total addressable market.
• Where you win and lose: the ability to attract and retain customers against losing customers or lost sales.
• New chances.
The story behind your data can be distorted by how you capture it, so be mindful. Unless you have a data background, I highly recommend that you get an expert to advise you. Numbers don’t lie, but they might not show the whole truth if you didn’t capture all the data along the way or didn’t set it up properly.
Also, make sure to challenge your data. Ask and investigate what the reports tell you if something is wrong with your instincts. Two things can happen: you discover that the data is correct and you need to take action, or you find that your data collection needs to be more extensive. Either way, it’s a win because you come out more informed.
When the numbers don’t add up
You may discover that the story your data tells is different than you thought. As part of private equity deal teams, I’ve seen several deals fail in recent months, citing excessive valuations as the reason. The founders thought their company was worth a certain amount of money, but the data told a different story.
It can be frustrating when the numbers don’t add up during a deal process, but sometimes a failed process is a positive outcome. It allows you to tell why the story is what it is and then twist and dig to achieve your goals for a future deal.
Knowing your numbers gives you the knowledge you need to make a positive impact on the results. More importantly, you can make sure you don’t inadvertently misrepresent your company’s success to date or the opportunities ahead.
Become an investor-friendly founder
Founder-friendly private equity investors — those interested in partnering with you to secure your company’s legacy and help it grow — won’t invest without knowing your numbers.
If you want to attract founder-friendly investors, take the time to become investor-friendly and develop ways to make the conversations easier. The only way to get where you want to go and convince someone else to join you on the journey is to understand your data and how to achieve steady, sustainable growth in the future.
What better time to take better care of your data than at the start of a brand new year? So start digging into your numbers (or hire someone to do the analysis for you). By really knowing and understanding the numbers to tell your story, your business will stand out from the crowd and increase your chances of winning that life-changing deal.
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