“One of the bigger overall lessons is that we, as a private equity industry, need to do a better job of building relationships, finding good partners to invest with,” Langdale says.
If one partner is trying to grow a company five or 10 times, but the other is happy with one or two times growth, that’s a problem of shared values, he says.
Building relationships
Sopp, who has been both an entrepreneur and an investor, says the most successful entrepreneurs are also doing a better job developing long-term, deeper relationships. They realize the people behind the products and services are critically important to investors.
“Some of the younger entrepreneurs are really learning that,” Sopp says. “They’re not starting off a pitch with, ‘Let me show you my software.’ What’s making the difference are the people who are going to say, ‘Let me tell you about me. Let me tell you what makes me tick. Let me tell you why I did this.’ That’s what is adventurous because they have to tell a story, and the storytelling gets you the next meeting.”
That kind of relationship building is important because there can be more deals to choose from.
“There’s the same amount of fishermen,” he says, “but there’s more fish in the pond, which limits the amount of capital potentially available to an entrepreneur.”
Many investors have widened their net in Central Ohio beyond health care and biotech, which have been the region’s staples. They are looking at deals in spaces like financial technology (fintech), personal care or quick-serve restaurants, Sopp says.
Hackbarth, who stays involved with startups through board work, angel investing and strategic introductions, sees a need for more communication about deal activity.
In any marketplace, not just Central Ohio, you’ll have a somewhat closed group of people who know of deals that are getting done, he says. There’s a quiet market of startup companies seeking capital that you don’t necessarily hear about as a seed investor. Other institutional investors and venture capitalists are guided by their appetite for certain industries, more than where those firms are located.
“I know of a deal that got done last week that it had no local money that came in,” Hackbarth says. “It was a firm out of New York that came in and put an eight-figure investment into a local startup. And I don’t know if any of the traditional venture capital firms that are headquartered here or in Ohio even had a chance to look at it.”
Is it better to be a buyer or a seller right now?
“I think it is better to be a seller. There is a lot of capital available and that seems to be bidding up the price for the seller.”
— Michael Stevenson, managing partner, Clarus Partners
“Hard to tell. I guess like all deals, it depends on the deal and then the passage of time. For a deal to be successful, it takes internal execution of whatever the combined operations thought was possible and desirable, as well as cooperation from external forces that may well be outside of one’s absolute control.”
— Jeffrey W. Edwards, chairman, president and CEO, Installed Building Products | president, Edwards Cos.
