Just got back from lunch with a friend of mine;
We debriefed a situation that was the worst financial loss for both of us.
Painful, but time for a mezz thread on lessons learned:
We debriefed a situation that was the worst financial loss for both of us.
Painful, but time for a mezz thread on lessons learned:
My friend is a very successful consumer product CEO. If I told you his current or last company names you would know them.
He’s also an active investor in the middle market. He does equity; I do debt, and it’s a nice symbiotic relationship.
He’s also an active investor in the middle market. He does equity; I do debt, and it’s a nice symbiotic relationship.
Several years ago; he made an investment in a flexible packaging company. Think this kind of stuff, but branded... 
They built a terrific facility and attracted some large clients... However, they could never seem to make any money...
So every few months they go to my friend, promise they have fixed the (new) problem, and ask for an additional check.
By the time it’s over, my friend is in the very low 8 figure range on this deal.
By the time it’s over, my friend is in the very low 8 figure range on this deal.
At some point I get involved on the debt side ... it’s a business that has real potential, shouldn’t be that difficult to run properly, and has strong equity support. We should be fine...
Long story short, they never figure it out. COVID is the final straw, and we end up doing a foreclosure sale to an industry player.
My friends equity gets wiped out.
I get roughly 55 cents on the dollar.
My friends equity gets wiped out.
I get roughly 55 cents on the dollar.
Lesson 1) Management Matters. COVID May have been the final straw, but maybe not. The reality is that the business failed because of repeated management mistakes.
A business can only take so many self inflicted problems.
A business can only take so many self inflicted problems.
Lesson 2) Operations > Financing
All of the problems were operational. An inability to meet its financial responsibilities was a result - not the cause.
All of the problems were operational. An inability to meet its financial responsibilities was a result - not the cause.
Lesson 3) Personal ties can make it difficult to make correct business decisions.
I’ll save you all the gory details, but among the relations:
Equity and CEO were long time friends;
I was friends with the original CFO;
We acted too slowly on management and it cost us.
I’ll save you all the gory details, but among the relations:
Equity and CEO were long time friends;
I was friends with the original CFO;
We acted too slowly on management and it cost us.
Lesson 4) Incentives Matter. I usually work really hard in deals to make sure that everyone’s incentives are aligned. I didn’t in this case, and it cost me.
This became totally clear during the sale process, but it was too late.
This became totally clear during the sale process, but it was too late.
Final Note) There is more to life than money. IMO, this life is about becoming the best version of ourselves.
My friend is still my friend, and hopefully we both will be able to remember the lessons learned so we don’t repeat the same mistakes.
My friend is still my friend, and hopefully we both will be able to remember the lessons learned so we don’t repeat the same mistakes.
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