The Art and Science of Value Creation

Value creation is critical to how growth investment firms consistently succeed in transforming their portfolio holdings into category leading expansion companies built for the long term.

Firms and groups such as Blackstone Growth, Great Hill Partners, Insight Partners and Vista Equity shared with GrowthCap on the Growth Investor podcast how they think about value creation and their approach to closely partnering with management teams to optimize key operational areas that are critical for rapid scale to occur.

The sheer size of Blackstone and tremendous amount of resources that it can bring to bear to any given portfolio company is astounding. And this advantage extends to Blackstone Growth, Blackstone’s dedicate growth equity group. Led by Jon Korngold, Global Head of Blackstone Growth (BXG) and Global Co-Head of Technology Investing, BXG implements value creation at scale.

For example, it can deploy dozens of data scientists to assist in data reliant and data intensive operations. Moreover, it has over a billion square feet of ecommerce logistics warehouses and buys centrally for north of 700,000 people, which translates to material cost efficiencies. Supported by some of the best in the industry, BXG has over 100 operating professionals including brand marketers, pricing specialists, go-to- market experts and cross-selling teams, among many other highly specialized professionals.

At Great Hill Partners, they partner closely with the CEOs and management teams of their portfolio companies, often serving as the primary advisor when considering key strategic decisions. Hand in hand, they set the agenda and take on the daunting task of shaping their companies into iconic businesses in their respective categories. From their perspective, every company is unique and they go to great lengths to create a bespoke approach. While they have some repeatable strategies, each situation requires a combination of art and science.

The pandemic tested the mettle of certain Great Hill portfolio companies. Michael Kumin, Managing Director at Great Hill Partners who has been with the firm for over twenty years, shared a couple examples where strategy and close coordination was critical to success. Both Custom Ink and TodayTix suffered a dramatic drop in revenues at the front end of the pandemic, but working together as a unified team they were able to make key decisions quickly, pivot, and recover. And today the companies are stronger businesses, outperforming their pre-pandemic levels.

Insight Partners has grown to approximately $80 billion in assets under management. Part of what’s made the firm successful is its ability to effectively dissect companies, decide on how to improve them, and quickly implement their tactics. Talent is perhaps the most important consideration when scaling an organization along with figuring out what roles to hire first. Per Rachel Geller, Managing Director at Insight Partners, a key first step is to envision what the organizational structure needs to look like and then leverage the best expertise to design and implement tactical work.

Onsite is comprised of Insight’s Centers of Excellence, which has more than 130 operators who are organized by the functional areas needed to scale a software company: sales, marketing, customer success, product engineering, and so on. These highly specialized experts build deep working relationships with Insight’s portfolio companies and together with the investment team they ensure all business areas are covered. But they don’t force their approach, it’s at the option of the management team. Another area where Insight has an advantage is M&A, because of their focus and size of their sourcing engine. This is particularly helpful in cases of building out multi-product suites.

Long known for being one of the leaders in software private equity investing, Vista Equity pioneered some of the methods for scaling enterprise software companies. In its Endeavor Fund, led by René Stewart and Rachel Arnold, they are particularly focused on bootstrapped companies and focus is oftentimes at effectively building out the executive ranks. In some cases, it’s the Founder/CEO themself who may be looking for a transition and in others it may be evaluating whether additional executive roles should be added.

When product-market fit is strong and customer retention is high, marketing and customer success are areas that can be amplified, fine-tuned and expanded on to deliver accelerated growth. Other areas they may look to when scaling are extending the product base, investing in R&D, and moving up-market. Then of course there is focusing on go-to-market excellence. Through its many years of focus on the software sector, Vista leverages keen pattern recognition to adeptly optimize and scale its companies.

When it comes to value creation, each firm takes a different approach based on what it believes will lead to the optimal outcome. Notably, what makes a great growth investment firm is its ability to improve on portfolio company strategy and operations and to do so efficiently and consistently in all economic environments.

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