The most important channel of communication is the relationship between the executive responsible for the deal and portfolio company's CEO. We try to keep requests for information, beyond that contained in routine monthly financial and operating statements, to a minimum. We invest in life science companies which are generally heavily involved in R&D and are therefore cash negative, so we keep a close watch on cash balances and projected cash out dates and require quarterly updates of this information. We also obtain audit confirmations, insurance details and some tax information on an annual basis.
We have a formal communications mechanism in the form of board meetings and strategy planning meetings; an informal process in which our investment partners have dialogues with CEOs on a more frequent basis than the formal meetings; and then episodic, project-oriented communications, such as working on acquisitions or expanding activities in Asia, for example. There are teams within our group-Baird Asia office in China, our operating partners and other people in our firm in the States-who interact with our portfolio companies on a project basis. It all becomes a multi-level, multi-layered discussion.
A detailed set of monthly key performance indicators are provided by the portfolio companies on the third Friday of every month with the Phoenix management committee reviewing the data the following Monday. Any follow-up matters are initially cycled through the relevant Phoenix portfolio executive and then directly to the portfolio company managers them selves. Phoenix also hosts a number of events attended by a cross-section of portfolio company chief executives, such as dinners and speaker presentations, to widen the interaction with company executives.
On a formal basis, we receive monthly financial statements from each portfolio company within 10 to 15 business days of the end of each month. Additionally, we receive a key statistics report from the portfolio company which would include data such as sales, cash balances, loan balances and other relevant statistics. This information may be posted in a secure website of the company. Along with the monthly financial statements is a president's and CFO's commentary discussing the financial and business results of the prior month. Formal board meetings are held five to eight times a year ? often at a company facility to give us exposure to the next tier of management. Informal contact is maintained through telephone contact between Harvest and the portfolio company at a range of levels. Harvest personnel also attend the relevant industry trade shows and conferences with company management. These informal contacts, enable board meetings to be more productive because it is not necessary to spend significant time on updating the board about the basic performance of the business, but rather allows time for discussions of important issues with the company's current condition as a backdrop.
We are hands-on investors working with our management teams to grow successful businesses. This working style means that there is a fairly constant flow of dialogue (cups of coffee, lunches and phone calls etc) outside the formal as the business, for example, seeks new acquisitions or broadens its product base. At a formal level we are provided with a comprehensive monthly information pack and we also attend all boards. These communications are fundamentally confirming of the numbers, discussion and information exchanges. In addition there is the role of our portfolio monitoring team who are involved with the companies as part of the reporting process. Together this informal and formal approach provides us with a good health check of the KPI's of each business.
The mantra at the point of investment is ?cash is king?and ?let us know any bad news immediately.? The formal is legally defined and is through monthly management accounts, written board packs, and annual reports and accounts. Bad numbers always take longer to add up, so we watch the timing of financial data, and late management accounts, especially without a good explanation, are treated as a warning sign. Informally we aim to speak to the CEO once a week and the chairman reasonably frequently. We also seek to have dialogue with other board members, particularly the finance director at regular intervals. We also think it important to immerse ourselves a couple of levels down in the business from time to time. It is remarkable what you can learn about a business by asking the opinion of a cashier, store man, or rising young manager. We ensure we receive internal company newsletters, promotional material, and employee communications. And have a look at the company notice board (nowadays often in electronic form). It all helps build an ongoing, 360 degree, snapshot of what the business is doing and how it is communicating to all stakeholders, customers, suppliers and staff. Lack of communication is an early warning of areas being neglected, and possibly a wider malaise.
?Informally, we aim to speak to the CEO once a week.?
David Williams, Sand Aire