Once due diligence has been completed, and the Investment Agreement and other legal documents signed, an investee company has successfully secured institutional funds. At this point a significant milestone has been reached but the road ahead can also feel daunting for the business, with a variety of potential challenges to come in those early days. It's therefore important going forward that the fluidity of contact with an institutional investor remains as strong as it was during the initial deal, and this is where the Portfolio Manager steps in. Their role is primarily focused on supporting businesses, and their owners, in achieve their growth plans. They are also responsible for generating and protecting shareholder value for the manager and underlying investors, exit planning and monitoring business performance. For this reason, Portfolio Managers generally do not have a deal pipeline of new investments in order that they can focus solely on the needs of portfolio businesses, and will typically remain involved in a number of key areas:
From day one of the investment, it's important to instil good corporate governance and financial discipline to ensure invested funds are utilised in the business effectively and in line with the initial business plan. A Portfolio Manager will help with fulfilling the post completion requirements of the investment agreement, such as helping to appoint key board positions like a Finance Director and Chairperson. They will also guide the set-up and cadence of the ongoing requirements of the investment agreement such as board meetings, board packs, monthly financials, cash flow forecast and sales pipeline. In addition, a Portfolio Manager will support matters requiring investor consent within the investment agreement.
Fundamental to the Portfolio Manager’s role, is prioritising hands-on support to investee businesses as they meet specific business challenges and opportunities, providing direct input and guidance when required. This can involve a wide range of areas, such as management initiatives to enter new markets, the launch of new products and services, restructuring, M&A support and bolt-on acquisitions.
Portfolio Managers fully embed themselves in the strategy of the business and provide a link between the value drivers defined during the initial investment process and the actual execution of those value drivers in the business. A good Portfolio Manager will be continually challenging Management to deliver shareholder value, by placing emphasis on how the business is growing its revenues and efficiently converting those revenues to profits. The management team should expect to be continually challenged on the sales pipeline, business development processes, KPI's, cost structure, team composition and how the business is balancing its resource requirements and preserving cash runway.
As the business begins to scale, it's likely to require further working capital to support its growth or to fund a strategic initiative that would accelerate future expansion. A Portfolio Manager can support investee businesses by helping them understand what their investor will need to demonstrate the investment case, then working with them to prepare and present the necessary information to an investment committee and project managing the follow-on funding process once it is approved.
From the outset of the investment, a Portfolio Manager can work with business owners to formulate an exit plan. An effective exit strategy should be planned to cover both positive and negative outcomes of the investment and will be based upon the business' ability to achieve scale and valuation targets. Suitable routes to sell the investment would also be identified, such as a trade sale, MBO or securing further institutional funding, and a Portfolio Manager will utilise their professional network to explore exit opportunities and identify buyers, and, if required, help project manage the exit process.