Private Equity

Investment Strategy

We believe that the growing specialization among private equity managers in terms of industry focus and investment stage represents a long-term trend that has created structural gaps in the private equity funding base. Our strategy is to mine these gaps to source investment opportunities among high growth technology-enabled and healthcare businesses that are overlooked by other capital providers due to organizational and/or legal complexity or other company-specific issues that otherwise obscure a company's inherent growth potential and value.

This "investing in the gaps" approach enables us to identify and execute value investments in growth companies as summarized below:

Value
Investing

Identify "mis-staged" opportunities. We look for investment opportunities that fall in the gaps between traditional private equity investment mandates. We believe these situations provide opportunities to invest at more attractive valuations than the maturity, risk-profiles or growth prospects of the companies would otherwise justify.

Embrace complexity. We believe we have the ability to resolve knotty organizational, governance and legal issues that often deter other traditional growth capital providers. In evaluating such situations, we manage investment risk by investing in companies with management receptive to our operating and strategic advice and that have proven business models and technology.

Less efficient financing market. Lower middle market companies generally receive less sell-side support from qualified intermediaries, and the buy-side is highly fragmented. SMC has access to a deep pool of opportunities to finance smaller growth equity investments, particularly for companies lacking institutional backing.

Growth
Investing

Ride the "big waves." We look for the next winning business models or industry changes driven by breakthrough innovations, paradigm shifts and fundamental market or behavioral changes. Putting a strong economic or industry tailwind at our back provides attractive upside potential while mitigating downside risk.

Observe the "rule of small numbers." We believe that we have a greater ability to effect change in a $20 million to $40 million-sized business than in a $200 million company, and that the changes we effect can deliver a disproportionately greater impact on value creation and investment return relative to our entry valuation. We have demonstrated considerable adeptness at building management teams and in evaluating and augmenting them during their companies' critical growth periods.

We develop close working relationships with talented management teams and ensure they are properly incentivized. We believe that a strong relationship with management is an important indicator of future success. Through our experience with growth stage companies, we are able to guide and support their efforts to generate investment returns via growth rather than financial leverage. Management teams also greatly benefit from our broad network of personal relationships. In addition to our work with management teams, SMC plays an active and influential role on company boards, particularly with regard to strategic issues.