To understand why the top private equity firms are like nurseries, we have to listen to Jack Dangermond, famed businessman and environmental scientist who said: 

"In a nursery, if you don't take care of those plants, your profits get lost real quickly. You have to weed. You have to water. You have to nurture.”

In other words, there is a causal relationship between what you put in and what you get out – this is a lesson we all learn at some point in our lives. This is a lesson that most of us live our lives by, from the most basic meaning – we eat to get energy – to the most complex – we date to find love. It sounds so nice. Such a small word bite that doesn’t convey even a tiny bit the potentially long, drawn-out, complicated process that takes place behind the scenes. The point? Private equity firms invest in companies to turn a profit. But, it just isn’t that simple. And only the top private equity firms know this.

Weeding, Watering, Nurturing

As in Dangermond’s nursery, before you can begin weeding the plants, you have to learn how to weed. Suddenly, the simple task and fact of “you have to weed” becomes a learning process. And while weeding or watering aren’t difficult processes to learn, a process like “nurturing,” for example, might take you a little longer to figure out. What does “nurture” even entail – how do you “nurture?”

Private equity firms, which are essentially nurseries on a much larger scale, grow companies from seeds or sprouts and sell them when they’ve gotten big enough. This isn’t arbitrage - it’s a calculated operation that adds value to a company through the use of otherwise limited resources. The goal is always to grow the portfolio company to a point where it fulfills a destiny of higher revenue, better management, and positive growth. The behind-the-scenes process that allows for this growth determines whether or not portfolio companies will thrive and whether or not the PE firm will turn a profit.

The Process

It begins with an extensive vetting process aligned with the mission of the PE firm that reveals the best, most promising investments. Then, based on analysis of current conditions, investments are eradicated of inefficiencies and provided with the tools to grow quicker and more efficiently. You can think of these steps as “weeding” and “watering.” The down-to-a-science steps that lead to the “nurturing” phase.

In the private equity world, “nurturing” can be equivocated to portfolio monitoring. Portfolio monitoring is one of the most crucial processes that PE firms go through. Ensuring the success of a portfolio company is key to ensuring a bigger, better ROI, and you can only ensure success if you are able to respond quickly and efficiently to information gathered through monitoring. Unfortunately, the current portfolio management process is nowhere near where it needs to be for PE firms to spot and target problems before they begin. Between company reports, complicated spreadsheets, multiple platforms used to store data, and unique back office systems, monitoring portfolio companies can be extremely time-consuming, inefficient, and unreliable. This inefficiency causes a lag in the monitoring process and prevents even the top private equity firms from resolving issues and getting the most out of their investments. How do you “nurture” a plant if you can’t gather enough of the correct information on its progress to determine what it needs?

How Malartu Can Help You

After weeding and watering, a nursery-owner can find out needed information on the progress of the plant in a few different ways: by taking time out of his day to check up on the plant personally, by sending an employee to check up on it for him and only receiving secondhand information, or by using Malartu to get in-depth, detailed reports on the progress of the plant whenever he wants without having to personally visit it.

PE firms are in the business of growing businesses. There’s no better way to grow or “nurture” your portfolio than to perfect the behind-the-scenes processes that help companies to succeed. With Malartu, the hassle of manually digging through reports, various data platforms, and back office systems for useful information disappears. Instead, you will finally be able to effectively “nurture” portfolio companies because you’ll have all the right information to guide you at your fingertips. Stop trying to figure out how to get the right information and start using it.

~~~

Thanks for reading! Got any questions? Comments? Email Audrey at audrey@malartu.co for more info.