Are some types of value better than others?

Operational value creation has been steadily rising in popularity among private equity general partners (GPs) as a key differentiator—as skillsets around deal structuring become more commoditized, the advantages from such approaches have commensurately dwindled, diminishing the contributions of multiple expansion and leverage.  Today, GPs are increasingly focused on driving growth and improving operational efficiency within portfolio companies as a more sustainable way to generate value.

However, disciplined limited partners (LPs) should be wary of the ebb and flow of shifting trends, cycles, and marketing opportunism, sifting through the mass of underwhelming GPs to find those with the talent, experience, and resilience for repeatable success.

The Challenge for LPs: Sifting Through the Noise 

For LPs attempting to evaluate the operational value-creation strategies of prospective GPs, the path is anything but straightforward; it includes scrutinizing an exhaustive number of pitch decks laden with professed operational initiatives, which often serve as marketing distractions rather than representing true differentiation. Frequent challenges often include the following:  

• Track Records presenting positive but unrealized performance need to be scrutinized; unproven strategies can be difficult to gauge through traditional measures.
• Information Asymmetry around value drivers for past and current performance can leave LPs with an incomplete picture, requiring reference calls with company management teams and on-sites with GPs to fill in the necessary blanks.
• Time Constraints provide a limited window to conduct full due diligence, particularly for in-demand funds with short fundraising windows.

Crewcial’s Perspective: How We Evaluate Value Creation 

At Crewcial, all strategy types—whether venture, growth, buyout, or real estate—are benchmarked against key, uniquely sector-relevant metrics able to drive asset value upon exit.  Within each strategy type, we work to separate objective value-creation capabilities from over-promising and wishful thinking, deeply evaluating GP experience, domain expertise, and operational resources and networks against past and current investment success or failure. 

For example:

• Venture Capital: Early stage and start-up companies are typically judged based on hitting revenue growth, user growth, burn rate, etc., milestones—all indicators that dictate valuation during successive funding rounds.Venture capitalists should provide consistent examples of actively driving these key metrics in past investments to impact subsequent investment rounds for future investors.
• Buyouts: Buyout GPs typically target mature companies and emphasize profitability and cash-flow generation enhancements as key determinants of the EBITDA multiples potential buyers might pay. Demonstrated, repeatable operational prowess to catalyze growth or expand margins through efficiencies is key.

Getting the Story Straight: Understanding the Narrative 

That said, no single blueprint exists. However, strategies that stand out clearly articulate the core initiatives they can uniquely leverage, while demonstrating how these efforts will drive the metrics that matter most; for instance, a GP claiming an ability to enhance margins through automation or expand revenue via geographic growth should back these claims with numerous well-delineated historical examples and case studies. 

For institutional investors, defining value creation is an iterative process requiring multiple conversations, combining qualitative insights and quantitative analysis with the goal of anchoring the narrative in achievable expectations. At Crewcial, our goal is to leverage these insights to identify actionable strategies able to drive measurable, lasting impact for you and your communities.