By Allan Maurer
While landing a round of venture financing can help drive a startup’s growth, the best venture firms bring more than money to the table when they make a deal.
Justin Reger, a principal at LLR Partners, a middle market private equity firm with more than $2 billion under management, says that the first step his firm takes following its investments – whether as a majority or minority investor – is set-up a strategic planning session.
Reger, who manages LLR’s technology practice and previously an investment banker with Citigroup focused on technology, about the added value investors provide their portfolio companies at the upcoming Southeast Venture Conference in Charlotte, NC, March 13-14.
First: strategic planning
“Soon after we close a deal,” says Reger, we hold a two-day offsite strategic planning session, first for one-year and then for three. We hire a moderator who knows the industry.”
LLR starts by sharing its due diligence findings with the company and its management team. “We put that on the table and build the strategic plan with the team. We don’t say what they could do. It’s more to create a framework. Then we build up operations and tactics to support the plan.”
LLR then revisits the plan with the company each year. Some have accomplished their goals, some have not. The plan is updated annually.
Second: augment management teams
Next, LLR looks at a company’s management team. “Often, teams are incomplete,” says Reger. “They may have a solid CEO, a CFO, and maybe a head of sales. They may not have a product or marketing manager. We don’t look to replace senior management, but rather to augment the bench from our network.”
That is often guided by the results found by an outside assessment firm hired during LLR’s due diligence process. “They identify key areas that need to be upgraded or augmented to drive value.”
Third: Getting to $100 Million
Next, LLR looks at the company’s finance function, where infrastructure is “typically lacking,” says Reger. “The typical company we invest in has a strong product in a well defined market, but has to breakthrough from $10 million to $15 million in revenue to $100 million.”
Fourth: M&A possibilities
Reger says LLR also sometimes “Serves as an outsource M&A arm for the company. We canvas the network of adjacent players and make calls, qualify opportunities, work with management to see if it’s a fit and help with integration.”
Many companies in which LLR invests also benefit from channel partner development, Reger notes. “There is an ecosystem of larger players, resellers, OEM sales channels and a portfolio company’s ultimate acquirer might be in that system. The IBMs, SAPs, and HPs of the world. We have pretty good contacts at those organizations.”
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