Advice for Founders Considering Growth Equity

Bill Nix is one of the pillars that make up the foundation of Greater Sum Ventures. Bill, along with Ross Croley and Lisa Stinnett, founded GSV in 2015. In a recent interview, Bill talked about some of the things GSV focuses on during the investment process.

Since GSV’s inception, you’ve been involved in hundreds of deals. What are some things that you look for in companies that come on board?

  • Upside – companies that have a big market they’re serving and a lot of potential in that market.
  • Growth, especially organic growth.
  • The ability to scale up revenue and to get EBITDA out of the business.
  • Openness to the process. We know no business is perfect. We know there are going to be issues with the business. We can deal with most anything that comes up, so long as we know it. It’s just best to be forthcoming. You don’t want something to pop up the day before you’re trying to close.

What are some red flags?

  • Declining revenue, or declining customer counts.
  • A disorganized business that makes reporting difficult.
  • Woefully inadequate or outdated technology.
  • Owners who aren’t (or don’t appear to be) trustworthy.

What are some common things that come up in the diligence process that will hurt a deal?

  • It may seem obvious, but overstated revenue or EBITDA.
  • Contracts with customers or resellers where there is first right of refusal. We’ve seen that a fair amount, but it’s not necessarily a deal-breaker.
  • Bad contracts with salespeople, such as promising commission for life, or something similar.
  • Instances in which IP ownership is in question and the business doesn’t really own its software. Sometimes during diligence, we find that a business either has no contract with developers, or the contract they have doesn’t go far enough to ensure the company owns the software.

What advice would you give somebody who’s considering taking on investment?

Take the time to get your business in order. What we don’t want are financial statements on the back of an envelope, which I have literally gotten. It’s important for financial statements to be in good order.

My advice would be to assess what you really want in life and decide if this is part of it. I would think for most people, it would be. It gives you a chance to de-risk yourself by taking some cash off the table. You can be a part of something that can speed you to a much bigger scale than what you could do on your own.

My personal experience has been that this is such a wonderful step to take with your business. But owners need to have an open mind and be open to receiving advice and counsel about the business. Come into the process open to the direction that things could go.

So far, GSV has a history of operating businesses successfully. We approach it with the notion that we’re going to learn something from the companies we operate, but likewise, they learn from us as well.

One pitfall of the deal process is people not being ready to sell and underestimating the intensity of the diligence process. It’s important to expect some intensity for a short period of time — a real sprint to get it all done. Having that expectation and that perspective upfront is helpful.

I’ve also found that things go a lot better if everyone’s mindset is for a good and fair deal. Of course, I feel like we put fair deals on the table. If both sides seek a good and fair deal (and not something like, “The only way I can win is if you lose”) then things go a lot better, and we get to a good outcome.

Have you experienced a lot of pushback from people in that respect? Are they normally open to advice?

More often than not, people come in thinking that we want them to be strong-minded about their business, and we do. But it’s always refreshing when they can admit, “I just don’t know.” No one knows everything about their business. To me, the best businesspeople are the ones who know their limitations, know where they need help, and know when to ask for it. We can work well with those people.

What does strong leadership look like to you?

Humility is always a good trait for people to have. I think someone who has built a good team can attract quality people.

I like to work with someone who has a command of the details of their business. Not necessarily putting their finger on every single point, or having an answer to every single question, but who at least has a good grasp of the business and can talk in detail about things.

They don’t always have to be a visionary, but it’s great if they have a perspective on where they’re going with the business. Some people are more like operators and have their head down in the business, and that’s fine too. That’s where you see a real grasp of the details of the business.

But building teams is critical. It says a lot about you if you’ve built a good team around you – that you’re going after high-quality people, and people are willing to follow you.