The Symbiosis of Entrepreneurs and Private Equity

Martin Coetzee, Director at RMB Corvest

RMB Corvest is a leading, local player regarding private equity (PE). The company invests in well-managed, medium-sized businesses across South Africa and Sub-Saharan Africa. “We typically look for entrepreneurial assets with a proven performance record,” notes Mike Donaldson, CEO: RMB Corvest.

Like entrepreneurs, PE operates in the higher-risk investment arena. “Neither entrepreneurs nor PE players are satisfied with mediocre performance or with average returns,” notes Donaldson. “Both would rather carry risk for superior returns – and both have the foresight to perceive high yield potential.”

 Shared values

Entrepreneurs are not only required to back their own vision, but also to innovate in the marketplace – where this level of engagement demands the ability to coolly make difficult choices. “By their very nature, entrepreneurs are not scared to challenge the hegemonies of either major blue chip corporations or established industry,” notes Martin Coetzee, director: RMB Corvest.

This competitive, challenging terrain is precisely the environment of PE players that typically pursue investments combining excellence with significant growth potential. “RMB Corvest essentially backs medium-sized businesses that are invariably up against the big players – including major multinationals,” says Coetzee.

The Need for Liquidity – and Operational Freedom

Entrepreneurs require finance to achieve the unique impact they intend to make in the marketplace: and PE offers precisely this liquidity. “Importantly, PE offers far easier access to capital, cutting through the red tape that ordinarily restricts expansion,” notes Coetzee.

Beyond solely providing liquidity the correct PE partner will further add value with appropriate business insight – however, most PE players favour non-intervention regarding operations. “In this sense, PE gives entrepreneurs a free hand to do what they do best, which is to create value for all shareholders,” says Donaldson.

Direct Interest

Significantly, PE players favour the concept of ‘skin-in-the-game’ – whereby the management team of an investment vehicle places its own capital alongside any PE contribution. “This alignment of interest is imperative regarding investor confidence,” says Donaldson. “The confidence of any good entrepreneur is evidenced through a direct interest in their own business.”

Where entrepreneurs hold such confidence in their vision that they are prepared to hazard a significant portion of their own capital as invested in their business, PE partners and senior debt-lenders will respond in kind with greater assurance and commitment. “If management is not risking its own savings then it is unlikely for a deal to ever succeed,” argues Coetzee. “Direct interest is a critical stimulus in any enterprise.”

PE will generally – and regularly – back the same entrepreneurs across different companies and sectors. “PE recognises and champions the ability of gifted business individuals,” says Coetzee. The success of all businesses invariably lies with a good management team.

Where an individual has demonstrated extraordinary skill in the market, PE partners are more than happy to repeatedly back that individual across different investment opportunities. “Effectively, PE will back the right entrepreneurs with a good growth story,” notes Donaldson. “The bottom line is that funding is always available for market-savvy entrepreneurs with the right outlook!”

Content sponsored by RMB Corvest.

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