Capital is not a commodity. For growth CEOs, finding the right capital partner can make all the difference. Growth equity investors with expertise, network and judgment can lead to sustained accelerated growth and a successful exit.
The concept of capital as a strategy was first introduced to me by an old friend, the founder of a high profile private company who was on his next and largest growth equity financing round of over $100 million. The context was in outcompeting others to obtain nearly all the available capital that investors would allocate to a certain space for the next few years therefore putting their competitors at a potentially terminal disadvantage. The phrase stuck with me, however, because it could be applied in other contexts as well.
Capital is the lifeblood of a company and the amount and form capital comes in, whether growth equity, private debt or a hybrid of the two and the accompanying terms (board seats, covenants, management incentives, etc.) impacts the strategy and growth of the company going forward. Most importantly, the specific people providing the capital and in many cases their expertise, network and judgment, through their role as a board member or otherwise, make a huge difference.
Contrary to what some may think, capital is not a commodity. Take for example the growth equity investor whose expertise in a particular space and hands on approach with management and operations leads to sustained accelerated growth and ultimately a successful exit vs. the investor whose limited experience and judgment leads to lack of conviction around the right path forward and indecision on how and when an exit might occur.
Seeing a great capital partnership in action is a beautiful thing. It breathes life into a company, its management team, its employees, its customers, its vendors and all other stakeholders. A suboptimal capital partnership is like trying to run with a parachute on – management’s desire and drive is stifled by a lack of trust and confidence in their board members or other key investors. It’s disheartening to see but the good news is that this is something that can be managed.
CEOs often view the capital raising process as a necessary evil, something that distracts them and takes them away from more important strategy and operational work. But capital raising and selecting the right investor/s is the important work, it can be one of the critical factors that makes all the difference. As Jim Collins says in Good To Great, first things first, “get the right people on the bus.”
A great capital partnership is a beautiful thing and with this next generation of growth capital investors each focused on cultivating their own brand of a partnership approach, we are entering into a new, even more promising, era of business growth. And CEOs are in control, they have the ability to choose their capital partner and decide how they want to cultivate a long-term partnership. They first start, however, by thinking of capital as a strategy and devoting the right amount of time and energy to the capital raise process.
– RJ Lumba