AngeBlog by Basil Peters

Creating Shareholder Value

Some companies create enormous amounts of shareholder value. Others convert investors' capital into tax losses.

Everyone wants to understand the key ingredients and contributions that are common to the companies that multiply investor capital by ten, or a hundred, times.

One thing most veterans would agree on is that shareholder value is not created linearly. Instead it is created in stages. This is illustrated, from the investors perspective, in Value Stages.

Value is also almost always created by teams, not single individuals. Very often, the most successful early stage companies are ones where the entrepreneurial team is complemented by an excellent team of financial partners. The financial partners help the entrepreneurs with financings, governance and the eventual exit transaction.

This type of partnership works well because young entrepreneurs haven't yet gained the experience of executing dozens of financings or multiple exits. At this early stage in their careers, they may have yet to sit on another real board.

Good financial partners can contribute to a broad range of companies because their skills are highly transferable. They have often become experts at financings, exits and governance because they have been doing them for many years -- often decades. This is one of the classic areas where mentors can multiply the success of entrepreneurs.

An attempt to illustrate the contributions of the financial partners and the entrepreneurial team is illustrated on Financial Partners Contributions.

Another view of the financial partners' contributions, shown as an overlay of the various functions carried out in the enterprise, is diagrammed on Financial Partners Contributions Map.

Neither of these two dimensional images can adequately describe the complex multi-faceted interaction between the financial partners and the entrepreneurs but can hopefully create a foundation for some interesting discussion.