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Criteria used to make investment decisions

What criteria does Iberian Ventures uses when making investment decisions?

 

Iberian Ventures model focuses on buying SMEs that we can grow and operate indefinitely. Given this long-term commitment, we spend a significant amount of our time deeply analyzing tens of companies to find the right fit in terms of size, operational profile, company culture, and stability of revenue/ cash generation. 

 

Before engaging and investing time getting to know the company and its management, we collect information from external sources and pass it through an automated go/ no-go decision process

 

This automated evaluation process looks at, among others, the following set of questions. 

1.1 Alignment to founding-team experience, skills, and ability to add value

We are more interested in companies where the answer for most of the following questions is Yes

 

- Is the company in an industry the middle of technology upheaval and that could benefit from an IT technology transformation?

 

- Is this the type of company that could benefit from smart marketing, especially Digital Marketing, campaigns to reach a large B2C or B2B customer base?

 

- Can the company benefit from iterative testing methodologies to introduce new products cheaply? (e.g.,  manufacturing and professional services companies do not)

 

- How long and expensive are the product development cycles for the company?

 

1.2 Avoiding companies fully outside of the founding team areas of competence

This point might seem the opposite of 1.1; however, following our need to not blow-up, we are putting strong filters in place to NOT get into areas fully outside of our expertise, and in which we would need to draw upon external talent to start adding value. Avoid companies where the answer to enough of the following questions is Yes

 

- Is the company in the primary sector of the economy? The operations, supply chain, ecosystem, seasonality, and products are vastly different from what the type of companies we have been exposed to

 

- Does the company depend on complex financial instruments or intermediation to succeed?

 

- Is the company involved in activities related to human health?

 

- Is the company dependent on a six-sigma level of quality in operations to be successful?

 

 

1.3 Focus on simple, asset-light, business models

 

- Can we easily describe the products and services the company makes and how they make money, Including how to monetize them?

 

- How many product lines does the company have?

 

- Does the business have a moat that we can describe/Understand? E.g. brand, costs: switching, sunk, cost-advantage, network, resources: IP, regulatory, etc.

 

- Is the company capital intensive? - the lower the following ratios, the better: Assets/ Revenue, CAPEX/ labor

 

- Do the fixed assets of the business include a large base of expensive and sensitive equipment?

 

- What is the percentage of intangible over fixed assets?

 

- Can we improve the company’s efficiency ratios? E.g., capital turnover, working capital turnover, etc.

 

- How well is the company likely to fare after COVID-19?

 

1.4 Simple management and corporate structure 

- How many shareholders does the company have? The lower this number, the better

- Is the age of the main shareholders close or over 55?

- How many times has the company changed ownership in the last 10 years? The fewer, the better

- How many M&A transactions has the company engaged in during the last 10 years? The fewer, the better

- Can we find information about lawsuits against either the company officers or the company itself?

1.5 Financial management of the company 

- What is the gross/ operating margin of the company and how does it compare with the industry average?

- What is the net margin of the company and how does it compare with the industry average?

- Is the company conservatively financed?

- What is the debt to income ratio?

- What is the debt to cash flow ratio?

 

1.6 Employee and talent management

- What is the average and max change in the employee base over the last 10 years?

- What is the ratio of employees found on LinkedIn vs reported by the company?

- How much revenue per employee does the company generate?

- How does this revenue per employee compare with similar companies?

 

1.7 Market, Customer, and government relationship

- Do most of the revenue comes from B2B or B2C clients?

- Is the customer base regional, national, or international?

- Does a regional or local player have competitive advantages over large international players?

- Do the products/services have “stickiness” with customers or are purchases highly discretionary?

- Is the company integrated with its customer’s operations/supply chain?

- Does the company have a direct relationship with customers? If disintermediated, by whom (e.g., for a CPG company, it would be a retailer)

- Is the customer base concentrated? Percentage of revenue coming from the top 5 clients?

- Is any Government entity an important customer for the client? Percentage of revenue Governmental entities?

- How sensitive is the business to government relationships and regulations?

 

1.8 Traditional financial metrics

- Absolute and trends on P&L and BS metrics (From sources such as Sabi), highlighting performance in 2009-2014

 

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