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I recently attended a meeting where a private equity firm declined to invest in a very profitable company growing at 40% a year with revenue of $40 million. What did the investor find missing:
- The company had no metrics for operating performance
- The company had no monthly reporting system except an income statement
- The company focused on revenue growth and ignored cash flow
- The corporate structure was overly complicated (too many subsidiaries, all with different shareholders)
Perhaps none of these factors would have been important in a smaller company, but when you tell a story about growing to $100 million in three years investors expect an infrastructure and management philosophy that supports the plan. Good results alone do not raise capital, especially in this tough market.
