Jordan ('Jordy') Spiegel — board leadership position coupled with line of sight for investment opportunity

Core Thesis

We advise our portfolio companies to test any potentially important strategic relationship with a smaller commercial initiative.

This allows both parties to evaluate compatibility and build trust while limiting their initial risk exposure.

Companies and investors routinely commit tens or hundreds of millions of dollars based on presentations, financial models, references, and negotiations. None establishes whether the people involved can build a durable partnership.

Before asking, “Should we invest together?” ask: “Should we work together?”

Why Traditional Due Diligence Falls Short

Conventional due diligence can evaluate the business:

• Financial performance
• Customers and technology
• Competitive positioning
• Legal matters and forecasts

What it cannot reliably determine is whether the people involved will become exceptional long-term partners.

It's the more intangible qualities that most often determine the ultimate success of a long-term partnership operating under uncertain conditions - things which financial statements and contracts don't address.

Why the Staged Approach Works

The principle is well established: staged financings, pilot programs, prototypes, clinical trials, and reconnaissance all reduce uncertainty before a larger commitment.

Why Board Service is the Perfect Platform for a Staged Approach

Board service allows both parties to evaluate their relationship under actual operating conditions before making a much larger commitment.

As a practical matter, a company can commercially engage with an investor one or two ways: a) accept his or her investment capital, or b) invite one of its investment professionals to serve on its board.

Standard industry practice, however - places board service after an investment has been made - thereby precluding board service as an option to test the business relationship.

This is because investment firms view board service without an investment as a distraction that dilutes the management fee and carried interest economics of existing portfolio companies where capital has been deployed. Of course there are many examples of retired private equity professionals serving on boards, but not one where this is systematically used to vet high quality long term investment opportunities by a private equity firm.

We believe this is because this strategy requires a great deal of patience - and a willingness to forgo larger fees for an undetermined amount of time in order to uncover what one hopes might potentially give rise to exceptional long-term investment opportunities.

Seasoned private equity partners spend their careers investing in businesses and serving on boards. They have deep experience in issues ranging from governance, capital-allocation, raising capital, and M&A. This is why retired private equity professionals are frequently asked to sit on boards.

Industry knowledge is invaluable, so industry corporate executives are an excellent and quite common selection for board seats.

Their penchant for structured bureaucratic checks and balances creates a healthy balanced tension on the board when combined with more entrepreneurial-minded private equity professionals. It's equally important to be cognizant of those with impressive corporate resumes whose motivations for income and status can sometimes trump their duty to serve as custodians and fiduciaries for shareholders when they are faced with the formidable social pressures on the board to 'go along to get along'.

We’re investors first and foremost - not asset managers. So our first priority are absolute risk-adjusted returns - not management fees driven by the dollar amount of assets under management or the option value of the ‘carried interest'. Our different business model allows us the latitude to sit on boards where we haven't deployed capital that in the case of a fund would otherwise be collecting an asset management fee from its LPs.

Our view is that the benefits are both obvious and compelling: board service reveals judgment, integrity, communication, planning and execution discipline and cultural compatibility. And it reveals how people respond under pressure, manage disagreements, and honor commitments. It doesn't, of course, guarantee success - but it does provides a far more informed and measured basis for whether or not to proceed with a business relationship that involves a bigger commercial committment.

Bespoke Capital Partnerships:

Private equity and private debt fund managers have charters that both target and constrain their mandate and focus based on: a) 'bite-sizes' of capital deployed b) targeted parts of the capital structures c) targeted hurdle rates of return d) industries, and e) geographic focus.

Blind pool funds can't invest outside their charter and mandate because their LPs need to be able to manage the asset allocation for their portfolio.

By contrast, we'll negotiate with the company as the lead investor (we 'eat our own cooking') to create a bespoke structure that aligns with the Company's business plan and strategy, and arrange a consortium of institutional investors and family offices that will co-invest with us in a partnership.

If some of this sounds familiar, it's because we've borrowed the key risk-management concepts of 'staging' and 'lead investor' from the rigors of the high mortality venture capital world - and incorporated it into private equity and credit. Using a board seat as a platform for both the company and the investor to engage in a material commercial relationship prior to investing together is to the best of our knowledge unique to our approach.

Summary

Every major financing is ultimately a long-term business partnership.

Working together before a large investment allows both parties to evaluate performance, judgment, integrity, communication, trust, compatibility, and decision-making under actual operating conditions.

In our experience, this approach not only improves the odds of an exceptional outcome - it also reduces the risk of an expensive disappointment.

• We will work with you to curate the capital structure that is tailored to your business needs and objectives
• We're delighted to have the opportunity to join the boards of companies which we think have the potential to be compelling long term investments.
• Similiar to the fund raising dynamics in Venture Capital where there is a lead investor, we often help companies reduce—or avoid—investment-banking fees

Next Steps

A new director should begin by spending meaningful one-on-one time with the CEO, CFO, General Counsel, and every fellow director. This builds an understanding of the Company's most important issues and establishes a dialogue grounded in candor, trust, and mutual respect.

Building a personal rapport and relationship is critical to building trust. The day will come when there are disagreements, but with a trusting relationship established folks will not jump to conclusions about ulterior motives or agendas. And this is an essential element to healthy resolutions of disagreements.

Moreover, these same 'first principles' also apply to company governance at large as it relates to the relationships amongst its employees, investors, business partners, and other stakeholders.

Governance Principles that have buy-in at all levels of an organization is what creates a unified team working together on the same plan.