Investment Strategy & Structure Is the #1 Thing Founders and CEO’s Should Watch In Raising Capital

To be better, one must first be different.  Thus, good strategy focuses on understanding differences and creating differences.  This also applies to investment firms — differences in structure often drives the strategy.  Any entrepreneur or business owner considering raising capital needs to understand the structure of the investment firm and how that will affect their strategy.

This hit home recently reading a book, The Outsiders, by William Thorndike.  The chart below is in the book showing the differences between the structure and strategy of Berkshire Hathaway and traditional private equity.  I have added a third column to the chart to demonstrate the structure and strategy of my investment firm, Greybull Stewardship, in comparison.

 

Traditional Private Equity

Berkshire Hathaway

Greybull Stewardship

Holding Period

3-5 years

“Forever”

No limitations

Management

New CEO (often)

Existing CEO

Existing CEO

Leverage

A lot

None

Moderate

Deal Source

Auction

Direct

Mostly Direct

Postacquisition management interaction

Frequent

Infrequent

Infrequent

Cost Cutting

Usually

Never

Not usual

Due Diligence

Extensive

Cursory

Extensive

Use of outside advisers

Always

Never

Not usual

Compensation System

Complex

Simple

Simple

 

In observing Berkshire Hathaway over the years, I learned how Buffett had a tremendous advantage over traditional private equity because his firm was structured differently.  As you can see, I have built the structure of Greybull Stewardship to have many of the same advantages to attract interest from the founders/owners/management of companies.  I want Greybull Stewardship to be the preferred home for outstanding businesses.

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