How to spot innovation winners

How to spot innovation winners

Navegar is a private equity fund management company established in 2012, dedicated to investing in Philippine companies. Over the past 12 years, it has managed assets of more than $300 million, investing across a diverse set of companies, including The Bistro Group, Intellicare, TaskUs, Bo’s Coffee, Royale Cold Storage, Great Deals, Cloudstaff, MDI Novare, Dali and Inteluck. Its mission is to help entrepreneurs navigate the toughest of challenges, enabling them to build enduring businesses in complex, ever-changing environments.

READ: Navegar sees ‘spike’ in PH investment opportunities

Managing partner Honorio “Nori” Poblador IV, who previously worked at Credit Suisse, Morgan Stanley and Rothschild, shares insights on their investment philosophy.

Question: How do you spot concept winners?

Answer: Although we are later-stage investors who tend to invest in mature companies with established business models, we look for that little extra oomph that allows companies to differentiate themselves, grow faster, or get more efficient. For example, TaskUs was competing in the BPO (business process outsourcing) sector, but focused on servicing venture capital-backed startups with smaller requirements than more established competitors, betting that some of these companies would experience hyper-growth at some point. To us, TaskUs, whose client roster included names such as Uber and Facebook, became a proxy for riding the tech boom.

Q: Beyond a good concept, what will make Navegar invest? Are these the same criteria as when you started?

A: We view all our investments as true partnerships, so ultimately, it comes down to the founders and the management team. We make a great effort to get to know our future partners and get them to know us before committing to the partnership. That way, expectations are clear from the beginning, and room for misunderstanding is minimized.

We expect the founders and the management teams to continue to run the businesses, so, at minimum, they must have demonstrated a track record of execution and strong performance. Beyond that, we have been fortunate to have partners who possess integrity, transparency, and a willingness to listen and receive help where needed.

Q: What have you discovered as best practices for enduring ventures?

A: It is difficult to always be smarter, faster, or more efficient than competitors, but we’ve found that being honest and transparent sets you apart from 90 percent of the companies. In good times, it allows you to celebrate together, and in challenging times, it allows stakeholders to come together and solve problems.

Q: What are the value-added propositions of private equity companies like Navegar?

A: Aside from access to capital, each private equity fund has different ways of adding value. With our presence on the ground and expertise in scaling businesses, we see ours as guiding companies through the complex challenges of growth while also evolving from founder-led organizations to professionally managed ones.

This spans a broad spectrum of support—providing guidance on strategic initiatives, enhancing financial operations, embedding ESG (environment, social, and good governance) best practices, facilitating business introductions, and more. Ultimately, we help companies get ready for the next stage, whether it is doubling in size, partnering or being acquired by a strategic player, or going public. Our aim is that when it is time for us to exit from our investment, the companies, and our partners are in a better place than we found them.

Q: Can you elaborate on your due diligence process? How do you approach risk management in your investment strategies?

A: Our due diligence process is extensive and very involved, starting even before we submit an indication of interest to invest. It includes the following areas to probe: reputational, commercial, financial, tax, and ESG [standing].

To help conduct this process and expand our capacity as a small team, we utilize external advisors who are subject matter experts, including lawyers, accountants, and sometimes industry-specific practitioners. At the end of the due diligence process, we share the findings with the founders and management teams in a constructive manner. This serves as a take-off point to improvement and building for the next stage of growth.

Q: Can you provide insights into your portfolio management strategy and how you prioritize investments within your portfolio?

A: Committed to helping our partners maximize their potential, we take a hands-on approach with those we invest in while giving them the reins to independently manage their operations. Because of this, we have a fairly concentrated portfolio that allows us to devote time and tailored support to each company.

Besides serving on the boards, we engage in regular meetings, both formal and casual, with the founders and management teams. In instances where we’ve identified gaps in the management, we either second experienced personnel from Navegar or help recruit professionals. To the extent possible, we try to create business opportunities amongst the companies in our portfolio and try to get founders and executives to get to know each other as well.

Q: How long do you expect a return on your investment? In terms of exit strategies, what options do you typically explore, and how do you determine the most suitable exit from a particular investment?

A: The objective of the fund is to maximize returns, and that determines how long we hold an investment. Having said that, private equity funds have a defined life span, and the average holding period of an investment is between five and seven years, but we’ve held companies for as little as three years and some much longer.

The possible exit options include a sale to a strategic partner or to a financial buyer, a sale back to the founder or to the management team, or an exit through the public markets. Part of the role of a private equity fund is to maximize the options available to it, so a great deal of time and effort is devoted to this during the holding period of the investment.— Contributed

Josiah Go is the chair and chief innovation strategist of Mansmith and Fielders Inc. Join Nori Poblador and 14 CEO thought leaders at the 15th Mansmith Market Masters Conference on May 8. For more details, visit www.marketmastersconference.com.