Companies and Founders Deserve Better Financing Options
Business financing and capital raising are full of contradictions. The world is awash in capital, but the availability of capital to businesses is often binary. For some, too much capital is stalking them. For others, the switch to turn on capital flow remains hidden. Size can be a determining factor. Debt providers, in particular, seem to believe that larger means safer, even if they are lending money at minuscule rates of return. For small businesses, nothing is more fickle than bank financing.
A financing carousel?
For equity capital, even if the capital flow is turned on for their company, founders face options that are limited. There are the “strategic” providers of capital, otherwise known as competitors or semi or potential competitors who will inevitably attempt to shape the company strategy to suit their other interests. Then there are the capital providers (traditional venture capital or private equity) that are all about exiting as soon as they enter. The industry of traditional equity financing is set-up to trade-in and to trade-out of companies. This constant carousel of investors is sub optimal for a company and its ability to earn outsize returns by building long-term competitive advantages. It is explained that this system developed because it is best for the investors. It seems contradictory to me to require a company to be on a constant treadmill — turning over its equity investors — if the exact opposite is the optimal method for long-term value creation (in my opinion). There must be a better way.
How Would You Like This Guy as Your Financing Partner?
A private equity fund manager had some unbelievable quotes in the Wall Street Journal last week in talking about his fund, Charterhouse Capital. He spoke about how his priority was current profits with no regard for his successor colleagues (and by implication, his portfolio company management teams and stakeholders). His focus is all about profit maximization for the here and now.
“The absolute intention is to maximise the value of [Charterhouse] to the people who are there today,” Gordon Bonnyman, then chief executive and now chairman, wrote in a 2001 letter made public. “In other words, no one is particularly concerned with the financial well being of those who will succeed us.” As the Wall Street Journal reporter interviewed him in his office, he emphasized his short-term orientation. “I enjoy it. It’s good at the time,” he said. “That’s it.”
There is nothing wrong with that strategy. Company founders and owners just need to understand that guys like this exist in private equity. If that is what you want, great. If it is not what you want, be wise in picking a partner. If a private equity guy treats his own firm and colleagues that way, how do you suppose he treats the management teams at his portfolio companies? Not to mention, how do you suppose he treats the customers, employers, and other stakeholders of the portfolio companies? There is a place for this type of strategy in the world, but founders and management teams deserve an option to choose this financing strategy — or something else.
Greybull Stewardship is An Alternative Financing Option, But Not for Everyone
I set-out to solve this problem for founders and management teams with my investment firm, Greybull Stewardship. I selected the word Stewardship to convey that we are in this to be good stewards of capital and to be good stewards for the companies that trust us to be partners with them. Greybull is not the optimal choice for someone who wants to treat their company as a short-term trading opportunity. There are many other capital options that are better than us at that strategy. Greybull is a better choice for management teams who want flexibility of if/when to sell their company, how to grow their company, and the ability to pursue unique strategies that create long-term competitive advantages.
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