Seeking investment from a private equity fund can be like entering unknown territory. Gearing up to pitch to a group of private equity investors can indeed be daunting. Central to the success of the pitch is the pivotal question: “What should we emphasize?” It’s a critical consideration, balancing the need to showcase your company’s strengths while remaining transparent and addressing potential concerns.
In this article, we explore the complexities of pitching to private equity, offering practical guidance for navigating this challenging terrain. From understanding the distinctions between venture capital and private equity to uncovering what Fortissimo seeks when evaluating potential investments, our aim is to provide clarity and direction. Moreover, we will define what lies beyond the pitch and what to expect as a Fortissimo portfolio company.
First, let’s briefly recap the ecosystem of funds and differentiation of Private Equity. In the Israeli market, there are primarily two types of investment models:
Venture Capital
- Focuses on investments in companies, mostly startups, from the founding stage, where seed money is required, to growth stage where revenue is generated.
- Supports companies until they reach substantial growth and profitability. Typically, these companies are not profitable at the time of investment and may have a monthly cash burn.
- Entails high risk, with exits anticipated from only a few portfolio companies due to the early stage of investment (a single exit can return an entire fund size!).
- Investment strategies are mostly focused on technology companies.
- Certain VC funds focus on a specific stage of development, whether early stage (like seed or round A), or a later stage to provide capital for growth.
Private Equity
- PE funds typically invest in later-stage and mature companies that have lower technology risk and have already proven the success of their product or business model.
- Many PE funds take a significant stake in a company (up to a 100% buyout), while others prefer minority growth investments.
- Typical buyout investments in mature companies involve acquiring control of the target to expedite growth or, in turnaround situations, to change the company’s trajectory.
- Predominantly open to investments across all industries (not only technology).
Fortissimo’s investment focus
Since the inception of our first fund in 2004, Fortissimo has invested in over 60 platform companies and more than 45 add-on acquisitions. Our investment strategy focuses on buyouts (70%) and special situation growth (30%).
While it is not possible to generalize our evaluation criteria into a single formula or go/no-go checklist, we focus on companies with substantial revenues (ideally with a solid recurring revenue model), cash-generating performance (or anticipated positive cash flow within the next 18 months), pivotal phases, and an inflection point for a new organic growth trajectory. Additionally, the availability of a significant stake in the company is crucial.
Our investments span a wide range of industries, business models, and company life stages, with each company evaluated on a case-by-case basis.
Preparing your perfect pitch
As you prepare to present your company to Fortissimo, it’s crucial to grasp the key factors that catch our attention and drive successful investments.
- Start your pitch with a concise overview, outlining the company’s current status, core challenges, and the compelling reasons driving the pursuit of a deal.
- Demonstrate openness and transparency when addressing challenging questions to generate trust and credibility.
- Present a compelling story of the company’s development and explain major changes in performance.
- Outline current executional bottlenecks and propose viable solutions to overcome them.
- Showcase growth potential with the goal of achieving a performance enhancement of at least x3 in the coming years. Prepare to present supporting data and assumptions, such as organic market growth, pipeline projections, and strategic partnerships.
- Emphasize the company’s differentiators, barriers to entry, and the reasons for its success amongst competitors. Focus on articulating what sets the company apart and why it succeeds where others may fail, addressing the question: “What is our unique selling point?”
What to expect as a Fortissimo portfolio company?
With Fortissimo on board, we work together with the company’s management to set and achieve ambitious goals. Several key principles can be described as common ground in many of our investments:
Access to talent
Leveraging our longstanding presence in the Israeli and International business community, we have cultivated an extensive network of C-level executives and advisors. They offer support and, in some cases, accept roles within the company to drive its growth. While not all investments necessitate changes in management, we often provide support in areas that require improvement.
For example, when Fortissimo invested in Kornit Digital, the company was led solely by its founder with a lean management structure. To support its aggressive growth plan, we promptly strengthened the company with key positions (such as COO, VP Sales, and others). As the company progressed towards its IPO, a seasoned CEO was recruited. All changes were made in conjunction with the founder, who maintained an active role on the board, ensuring a smooth and successful transition.
Hands-on approach
Fortissimo’s board representatives engage with the CEO and management regularly, to review recent company performance and developments. We often act as a forum for brainstorming with the management and take an active role in corporate development initiatives.
Effective decision making
Our comprehensive understanding of the business and market dynamics, coupled with our trust in leadership and continuous monitoring of portfolio companies, allows us to significantly improve the pace and effectiveness of decision-making processes. This often replaces lengthy and tedious board meetings with a streamlined go/no-go procedure.
This can be demonstrated in the case of our portfolio company CTS (a leading healthcare player in Israel), where we swiftly divested the pet division within a month after acquisition following a rapid strategic sell/build process. This strategic move allowed for increased focus on other core business divisions and led to a notable improvement in overall performance.
M&A capabilities
We supplement organic growth strategies with M&A initiatives, often positioning our portfolio companies as platforms to capture market share and expand their core offerings both vertically and horizontally. We actively support management in identifying and evaluating potential acquisitions.
For instance, the acquisition of Sugat, one of the leading dry food suppliers in Israel, by Salt of the Earth, a sustainable sea salt solution for the global food industry, led to the creation of a platform that later expanded through additional acquisitions and enjoyed significant operational synergies.
Fortissimo’s in-house value creation team
Complementing the support from the investment team throughout the company’s journey, Fortissimo provides expert consulting in core corporate functions such as Operations, Marketing, Procurement, ESG, BI, HR and beyond. This targeted support empowers our portfolio companies to effectively tackle major pain points and areas for improvement.
Looking ahead
Overall, whether you are crafting a perfect pitch or exploring the path forward with private equity, securing an investment from Fortissimo promises a journey marked by collaboration, growth, and opportunity. While a company may not currently align with our fund’s investment criteria, it may do so at a later stage. Numerous examples exist of portfolio companies with whom we engaged over several years before making an investment. Feel free to reach out to any member of our deal team to further discuss and explore ways to generate a meaningful partnership.
