What I find most rewarding about our strategy is that no one succeeds unless the entire pie grows and everyone gets their fair share. When we first meet, many business owners have sacrificed both time and financial security. Seeing the impact of success on our entrepreneurs is very satisfying.
We are interested in later stage, private growth businesses, and look to provide between $10-$25 million in either equity or credit financing. We mostly invest in technology and healthcare companies, but we investigate all growth sectors. While the appropriate “stage” of business is highly bespoke to the business model and industry, the companies we’ve invested in recently have median trailing 12-months’ revenue of just under $30 million.
No. However, we typically look for situations where we expect to be the last required private financing prior to either profitability or an exit. Our investment is often the capital that helps companies scale through to consistent cash flow generation.
Every situation is unique and we try very hard not to pre-judge. I go into an initial meeting hoping to find answers to three broad questions. Why do these individuals know more than others about a specific problem? Which customers will find the most value in their solution? What is their “secret sauce", in other words, what method of business or technical edge do they have that is critical to success but not necessarily obvious?
Executives need a cogent strategy. I look for breaks in the logic. Strategic inconsistencies should be impossible to uncover in a one-hour meeting. While there are countless other markers to track, the key is to keep an open mind. Most entrepreneurs I meet have advanced degrees and have spent much more time thinking about their businesses. It’s always humbling to remember that fact prior to a meeting.
Over the years, we have increasingly emphasized capital efficiency as an indication of investment fit. We find that limited access to capital often spurs innovation. Entrepreneurs and managers that prevail despite tight finances often find ways to succeed that might not be obvious to those with ample access to cash.
Since we’re minority partners, our relationship with management must be grounded in trust. We also like managers who look for truth in data and modify tactics based upon data. Good data is the essential ingredient to good strategy. Without it, everyone is basically guessing what might work and even worse, guessing why something failed. You can build some very strong businesses with a management team grounded in trust and data.
Every Expansion Capital senior investor has spent a full career at Morgan Stanley, so we understand how the broader franchise can benefit even the smallest of our private companies. Also, since many of our companies are too young to have developed much brand equity with customers, business partners, or prospective employees, we consistently hear that an investment from Morgan Stanley Expansion Capital provides a globally recognized stamp of quality and professionalism.
What I find rewarding about our strategy is that no one succeeds unless the entire pie grows and everyone gets their fair share. When your investment strategy targets two- to five-year holding periods, you get the chance to build incredibly close relationships with entrepreneurial teams. The vast majority of business owners that we work with have sacrificed both time and financial security and have a broad spectrum of professional and personal concerns. Seeing the impact and benefit that success has on our entrepreneurs is very gratifying.