Improving Cash-on-Cash Returns
Limited partners in private equity funds can be a skeptical group when it comes to unrealized returns. And that can be a problem for the many general partners looking to come back in 2011 to replenish their war chests. The increased focus on cash-on-cash returns became apparent to me at the annual meeting of a well-known growth equity fund. One of the fund’s star portfolio companies presented a detailed account of how it had grown revenue and EBITDA in a very difficult economy. The fund had already distributed roughly half of its cost basis in the investment and had written up the value of the company by threefold. During cocktails, while speaking with the representative from a mid-sized college endowment invested in the fund, I remarked that the company was still quite conservatively valued. The LP responded, “I’ll believe the valuation when I see the exit.”
