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Time Capsule: Private Investors Will Create Competitive Newcomers

I wrote weekly editorials for a boutique industry newsletter for several years, anxious for both audience and income. I learned a lot about coming up with ideas for the weekly grind, trying to be simultaneously opinionated and entertaining in a few hundred words, and not sleeping much because I was working all the time. They’re fun to read as a look back at what was important then (and often still important now).

I wrote this piece in September 2007.

Private Investors Will Create Competitive Newcomers
By Mr. HIStalk

I’m anxious to see which companies will become bigger, meaner competitors once they get some private equity investment money underneath them.

Most small companies will never find the holy grail of being publicly traded. An IPO requires a showcase management team, several rounds of pre-IPO investment, and strong capabilities in accounting, marketing, and culture development. If you don’t have those resources, you’re stuck looking in from the outside while your glitzier competitors leverage their newfound capital infusion to drive the nail a little deeper into your coffin.

Private investors level the playing field. Companies can get funding and management assistance without being hampered by high administrative costs and mandatory shareholder disclosure. You still have to sell your soul by giving big investors board seats and hefty equity, but you get the cash for growth without having to survive the leering, probing stares of the Wall Street beauty contest.

David Brailer says his healthcare private investment fund will spend $700 million of the retirement fund of California’s public employees on problem-solving healthcare companies. He’s looking for niche players with limited competition and profitability (who isn’t?) in which to make investments in the $10 to $80 million range.

He’ll need several to spend that money, maybe up to 50 companies. That could change the face of the industry fairly quickly, at least before some of those dice rolls go bust.

So what kinds of companies will Brailer and other money managers seek out? I’d look for companies that offer:

With all that investor money seeking a home, it will be a seller’s market. Private equity companies will try to outbid each other for the chance to latch onto an eventual winner. HIMSS didn’t stir up much interest with its program to connect needy companies with moneylenders, but times have changed. Private equity is hot and those investor dollars are burning a hole in its pocket.

If you’re a small company with growth, profits, clean books, and a solid story, you’ll be hearing knocking on your door. While the money most certainly doesn’t come free, it can push a company to the next level, assuming it’s smart enough to use the money wisely to support long-term growth.

For everyone else, we should see some exciting ups and downs in the competitive landscape. I predict you’ll see a lot of new names in those HIMSS booths in a few months. Brailer always joked about the number of companies littering the HIMSS exhibit hall, so now we know why he was there: he was scouting for future investment.