Positioning Your Company for a Future Transaction: Graham HunterMarch 1, 2016
Part Two: Graham Hunter
As we learned from William Seibels’ experience navigating the notable acquisition of Change Healthcare by Emdeon, intentionality is required for a company in its early stages to set the table for a future transaction – and a successful one at that. But before you get out your linens and fine china, you better know what the guys on the other side want served.
Graham Hunter brings a different perspective to this conversation, representing the venture capital side of the equation. Graham joined Heritage Group in 2012 and serves as a Principal for the firm. Prior to joining Heritage Group, Graham was an Associate with Ridgemont Equity Partners, a $3 billion private equity firm in Charlotte, NC focused on buyout and growth investments across a broad range of industries. From 2006-2009, he worked as an Analyst in Leveraged Finance at Bank of America Merrill Lynch.
Tell us about your firm, specifically investment criteria, end markets, etc.
Heritage Group is a strategic, healthcare-focused venture capital firm based in Nashville, TN. Backed by some of the nation’s leading healthcare companies, we work closely with the executives of our Limited Partners to determine their operational priorities, identify companies addressing those needs, and accelerate the growth of those companies. We seek to invest $7.5-$20M in healthcare IT and service companies that have at least $5M of run-rate revenue.
You obviously have quite a bit of deal flow and opportunities coming across your desk on a daily and weekly basis. What are some of the key attributes you look for when performing that initial screening of investment opportunity?
- Differentiated product or solution that solves a major pain point or aligns with the strategic priorities of our Limited Partners
- Proven value proposition and demonstrable ROI
- Customer base that is resoundingly supportive and complementary (satisfied customers are one of the most valuable sales accelerants)
- Attractive financial profile (strong organic growth profile, high degree of revenue visibility, solid margins)
- Attractive industry fundamentals (large addressable market, high growth potential, strong competitive positioning)
- Passionate, energetic management team that ideally has a proven track record of success
So “Darling Startup Company” has done enough to peak your interest on the front end and passed that initial round. What are some of the things companies can do (or could have done up to that point) to best position themselves for success as you continue your diligence efforts?
Personal connections go a long way in this industry and reaching out to me via a mutual connection (e.g. someone like Drew Hart) as opposed to making a cold call will help you get a meeting.
Do your research on the investors you are interested in ahead of time and tell them why you want to have them as a partner. Put yourself in my shoes and try to identify the risks in your business model so that you are prepared with articulate responses to the questions I will probably ask.
Nobody has a foolproof business model, but if I can tell that you have thought through the risks and tried to mitigate them to the best of your ability, it will give me confidence in your ability to think strategically, take initiative and be a leader.
What you would advise entrepreneurs not to mess up in the capital raise process?
Have a solid understanding of your financial projections and be able to explain why you think they are achievable. If the numbers are half-baked and you don’t have strong support for your assumptions, you will lose credibility quickly.
Along those same lines, be able to clearly outline the use of proceeds. You would be surprised at how many entrepreneurs will tell me how much they want to raise, but don’t have support for how they plan to spend the money.
What are some other common mistakes you have seen among companies seeking that investment capital that equate to a giant red flag?
Know your competition and be able to articulate why your solution is superior. If I know more about your competitors than you do, it makes me question how well you know the market.
Be able to walk me through a case study or ROI analysis. If you can’t clearly explain to me the value you deliver to a customer, I’m not going to have confidence that you can sell your solution to a potential customer.
There are obviously a number of business owners and CFOs contemplating some sort of liquidity event in the next 6 to 18 months (be it a capital raise or sale of the company) – if you could offer them one bit of advice today to help prepare them for those efforts what would that be?
Make sure your customers are happy and will give you good references. If they cancel contracts or hint that they are not satisfied, investors/buyers are likely to get spooked.
Set a budget that you know you can hit, and ideally exceed. Heading into a transaction with momentum will increase the likelihood that the transaction closes. If performance slips during the process, there is a good chance that valuation will get revisited or the transaction will fall apart.
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