Insights Private Equity
Building an Investor-Ready Equity Story
An equity story explains why a business will be worth more in the future than it is today, and what has to be true for that to happen. It is an argument, and it has to survive examination.
A story is an argument, not a description
Most materials describe a business: what it makes, where it operates, how it has performed. Description is necessary but it is not a story.
A story sets out a thesis — this business is positioned to achieve a specific outcome, for these reasons, over this period — and then evidences each part of it.
What a credible story contains
- A clear statement of what the business does and why it wins the business it wins
- Evidence of that advantage in the numbers rather than in adjectives
- A growth path with identified sources, not an extrapolated line
- An honest account of what the capital will be used for and what it will produce
- The risks, named by the company rather than discovered by the investor
- A management team credible enough to execute what is being described
Consistency is the test
The story has to be consistent with the financial statements, the model, the data room and what management says when questioned individually.
Investors test for exactly this. Inconsistency between the narrative and the underlying material is more damaging than a modest set of numbers honestly presented, because it raises a question about everything else.
Naming the risks
Every business has concentration, dependency or cyclicality somewhere. Diligence will find it.
A story that identifies its own risks and sets out how they are managed is more persuasive than one that omits them, because it demonstrates that management understands the business as an investor will assess it.
