Book Review: Learning from the Masters of Venture Capital and Private Equity

Venture capital and private equity are important components to societal investment. The book The Masters of Private Equity and Venture Capital by Robert Finkel delves into the concepts of what makes investment successful. Contrary to common knowledge the money is only one of the components while the factors of the market and the organization itself are equally important. Few want to invest their money in poorly run and sinking ships. 

One of the biggest steps in venture capital success is learning from mistakes. There will be some companies you make significant money off of and there are some that you won’t be so lucky. The key, like most other things in life, are to continue to learn from mistakes. Whether you’re Edison or the Rockefellers the process is the same. 

Investors often find a method to evaluate companies. They don’t just blindly pick some company and start pouring money into a deep hole. They use methods of analysis to ensure that the companies they are interested in meet certain qualities in the market, management, capitalization, potential, and methodology.  Without a proper evaluation it is easy to fall prey to wishful thinking. 

The authors also offer the need to turn research into commerce and foster innovation. Small firms succeed because they offer something unique. Their best changes for success lay in capitalizing on information and knowledge. Without research, innovation, and knowledge they will not be able to navigate the environment. All organizations should be learning organizations. 

Selecting the right CEO and ensuring you have management metrics helps to encourage proper decision making and accountability. When organizations have the right leadership and a methodology for navigating their environment they are more able to improve upon performance. Management metrics ensure that selected executives are actually doing their job. 

The book recommends a couple of analysis that is helpful:

Portfolio valuation: Looking at various components and choosing proper assets it is possible to understand the risks and potential rewards of investing in particular companies.

Waterfall analysis: A method of understanding preferred stock return with liquidation preferences compared to common stock return.

The authors do not discuss the concept of behavioral aspects of organizations. Strong organizations have strong core sense of purpose and exhibit the proper behaviors to succeed. These behaviors are based in inquisitive, collaborative, learning, testing, and civility behaviors that help ensure that the organization moves upward. Without these behavioral metrics to analyze the overall thinking process it is possible a single simple market success cannot be regenerated.

Finkel , R. (2010). The masters of private equity and venture capital. New York: McGraw Hill

Portfolio Analysis and S.W.O.T Analysis from Timothy212

Strategies of a Changing International Business Environment

The business environment is constantly changing to a wider range of pressures not seen in the previous models. With a more complex business environment organizations need to be ready to accept and adjust to new conditions as they become apparent. The strategies use can lengthen or shorten product and service life-cycles. Updating the common SWOT tool to offer alternative strategies and switch analysis helps to ensure businesses can adjust their strategies to strengthen their positions and thwart decline. 

A paper by Mayer & Vambery (2008) indicate that the current SWOT needs to be updated to include change as an additional construct in order to fit within the nature of modern global businesses. They discuss internal change (Ch_i) and external change (CH_e) to make SWOTCH_i/e.  Their reasoning is that the traditional SWOT assumes a single market with a finite beginning and end to products/services. In global business there are multiple markets and uses for products.  Things change on a constant basis and companies should be prepared.

Traditional Product Cycle:

-Introductory: The entrepreneurial introduction of a product.

-Growth: High growth to a plateau.

-Mature: A leveling of sales and consistency of process.

-Decline: Market decline until discontinuation. 

During this product life cycle the strategic decisions and considerations often impact the overall success and movement throughout the stages. For example, in the introductory stage an entrepreneur can damage the success of the product by putting time and resources into paths that are not aligned with the market. Likewise, the growth stage can be extended by strong decision making and the decline stage doesn’t necessarily need to be the end stage if adjustments to the product give it new life. 

The internal and external change additions to traditional SWOT offer an opportunity to reduce the static nature of the analysis based upon previous market realities. As change appears to be a modern constant it is necessary for organizations to have contingency plans. Through these contingency plans an organization can enact a new plan that capitalizes off of the gains of the initial plan when the market changes. 

The analysis of cost associated with a required change and the realignment of organizational components is called a switch analysis. SWOT should consider the potential for change and where their organization can capitalize on that change if it occurs within the market. The switch analysis will give them a level of understanding of effort in remobilization and adapt. 

We know that the market is a fluid and changing affair where five years in the future might create completely different conditions for products and services. The traditional SWOT should be adjusted so that it considers the possible strategic plan changes under a number of likely scenarios.  Using the SWOTCH_i/e  offers an opportunity to maximize profits and minimize costs under market changes. Being aware of the potential of such changes makes companies proactive in terms of their planning and performance.

Mayer, P. & Vambery, R. (2008). Aligning global business strategy planning models with accelerating change. Journal of Global Business and Technology, 4 (1).