Category Archives: Deal Sourcing

How to Make a Bad Idea Good (or at least less bad)

I’ve been reading a lot of pitches lately, and many are obviously ill-fated. Here are some themes that would benefit most of them:

1) Cut the budget in half. Costs will be higher than expected, and returns will be lower than expected. Inflated numbers won’t fool anyone.

2) Plan the project in multiple phases. Then focus on phase 1 – it should make sense on its own.If it’s only value comes from the success of future phases, then that’s a problem.

3) If you can’t even explain it clearly, then what chance does it have of actually working? Simplify.

4) Money does not equal marketing does not equal success. There is often low correlation between each.

5) Time is not money. Spend the time, don’t spend the money. If your team doesn’t have the in-house capabilities, then it’s not the right team for the project.

6) Experience matters – but experience doesn’t matter. Past successes are great, but what’s even better is experience that will help with the current idea.

7) Think small – but be ready for success. How will the idea scale if it turns out to work?

8) How will it fail? How long will it take? How much will it cost? Will there be any salvageable value?

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Inc Magazine: Best Industries for Starting a Business

Inc Magazine article highlighting 16 industries for starting a business. A few of the industries are a little goofy (e.g., selling homemade goods online and sperm banks), but others come from the just-released Top Industry data from AnythingResearch.com. Cool, huh? There are certainly a lot of other factors that go into identifying venture opportunities, but many of these  less well-known industries are worth looking at.

AnythingResearch.com – Industry Analytics and Research

AnythingResearch.com has released 2009 research reports on over a thousand industries providing instantaneous access to market size, typical financials (e.g., income statement, balance sheet), salary benchmarks, etc etc.

The goal is to shed light on  small businesses in “main street” industries by providing accurate and detailed statistics.

http://www.AnythingResearch.com

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Private Equity Enters the Trailer Park Industry

Note: for information on the Watchtower industry screening tool, please contact Daniel Berch.

Trailer Park Boys (television show and movie) is an amusing and sometimes heartbreaking look at struggles towards life and happiness in an RV park in Nova Scotia. But while the Boys were busy with various get-rich-quick schemes, private equity investment firm Context Capital Partners entered the space.

Industry data shows EBITDA margins of 27%, slow but steady growth around 2% per year, and extreme fragmentation for the RV Parks and Campgrounds industry (NAICS 721711). And at, $1.7 billion market size, it’s worth a second look.

Click for full-size image

Industries for Private Equity

Note: for information on the Watchtower industry screening tool, please contact me here.

For small private equity firms, choosing attractive industries to focus time and effort is essential to success. Private equity firms don’t just invest in high tech. Industries can range from food services to Recreational Vehicle parks (see Context Capital Partners) and everything in between.

Looking at all the industries in the U.S., we can see how they have been growing over the last few years, and see how many industries are controlled by big business versus those that are fragmented and have small and midsized businesses in the industry:

ALL INDUSTRIES

As you can see, there are quite a few industries out there. Now let’s take a look at just those industries with high profit margins (>20% EBITDA):

INDUSTRIES WITH HIGH PROFIT MARGINS (>20% EBITDA)

As you can see, there are many fewer industries with high profit margins, but there is still a wide spectrum among those that are growing and those that are shrinking, and among those controlled by big business, and those with many small and midsized companies.

For those curious about the shrinking industry with high EBITDA margins – it is the Miscellaneous Publishing Industry (NAICS Code 511199), with $7.5 billion in sales, 1,100 firms, and negative growth of 32% per year.