Posted on August 24, 2013
In this article I will review the book “The End of Competitive Advantage,” by Rita Gunther McGrath, published by the Harvard Business Review Press in 2013.
I like to think of myself as a “value investor.” That is, I believe that I invest in quality companies that are underpriced. In terms of the quality of the organizations I like to invest in, I look for firms that have established a competitive advantage in their industries and are earning at least a 15% return on equity, after taxes. To judge the quality of management and its staying power, I look for those organizations that have a sustainable competitive advantage, defined as earning a 15% return on equity, after taxes, for a period of five to eight years. And, to capture the fact that a stock may be underpriced, I look for a low price/earnings ratio.
Other factors that have been important in my analysis are the industry share the company achieves and protects and the stability of this share over time. Of course, these are the quantitative factors and must be supplemented by other factors, such as an examination of management, industry make-up, and governmental factors that might contribute to firm performance.
Well, starting right here, Dr. McGrath starts to eat away at this picture. For one, she argues that industry boundaries are no longer that important. She argues that “arenas” are more crucial in the modern environment. The important thing in today’s world is that there are connections between “the outcomes that particular customers want (the jobs to be done)” and “the alternative ways those outcomes might be met” (page 10). Industry lines are not the determinants of what products one should be producing and what markets they should be sold … read the rest
Categories: Amazon, Banking, Business Survival, Business Turnarounds, Distress, Economic Growth, Economics, Energy, Entrepreneur, Financial Services, Global Corporate Venturing, Innovation, Internet Retail, IT Services, Robotics, SaaS, Small Business, Small Business Investment Company, Software
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Posted on August 5, 2013
No Dummies here — our clients and friends tend to be very bright people. Because they also tend to be very busy, we thought it might be helpful to use our most recent closing to provide a brief primer about middle market mezzanine financing.
You can click on the tombstone image to the left to get the full details of the $5 million mezzanine debt placement we arranged for our fast growing, innovative client, Paramount Merchant Funding LLC.
Mezzanine debt is a key component of leveraged private equity financial structures, but it also serves an important role for companies operating in the middle market. As companies grow rapidly, their capital needs frequently outstrip the capital available to them.
Typically new enterprises are funded with the founders’ personal capital and loans supported by their personal assets or credit. Often they reach out to friends and family to provide additional support. Additional working capital may be provided by a factor or an asset based lender; however, if growth is rapid, the business will eventually outstrip the limits of these resources and the founder’s personal financial resources will not support continued growth.
For a step-by-step video how-to guide for obtaining mezzanine financing, click on the image below and view the tutorial.
To download the associated PowerPoint Slides click here.
In the past the needed capital was frequently provided by banks which relied upon the borrower’s character in addition to the liquidateable value of its assets. That is a thing of the past. Today, banks without clear collateral support to back their loans will soon invite the ire of regulators. With this regulatory threat hovering over them, most bankers have effectively abandoned the small business community in its time of need.
This has created a financing gap increasingly filled by mezzanine lenders. These firms are often structured … read the rest
Categories: Alternative Financing, Asset Based Loans, Bank Credit, Bank Loans, Banks, Commercial Loans, Community Banks, Growth Equity Financing, Junior Capital, Mezzanine Debt, Mezzanine Financing, Mezzanine Loan, Revenue Based Loans, SBIC, Shadow Banking, Small Business Investment Company, Tranche B Financing
Tags: Tags: Asset Based Lenders, Asset Based Lending, Asset Based Loans, Bank Lending, Bank Loans, Banks, Business Financing, Mezzanine Debt, Mezzanine Financing, Mezzanine Loan, SBIC, Small Business Investment Company, Tranche B Financing
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