Welcome
Happy Thursday. This week is about managers with a real specialisation: the ones who know what heavy lifting they'll do in almost every company they own, and do it even when it gets expensive or dull. Strap in, because we're starting with an ERP replacement.
Note: I've long been a great admirer of the Axios style of writing. I am trying it today.
— Steffen
THE MAIN STORY
What does your firm always do?
The story: Recently, a mid-market PE professional told me about a portfolio company near the end of its hold. One project from the original value creation plan, replacing the company's old ERP system, will probably never happen under their ownership.
The system was meant to support the next stage of growth, but was continuously deprioritised.
Now it would cost money, occupy management and hit EBITDA in the short term. Most of the benefit would arrive after exit.
So it's likely to become the next owner's problem.
Translation: Kicking the can down the road on something you don't want to do.
Why it matters: Everyone knows the company needs a new ERP. Knowing isn't the problem; timing is. A firm that had done this many times would have started in year one, because it would know how long these projects take and where they break. That's the edge I always looked for in my underwriting: not being brilliant or visionary, but the hard job a GP has done often enough to be demonstrably better at it.
Go deeper: What real specialisation looks like.
Bertram Capital runs an in-house technology team, Bertram Labs. At portfolio company Solo Stove, Bertram's own case study says the firm implemented new WMS and ERP systems and built a data warehouse with custom reporting for real-time performance visibility. Bertram Labs also worked across five Flow Control Group companies on e-commerce platforms, product configurators and quote tools.
Alpine made the same kind of choice in a different job: talent. Its PeopleFirst programmes have placed over 120 leaders in portfolio companies and developed over 70 CEOs-in-Training into CEOs, according to the firm.
The difference: All of this could have been done by other GPs. These firms do it again and again.
The catch: This work often puts portfolio companies through a J-curve, and it may fail. New systems and people are structural changes with significant risks, and the more you can de-risk them, the better.
The cost and value of investments
Between the lines: For the GP, this work often looks unattractive during the hold. It eats the firm's staff, time and money before anything shows up in the numbers. And gritty process work is rarely loved by deal people. But the specialised GP's advantage appears in the ugly middle:
The GP's people have done the work before.
They know where it tends to break.
They can tell management what the next six months will really feel like.
I've invested with many managers like this. In every case, the edge wasn't a clever slide or a visionary Managing Partner. It was evidence that they kept doing their particular heavy lifting, company after company.
How to test it: Recently I asked what a manager actually built during ownership. The next question is what the firm builds repeatedly.
Show me every company where the same capability mattered, not just the three best ones.
Who from the GP did the work?
What did you learn in the first company that changed what happened in the tenth?
Where did the approach fail, or where did you choose not to use it?
If the only common thread is "we help management," I still don't know what the firm is especially good at.
Or as Graham Weaver from Alpine put it:
I realized Alpine was not in the deal business. We were in the talent business. That realization has changed everything.
For GPs reading this: Tell me the hard thing you do over and over. Show me the people and the history behind it. Tell me where it hasn't worked. I can underwrite that. "We do whatever each business needs" sounds helpful but gives me no reason to pick you.
The bottom line: Everybody wants to talk about strategy and the market they saw first. Few want to talk about the process underneath that got them there. As an LP, I want to invest with the few.
Speaking of doing the heavy lifting
We’ve now done enough data migrations to know where the data breaks, so we can do the boring work for you. When you choose FundFrame, your J-curve stays as small as possible.
FOUNDERS CORNER
Clear to everyone but you
Sometimes you know exactly what needs to be done in a business. Sometimes it’s clear to everyone but you.
Last Friday we met with one of FundFrame’s executive advisors. Within an hour, he had pointed out a handful of things that were obvious the moment he said them. In hindsight, they had been obvious for a while.
That’s what happens when you are in a company. Sometimes, you can’t see the forest for the trees.
ABOUT THE AUTHOR
This newsletter is written by Steffen Risager, the founder of FundFrame, a platform for LPs to manage their private markets investments.
Before that, Steffen was CIO at Advantage Investment Partners, a Danish Fund-of-Funds.
Steffen has a decade of experience as an LP, and has made commitments totalling approx. $6bn across fund- and co-investments.