Monitoring portfolio-company performance between reporting cycles

A monthly board pack has to wait for the month to close, for finance to prepare the numbers and for the meeting to come round. By the time investors discuss a problem it is often several weeks old, and the operational signals that preceded it are older still. The pack remains essential. It is just not where trouble first appears.

What to watch between packs

The signals that lead the financial results usually sit in operational systems. Which ones matter depends on the business, but the candidates are familiar:

• pipeline coverage and how opportunities are moving between stages;
• order intake against the same period last year and against plan;
• discounting and price realisation;
• early signs of churn, such as falling usage, late renewals or rising support volume;
• debtor days and cash collection;
• delivery backlog and capacity.

A handful per company is enough. Twenty indicators watched badly are worth less than five watched well.

Tie the indicators to the investment thesis

Every investment was made on a thesis, and each element of that thesis has something measurable attached to it. If the plan depends on cross-selling services into an installed base, the attach rate is the number to watch. If it depends on price, watch realised price by segment. Indicators chosen this way tell the deal team whether the reasons they invested are holding, which is a more useful question than whether the month was good.

Exceptions, not dashboards

A deal team responsible for several companies will not look at several dashboards every week. What works is exception reporting: a notification when an indicator departs from plan, with the context needed to judge it. What moved, since when, which customers or products are behind it and what the underlying records show. The aim is a well-informed conversation with management a few weeks earlier than the board pack would have prompted it.

Do it with management, not to them

Monitoring that management experiences as surveillance will damage the relationship and, eventually, the quality of the data. The arrangement works when it is agreed at the outset, when access is read-only and clearly scoped, and when management sees the same view the investor sees. Better still is when the monitoring comes from a tool the management team uses to run the business, so the investor’s view is a by-product of something that helps the company.

Continuity from diligence

The risks identified in diligence are the natural starting watch-list after completion. Customer concentration flagged before the deal becomes a concentration indicator afterwards. Margin assumptions tested in diligence become the plan the indicators are measured against. That continuity is why we think of InGen and RevGen as two halves of the same job: evaluating an investment, then helping the company deliver the growth that justified it.