Welcome to Step by Step, a 5-part series from Future Commerce to help walk you through how to launch and grow a successful business. This season, we're talking about funding. Today is episode 4. Today, Phillip & Brian are joined by Jeremy Muras of Lion Capital Group to discuss Private Equity.
- In today's episode, Brian and Phillip are joined by Jeremy Muras from Lion Capital to talk about the ins and outs of private equity.
- What are some of the major differences between Private Equity and Venture Capital?
- Private Equity benefits brands with not only large amounts of capital but a proven track record of successfully growing brands.
- How can Private Equity help brands resonate with their ideal customers and tap into previously unexplored channels?
Jeremy's Journey: A Look Into His History:
- Jeremy has been in the digital industry since the early 2000s and got interested when he was located in Hong Kong and he got close with the team that built Monster.com.
- He worked for a luxury lingerie company called Agent Provocateur, ran TopShop.com for a brief spell, and then made his way to Burberry where he worked as the eCommerce Manager for Europe.
- While at Burberry, Jeremy and his journey were the first to execute purchasing directly from the runway, in-store pickup, and various othering pioneering innovations.
- From there, he found his way to Lion Capital where he operates as an expert on digital marketing and allowed him to expand his expertise.
Distinct Differences: Private Equity vs. Venture Capital:
- Essentially, private equity is equity or shares that represent ownership or an interest in a particular company that is not public.
- Private Equity requires companies to prove that they can scale and be able to demonstrate a number of years of profitability.
- Part of the challenge that Private Equity firms face in today's ecosystems is that a lot of successful DNVBs have exponential growth, but haven't demonstrated consistent years of profitability.
- Lion Capital typically invests over $100 million into a business and tends to not go much go lower than that.
- The goal is to achieve a positive return on investment in 5-7 years.
Going Deeper: How Does It Work?:
- Private Equity firms typically get their money from large institutional investors such as pension funds, insurance companies, and banks or other accredited investors like high-value individuals.
- Large institutions are investing in what is effectively betting on entrepreneurship being a growing portion of economic advantage in the United States.
- Unlike Venture Capital, Private Equity is not going to make risky investments that have not proven themselves.
- The gates that brands need to get through to acquire private equity are designed to give confidence and assurance to investors that their investment will be profitable.
Hands-On or Hands-Off: How Involved Are Investors?:
- Jeremy mentions that the consensus is split pretty evenly amongst investors whether they want to be hands-on in scaling their investment or not.
- As the industry has become more competitive, the active investor has started to take dominance in the preferred model of a firm.
- Demands are higher with the disruption coming from digital and other verticals.
- Brands can factor in the level of involvement that they want from their investors when it comes to choosing the right fit.
When to Seek Private Equity: When is the Right Time?:
- At what point in the lifecycle of a business does a private equity firm become involved?
- Lion Capital typically becomes engaged with businesses that are in the growth stage of their lifecycle because they need to see years of data proving success yet also need room to grow.
- Extending companies into new areas or diverse verticals are also good signs for Private Equity because that is something that capital could assist with accomplishing.
- In the United States, a lot of brands are exclusively national and have not gone international yet, which is a prime goal that private equity can accomplish.
Broadening Horizons: Expanding Into New Territories:
- There are a lot of companies that never break out of their verticals because they do not have the capital or the expertise to pursue new markets.
- A product does not necessarily become a brand without guidance and funding.
- Lion Capital looks for a brand within a category that is niche that can then be blown up in regards to growth.
- The qualities and endorsements of smaller brands can reach wider audiences with the appropriate injection of capital.
The Work of the Investor: What's the Deal Flow?:
- Deal flow is a term to describe the rate at which business proposals and investment pitches are being received and is imperative for Private Equity firms to maintain.
- Firms have large amounts of capital that they need to employ, and if they do not have an adequate deal flow, then you will fail in distributing the funds.
- It's becoming harder and harder to compete for deals amongst investors because of the high level of current business evaluations.
- Sourcing deals through non-traditional means is how firms are competing in today's economy.
The Secret Sauce: What Private Equity Brings to the Table:
- A huge differentiator between what Private Equity and Venture Capital bring to the table is that Private Equity brings with it a huge set of experience and skills that has a proven track record of building successful brands.
- Operating is difficult and you need to scale within your operating function to really add value.
- You need to make a decision whether you are prepared to invest to scale internally or if you want to build out a center of operational excellence that covers key aspects of your business.
- The reason you bring in an active investor is to embrace what they offer and to trust their expertise and guidance when it comes to scaling your brand.
Getting Hands-On: Planning and Guidance:
- Private Equity needs to be involved with strategic planning and budgeting because they have to account for their bottom line.
- Lion tries to bring founders along for the growth journey, and while they would like to keep management teams intact, firms have access to a large network of talented executives that can take the brand to the next level.
- There are different definitions of value, so sometimes strategic planning choices can be different than what a founder initially tries to accomplish.
- Firms have to be very clear with their intentions and cannot take footing away from the founders because that relationship is what the initial agreement was based upon.
The Brand Journey: Potential Changes for Exponential Growth:
- Moving a brand away from its traditional way of expressing itself towards new channels where new storytelling can resonate with customers is the goal.
- Brands stay a constant throughout their lifetimes, but their messaging and values can potentially change along the way.
- AllSaints has tapped into the zeitgeist of its customers and has made its message resonate amongst them.
- Private Equity firms can provide a window for brands to see beyond their traditional messaging and discover ways to truly make the brand shine.
Brands Mentioned In This Episode:
As always: We want to hear what our listeners think! What are some specific ways that Private Equity can take your brand to the next level that are different from how Venture Capital would help your brand?
Have any questions or comments about the show? You can reach out to us at firstname.lastname@example.org or any of our social channels, we love hearing from our listeners!
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