Our firm invests in a type of private equity, a form of financing that Vergent partners with small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth (in terms of number of employees, annual revenue, or both). We first and foremost invest in the mission of the entrepreneur, secondly, innovative and exciting product or service and finally the ROI.
The Founders of Vergent have found that the key success of any firms starts with the people.
Where Vergent's plays an important role is in the next stage of the innovation life cycle—the period in a company’s life when it begins to commercialize its innovation. More than 80% of our invested capital goes into building the infrastructure required to grow the business—in expense investments (manufacturing, marketing, and sales) and the balance sheet (providing fixed assets and working capital).
Our investment capital is not long-term money. The idea is to invest in a company’s balance sheet and infrastructure until it reaches a sufficient size and credibility so that it can be sold to a corporation or so that the institutional public-equity markets can step in and provide liquidity. In essence, we buy a stake in an entrepreneur’s idea, nurtures it for a short period of time, and then exits with the help of an investment banker.
The Logic of the Deal.
There are many variants of the basic deal structure, but whatever the specifics, the logic of the deal is always the same: to give investors in the capital fund both ample downside protection and a favorable position for additional investment if the company proves to be a winner.
In a typical start-up deal, for example, we will invest $3 million in exchange for a 40% preferred-equity ownership position, although recent valuations have been much higher. The preferred provisions offer downside protection. For instance, Vergent receives a liquidation preference. A liquidation feature simulates debt by giving 100% preference over common shares held by management until our $3 million is returned. In other words, should the venture fail, we are given first claim to all the company’s assets and technology. In addition, the deal often includes blocking rights or disproportional voting rights over key decisions, including the sale of the company or the timing of an IPO.