The principals of Evolution began making direct investments in targeted Second Stage Companies beginning in 1995, and joined together to form Evolution Capital Partners in 2005.
Evolution invests in companies headquartered in the United States; however, our portfolio companies will often have international offices and market their products to a worldwide audience.
In general, a committed fund is a specific quantity of liquid capital that has been raised and secured, and is now available for immediate investment. Investors in committed funds have left the decision to invest in particular investments up to the Funds’ investment committee and are contractually obligated to fund investments at the request of the investment committee.
Yes. Evolution has been purposefully structured as a committed fund, because it allows us to focus on searching for and underwriting investment opportunities with top-shelf growth companies, and not be distracted by constantly having to raise money. In addition, this approach also provides the seller with the certainty that the capital will be immediately available once the deal is finalized.
Evolution searches a variety of industries for companies generating between $500,000 and $2 million in free cash flow, which are run by passionate entrepreneurs committed to transforming and accelerating their company through No Man’s Land, and with the goal of reaching $5 million in free cash flow within 3-7 years.
Evolution has historically avoided investing in natural resource exploration, oil and gas exploration, real estate, startups, and any other highly cyclical or capital-intensive businesses that will require substantial additional capital raises over the next 3-7 years.
We define free cash flow as earnings before interest income taxes, depreciation, and amortization less capital expenditures typically required on an annual basis to maintain the existing business.
No and No. Our core competency is helping Second Stage Companies navigate the difficult transition from entrepreneurship to a professionally managed organization by establishing a solid capital, structural, and management foundation, thereby enabling more aggressive acceleration through the growth curve. By achieving a thorough and immersive understanding of the business, brand, and culture of our partner firms, we are able to consistently deliver a mutually beneficial outcome for both short and long term wealth creation.
Evolution invests growth capital in Second Stage Companies generating annual free cash flow of $500K – $2M with typically 20-40 employees.
Evolution typically invests $2 to $10 million.
Evolution adds value by providing not only financial capital, but also the intellectual capital, emotional capital, relationship capital, best practices capital, and strategic capital required to assist emerging companies as they accelerate through the growth curve. Because Evolution principals have all been entrepreneurs or small business owners themselves, they are now able to offer a growing list of owners that invaluable “been there, done that” advice on how to best scale the company – from key hires and business reporting processes, to the right software/hardware and infrastructure combinations – plus the high-level introductions to key clients critical for taking the business to the next level. In addition, Evolution purposely structures the investment transaction conservatively, with little to no debt and cash on the balance sheet, to strategically position the company for optimal present and future growth.
Evolution does not go into an investment with a particular time horizon in mind, however, historically it has been invested between 3-7 years.
In general, a control investor is a group that invests capital and in return expects to be involved in the major decisions confronting the business including executive personnel, strategic direction and the eventual sale of the business.
Yes, Evolution is a control investor, and yes, we take a controlling interest in every firm, however our investment philosophy is to maintain, enhance, and support the existing management team because of their expertise in the business. In our model, the business owner is the NASCAR driver, and Evolution is the pit crew. The owner is still in the drivers seat – because they know the business better than anyone – but Evolution is there on the headset sharing real-time intelligence about traffic, conditions, drafting partners, and determining when to come in for a pit stop to get new tires and fuel before getting back in the race, because when they win – we win – creating wealth for everyone. At the end of the day, we recognize that the articulation of the corporate vision is borne from the founder, and therefore its success will ultimately hinge upon their commitment to its core goals and the achievement of company objectives.
No. Just like in the NASCAR analogy above, Evolution works to provide a set of tools, processes, best practices, and human resources that permit management to get back to working on the business, rather than in the business, to drive value.
Yes. Evolution typically pays current owners 50-80% of the current value of the firm in cash when the transaction closes. Importantly, it also eliminates many financial and contingent obligations like personal guarantees to banks. Additionally, in general, the more the owner invests in the future of the business the more we like it.
Yes. Evolution structures its investments so that business owners are positioned for two discreet “wins.” The first is 50-80% of the current value of the firm paid immediately in cash. The second is an even larger payday that can be realized a few years down the road if the firm executes on the mutually agreed upon growth plan and is then sold for a significantly larger sum. In this situation, the value of the owners’ investment in the new business is worth more than the value of the entire original business prior partnering with Evolution.
Yes. Evolution invests exclusively in private companies, and an investment by Evolution will not change the private company status of your firm.
Typically no. Our model involves investing in growing companies wherein the existing management commits to partnering with us as we invest in the future of their firm. We are open, however, to working on a 1-2 year transition plan, provided an industry expert can be identified before the deal closes.
No. You would remain an employee of your company.
Evolution rarely uses bank debt, and typically puts cash on the balance sheet at close.
All outstanding debt will be paid off at close.
Yes. Evolution believes the best years of all investments are yet to come, and we want to ensure that everyone shares in the financial benefits and upside of future growth.
Having done this for many years, we know what we are looking for. We will be able to tell you very quickly whether it makes sense to continue to work through our process and are happy to share tools that will allow you to determine whether Evolution is a good fit for you. In short, we request that business owners provide three years of historical financials, answer a 10 question evaluation form and provide at least a summary 5 year strategic plan outlining the owners vision for the business. Upon receipt and after some discussion with the business owner, Evolution would provide a non-binding indication of interest on what we believe the value of the business is today and high-level deal structure comments in easy to understand language. From first phone call to this point is generally determined by how prepared the business owner is to provide Evolution the necessary information, but can take anywhere from 3-6 weeks. The non-binding indication of interest is essentially designed to see if Evolution and the business owner are “on the same page” with regard to valuation of the business and goals for the relationship. If there is a match, Evolution and the business owner will sign the indication of interest which only binds the business owner and Evolution to confidentiality and exclusivity to work in good faith with each other to complete a transaction within a pre-determined period of time, but typically in 90 days or less.
Evolution leadership holds in high regard the value of our personal and professional integrity, and we hold our potential future partners to this same high standard of excellence. Aside from that, and the criteria mentioned in questions 6, 9, and 10, there are no carte blanche “deal killers.” Like any relationship, our process will involve getting to know each other, and therefore a certain degree of “chemistry” and positive personal dynamics will need to accompany the desirable product mix, market position, growth opportunities, and strong balance sheet to ensure a good fit.
Helping business owners successfully navigate No Man’s Land is what prompted Evolution Co-Founders Brendan Anderson and Jeffrey Kadlic to create a partnership in 2005. Assisting high-potential firms to accelerate through this critical phase and realize significant growth is what continues to motivate Evolution’s entire team of investors, partners, and employees. After seven years of lending to emerging companies, Anderson purchased and operated his first manufacturing business in 1995, and Kadlic has been financing and specializing in this market niche for the past 20 years. Together they decided to focus exclusively on advising Second Stage Companies (businesses with approximately 20-40 employees) generating annual free cash flow of roughly $500K to $2M on how to best handle this challenging phase of company growth. To complete their team, they sought out industry-leader Doug Tatum, who had successfully grown his company Tatum, LLC over 45% for 17 consecutive years, eclipsing 1,200 employees over 30 cities, and who had recently authored No Man’s Land, recently recognized as one of the top 20 business books written in the last 5 years, chronicling his journey and offering best practices for other based on his experiences. His conclusion – that at about 20-40 employees firms must either decide that they want to remain small OR they must begin building an infrastructure for a much larger firm – is the foundation for the unique value proposition that Evolution brings to the marketplace.
Evolution understands that business owners need high-level introductions to key clients, industry experts, and joint venture partners to take their firm to the next level. Evolution has at our disposal an international network comprised of both domain experts and C-suite executives in many industries and verticals, and we leverage this network to open new doors and make the warm introductions necessary to help propel our portfolio businesses to new heights. When combined with our proven system for rapid growth, world-class advisory team, and vast inventory of organizational resources, we mitigate risk and maximize performance – making success that much easier.
Banks have attempted to manage risk by implementing stringent criteria, strict metrics, and rigid ratios for capital consideration, versus trying to truly understand each business and investing in long-term relationships with the owners. Bank contract terms will often require the assumption of a secured personal guarantee against your property and estate, a large discount on asset values, and a very small margin of error in the event of unforeseen circumstances. Additionally, the rapid repayment of loans required by the banks does not keep the money in the business long enough to support the initiatives that will create long-term wealth for the business owner.
Evolution believes that thinking of capital as simply dollars is not enough. You need intellectual capital, emotional capital, relationship capital, been-there-done-that capital, best practices capital, and strategic capital. You need advice on how to best scale your company, from key hires to enterprise technology solutions, and from HR policies to insurance policies. You need high-level introductions to key clients that could take your business to the next level, expertise in selecting the right software, hardware, and infrastructure combinations, and the branding and marketing strategy required to leverage all of the emerging digital and social media platforms available to spread your message to new audiences. And finally, you need someone you can trust who will tell it to you straight, be it the shuttering of an underperforming product or division, a reorganization along business lines, or the management support you need to make those tough personnel decisions you’ve been putting off. In short, you need a partner who can amplify your upside growth while minimizing your downside risk, by applying proven scalable strategies to ensure you get it right the first time.
At Evolution Capital Partners, “partner” means just one thing – everything. “Partner” for us means we’re all in. Your success is our success, your challenges – our challenges. We come alongside, hitch ourselves to your wagon, and start pulling. Within the first week, your load will start feeling lighter, as we surround you with the support, systems, and expertise to help carry out those tasks that you alone had shouldered. Our seasoned executive team will customize an internal structure and reporting system that will finally get you in front of the curve, positioning you to make data-driven decisions proactively versus reactively, and we’ll help you master that one elusive task that frustrates owners the most – closing the books. With our proven methodology and accounting processes, we’ll capture every financial touch-point in your company and integrate it into one master dashboard, providing you with a daily snapshot of exactly how your cash flow is tracking, and enabling you to better allocate resources and make payment decisions most advantageous to your bottom line.
Evolution understands the mind of the entrepreneur, but more importantly, we understand their heart. You decided to start your own business because you were tired of being told what to do, you wanted to build something of lasting value, and most importantly, you wanted the opportunity to control your own destiny. So now you’ve built your company, and finally have that control you wanted – or do you? Sure you own the shares and legal paper, but are you really in control? Could you retire today, liquidate your position, and get a payout to enjoy the rest of your life? Could you take a year off to just relax? Do you have a legacy that you could hand down to your kids and grandkids? If not, you have to ask the question, “Do you control the company, or does the company control you?”
The Evolution business model is to partner with owners of successful established companies like yours, dramatically accelerate your revenue growth in a short period of time, and put you back in control of what really matters – your life! Our influx of cash, intellectual capital, professional introductions, industry best practices, brand and marketing optimization, and advanced reporting and infrastructure systems enable firms to rapidly scale both top line revenue and bottom line profitability. To do this, Evolution takes a controlling interest in the company, and becomes a partner and catalyst for driving this growth in collaboration with the owner and existing leadership team.
So here’s the “800 pound gorilla” trade off. Right now you might own 100% of a $10M company (which is basically an illiquid asset). If, by partnering with Evolution, you can grow that $10M to $50M – and you own 40% – you are now in possession of a $20M asset, which can be sold, liquidated, vested, or acquired (or any other exit strategy which makes the most sense for you), but the bottom line is that you have the luxury of choosing from a variety of desirable options – and you finally have what you wanted all along – control.
If you are interested, the next step is familiarization and education about our process. To learn more about the criteria we use for evaluating potential companies for investment, please consider our Entrepreneur Profile and 10 Question Management Assessment below. If the listed criteria align with the dynamics of your firm, or if you have questions or require clarification, feel free to contact Brendan Anderson or Jeff Kadlic at 216-593-0402.
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