Private Equity Investments. The New Way To Finance Your -High End- Business. A Good Or Bad Thing?


thumbs-up-down-iconsThis question cannot be answered by a simple “good” or “bad”. But it is worth looking into it as it seems that more and more high-end brands have to deal with this.

If I look to myself and wonder WHY I got into this business then I can honestly answer that I got into it and still an in it because of my love for music ánd equipment ánd to make good money. All 3 valid reasons I think. I am sure that most of the people I know from the High End industry have or had the same motivation.

moneyDuring the years most of these people have seen their activities grow and a number of them came into the situation that they needed / wanted more money than they could get out of their own pockets. So a trip to the bank was often needed. Or being lucky to find a partner with the same motivation, the same passion, with some money in the pocket to add to the company capital. Or run into a private equity investor company …

My personal opinion is that if you need NOBODY for financing your activities you are best off. But for long time accountants have been saying: you are stupid to think so. Use money from the bank or others. And that’s perhaps a part of the reason we ended up in the exploded economy.

3D Character is Businessman - These business men are partnerRunning a company with a partner, both investing the same capital, both putting in the same efforts. Ideal situation. Often not for very long as maybe the capital is the same, the efforts are often not, or often not thought to be the same. So friction and in the end … fights and finish of cooperation.

banksGet a loan from the bank. That happened a lot in the past. You gave some securities, reported from time to time and if your company was running ok, no problem. Even if you came up with new projects, you could get extra credit. But … the banks messed up, gave too much loans and now after some correction, they are hardly interested to finance any companies, or to a much smaller degree than before. They have brought back existing loans to an unrealistic low level, causing big problems for some companies.

Run into someone who has money enough to afford to make no money on his investment or who can even accept a loss with a smile, just because he is part of such project.  I know of rich hifi hobbyists who supported their favorite hifi brand this way. One time there was a Japanese high end distributor Yasuo Nakanishi who during his life gave companies like Mark Levinson, Krell, Classé and others the opportunity to become bigger than garage-size business. Saul Marantz was married to a millionairs daughter. He was so naive he didn’t even know that on the day of his marriage. At least that’s what I have been told and if true, it is still the question if she was financing his and his partners’ business.

boem2And finally the private equity investors. To understand what they stand for I suggest to have a look and read here. Personally I think this financial solution can work for any situation where ART and PASSION is not involved. If art, passion is involved, these dead hard institutes that only care about the money making division parts of a company, can play the game they are interested in art and passion, but often THAT IS FAKE. Art and passion is not their interest. They live on Excel files. On killing personal freedom or firing them. I do not believe that it works in the high end industry, which is an ART on its own. Not long term. On the other side private equity investors do not work long time. Maximum 5 years. They quit before the real shit starts and another private equity investor takes over and tries to clean up and raise the bar again. Till the full shit explodes. Financing to realize natural grow is fine, financing to realize short term OVERgrow is fatal.

goodidea

So? Is there another solution? Maybe. Or according to me, for sure! Look at the facts. WHO have been and still are in reality often the promotors and investors of High End brands? The high end distributors! Together with their main dealers. So is it such a bad idea that the main high end distributors worldwide invest in, buy (if necessary) the manufacturer they work with, work for, share passion with? I personally think it would be a great cooperation and with a smart partition of the shares, a personal disagreement never has to end up in fatal decisions. But distributors are also a special breed. A flock of tame serving sheep and Yes, with sometimes a noisy black sheep in the group … :-).

brilliantThat’s it? No, I can think of other -very interesting- ways to finance a High End business. How? :-). Sorry, that I still keep for myself. Maybe one day I come up with one of those ideas. But to be honest, maybe it is a better financial tool than all tools mentioned in this blog!

Over hermanvandendungen

Almost 40 years of being with and in the world of high-end audio equipment. As distributor of Krell, Sonus Faber, Cello, Conrad-Johnnson and many more, initiator of brands like Kiseki, Cogelco, AH!, PrimaLuna, Mystère and maybe more to follow.
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Een reactie op Private Equity Investments. The New Way To Finance Your -High End- Business. A Good Or Bad Thing?

  1. Cayetano zegt:

    Interesting thoughts coming from a long term career in the High-end industry. The end conclusion for myself is to grow from the garage idea to a real company at the same time that the real demand of your ideas become products demanded by end consumers. Any real investor will demand results, that´s their business. To be honest in how, when those results could come is part of the business plan. You need to be accurate and make a pessimist provision so the real results could be better than the ones exposed in the business plan investment return schedule.

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