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In the world of Venture Capital, Private Equity and M&A, performance is measured by a positive return on investment (ROI) relative to a suitable benchmark such as, say, the Nasdaq for investments in tech companies. Benchmark or index beating ROI is driven by investing low and exiting high. In the context of private companies, investing low requires that one be an early investor or acquiror of promising companies – when valuations are low – before these companies are discovered by other investors and see valuations go through the roof.
The holy grail in investing is, say, finding Google when Brin and Page were still in the garage or just out of it, when very few people even knew that a company named Google existed. Consequently, the key to successful PE & VC investing, lies in finding and researching private companies that match your investment thesis, conducting due diligence, and investing in, or acquiring them, before anyone else finds them. Similarly, the key to successful M&A is finding and researching mid- to late-stage private companies, recognizing their potential early in the game, and proactively acquiring them.
Here, then, is your guide to finding and researching private company data – product/solution roadmap, early customer traction, investors, management, revenues, profits, strategy, culture, etc.- so you can gain an insider’s edge in deal origination and M&A.
Innovation in Deal Origination: Finding Private Company Data
Private Equity, Venture Capital and investment banking firms need a way to get reliable information on private companies for investments and M&A.
Fortunately, in today’s world, most companies leave a sizable footprint on the Internet as they go about their daily business. If collected and intelligently filtered and assembled, this data can give investors, and M&A bankers, deep insights into private companies, especially given the evolution in machine learning and artificial intelligence (AI) over the past ten years.
The Issue with Finding Private Company Information
Private companies, especially the more promising ones, are intensely secretive – about their products/solutions, operations, strategy and finances – making it really hard for anyone without an inside track to get meaningful information from them or about them.
Hence, the world at large only gets to know what private company stakeholders want you to know… unless you know where to look, and know how to glean and put together scattered tidbits of private company data to build a cohesive picture of information.
- In the U.S., private companies are not required to report or disclose financial or any other operational information to the Securities and Exchange Commission (SEC) or to the public.
- Private companies do have to file taxes, but tax filings are confidential and are not disclosed to the outside world.
- Additionally, all stakeholders – employees, investors, customers and partners – are tied into strong non-disclosure and confidentiality agreements.
Consequently, even large private companies (such as Cargill, with an estimated $113 billion in revenue) have no obligation to disclose financial or operational data.
As a result, finding private company data, say, a complete set of private company financial statements, or a private company annual report, is rather difficult.
Instead, one has to build financials from tidbits strewn across various information sources.
The SEC’s Extensive Reporting Requirements for Public Companies
On the other hand, the Securities and Exchange Commission (SEC) requires that public companies regularly report, and make publicly available, key financial and operational data so investors can make fair assessments of the value of their publicly-held stock.
When a private company wants to sell shares to the public through an initial public offering (IPO), the SEC requires that it file an S-1 Registration Statement. The S-1 must include detailed information about the company’s business:
- Historical finances
- How it plans to use money raised from the selling of shares.
This S-1 unveiling is a treasure trove of private company data – its products/solutions, the industry it operates in, and its public and private competitors – which is devoured by information-deprived competitors and industry watchers.
The pre-IPO S-1 then gives way to periodic Full Montys after the company goes public. Once a private company successfully executes its IPO, its public company reporting requirements include filing:
- Detailed quarterly (10-Q) and annual (10-K) reports, with financial statements and operational highlights for the period
- Current reports (8-K) on significant changes such as mergers and acquisitions, election of directors, changes in the rights of shareholders, and any other material changes that shareholders should be made aware of
- Major changes in shareholding patterns (SC 13G), including acquisitions or disposals of stock by key executives or major investors
- Invitations to the annual meeting of stockholders (DEF-14), with agenda items to be voted on (such as the election of directors to the Board), and updated information on executive compensation, executive shareholding patterns, and more.
In addition, public companies typically host quarterly calls with industry and Wall Street analysts where executives:
- discuss financial and operational results from the most recent quarter
- present forward-looking plans and earnings outlook
- answer questions on strategic, operational and financial details.
Wall Street analysts use this information to compile detailed financial models, which are widely available to investors through their brokerage accounts, for free.
Therefore, there is significantly more cohesive information on public companies than there is on private companies.
How to Research Private Companies: Six Key Strategies
1. Private Company Websites
Today, virtually every private company has a website. These websites typically outline the company’s products, solutions, management, investors, money raised, Board members, open positions (in the Careers’ section), press releases, conference attendance announcements, and media coverage. Additionally, websites offer resources such as whitepapers, ebooks, videos and blogs – all of which provide key insights into a private company.
For example, a venture capitalist’s public profile (such as on LinkedIn) highlights his experience and expertise. Consequently, information on the amount of money raised and the venture capitalist who joins a private company’s Board provide clues on the industry niche that the private company operates in.
2. Social Media
Many private companies, especially those in the B2C space, use social media as a key channel for customer acquisition, feedback, satisfaction and retention. Therefore, monitoring a private company’s social media presence can offer additional insights, especially on its existing portfolio of customer facing apps, products and solutions.
3. Online Job Sites
Most private companies use online websites (LinkedIn, Monster) to recruit employees. Requirements for open job positions offer compelling details on the skill gaps that private companies are trying to fill, which may reveal product plans, technology direction, marketing strategies, geographic expansion plans, etc. Moreover, trends in the number and nature of advertised open positions are key indicators of private company growth and product/solution evolution.
4. Online Employee Profiles
Employees at most private companies have profiles on professional networking sites such as LinkedIn, where they list qualifications and employment timelines, post professional articles, or like/comment on others’ posts. Employee activity on professional sites often reveals a lot about a private company. When employees leave companies, many of them turn to workplace review sites (such as Glassdoor) to leave comments about their employer, their bosses and colleagues, and corporate culture – all of which is valuable information for investors or acquirors.
5. Miscellaneous (Mostly Outdated) Information Aggregators
One can also subscribe to any of a slew of old-style private company information aggregators who track private company filings (Articles of Incorporation), investors, management, etc. Unfortunately, most of this information is too basic for meaningful use, is aggregated using antiquated methods, and lacks the depth needed by Private Equity and Venture Capital firms to gain an edge in deal origination.
Think of all of the above as low-hanging fruit on gathering information on private companies. Low hanging fruit is great to form an information baseline, but to gain a solid competitive advantage in researching private companies, investors and M&A bankers need a lot more granularity and definition on private company data.
Savvy investors have mostly abandoned subscriptions to outdated information aggregators, and realize that manually scouring the web is an exercise in frustration and futility.
6. Data-Driven Deal Origination Platforms
To win in the highly competitive world of private deal sourcing, Private Equity, Venture Capital and M&A deal originators turn to cutting edge deal origination platforms that combine machine learning, artificial intelligence and human input.
The best platforms are pure private, designed using the latest Internet technologies and built from the ground-up to gather and organize private company data. These platforms offer tagging and advanced search capabilities, work with most CRM platforms, include browser plugins, and seamlessly align with investor workflows.
How to Find Private Company Revenue and Other Key Data?
The key to finding private company revenue and other key data is knowing how to access “high hanging” and “hidden” fruit for actionable insights
Private companies and their employees leave various digital bread-crumb trails every day because of their ubiquitous use of the Internet. These digital fingerprints carry information that can give PE and VC investors a real competitive advantage in deal origination, with information on:
- Private company revenue
- Trade secrets
- Channel partners
- Manufacturing or solutions partners
- Geographic presence
- Customer profile
- Funding received
- Employee headcount
- Management and employee turnover
A lot of this data can answer questions such as:
- What is a private company’s revenue and headcount?
- Who owns a private company; who are the key investors and shareholders?
- How’s the financial health of a private company?
- How quickly is the company growing, and in what geography?
- What are a private company’s chances of long-term revenue growth and financial success?
- What is the company’s unique product/solution differentiator compared to the competition?
Alas, this ginormous treasure trove of a private company’s continuously growing digital footprint is scattered across the Internet, and is humanly impossible to collect, analyze and collate into actionable intelligence.
As a result, if a Private Equity or Venture Capital firm routinely relies on a team of analysts to gather information and insights on private companies, it loses out, off-the-bat.
To gain an edge in deal origination, private company investors and M&A bankers rely on intelligent pure private deal origination platforms.
Benefits of SourceScrub’s Private Company Deal Sourcing Platform
Technology to the Rescue
Instead, firms should recognize the enormity of the problem, and understand that most of the terabytes of private company bread crumbs do not, in and of themselves, provide actionable intelligence. Getting coherent and cohesive private company data from the smorgasbord of information on the web, and from various business information sources, requires finding and putting together scattered tidbits of private company data to form a sensible, dependable multi-dimensional picture.
Filling in this picture within a practically acceptable timeframe (hours and days, not weeks) is impossible through purely human effort. Instead, this requires cutting edge Internet technology combined with machine learning, artificial intelligence (AI) and natural language processing, with humans adding a few finishing touches.
Working Smarter, Not Harder
What you need is a robust technology platform which continuously evolves at the speed of the Internet and is focused almost exclusively on sourcing private company information (a pure private platform). Ideally, your deal sourcing platform should tag every bit of information it collects (so information can be called up if needed), and offer comprehensive search and excellent reporting capabilities. Additionally, your platform should integrate with your work flow and the business tools you use every day – with CRM system integration, flexible and secure APIs, and web browser plugins. It should also offer downloadable reports in various formats so you can plug, say, private company financial information in .csv format into your valuation spreadsheet.
In addition, your deal origination platform must use humans to cull out irrelevant data, constantly tune AI output, and train algorithms to offer ready-to-use reports so analysts (employed by PE, VC and investment banks) can focus their time on private company due diligence and modeling, without spending frustrating weeks trying to get data.
In a nutshell, a well-designed pure private deal sourcing platform can:
- dramatically reduce time spent on private company research and due diligence to hours and days (down from weeks)
- exponentially increase the breadth, depth and quality of private company information available at your fingertips, through flexible and powerful search capability and excellent report building
- offer cohesive private company data in a usable form to fit your workflow (through CRM integration, an API, browser plugins, and multiple downloadable formats)
- speed up private company’ investment and M&A decision-making, and deal closure
- and ultimately give you a distinct edge in delivering benchmark-beating ROI.
For more information on how your company could benefit from an data-driven pure private platform, please request a demo.
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