Randy Markey started Capital Acceleration Partners in 2003 as a consultant to private equity and venture capital firms, as well as their portfolio companies. The goal was to create strategic alignment between investors and the companies to which they had committed funds.
“If the growth vision of the private equity investor is not aligned with the actions of the management team, they’re never going to realize their desired outcomes,” Markey says.
It was satisfying work, but everything changed when retired CEOs Jack Welch and Louis V. Gerstner Jr. were hired by private equity firms to serve as operating partners.
“We thought that that would become commonplace for our PE clients to follow suit and hire full-time people to do what we were doing,” Markey says. “Shortly after making that determination, it became a reality.”
Markey adapted, shifting gears from consultant to dealmaker and closing an average of 15 or 16 deals each year. He’s done nearly $1 billion worth of transactions in his career.
In this Dealmaker Q&A, we spoke with Markey about his investment strategy and what he learned from a deal that started out great but fell apart in the wake of the 2008 market crash.
What are some principles that guide your investment strategy?
No. 1 is to only invest in an opportunity that I can explain to my grandmother. It doesn’t need to be simple, per se. But it has to be something that can be boiled down to eighth-grade English. No. 2 is people. It's the team. Do we feel that the team is composed of smart, capable and driven people? Are they people who have the character traits to be good partners? These folks are going to be our partners for at least five years.
Do they pass what I call the bar and home test? Would I choose to have a beer with them in a bar? Would I welcome them in my home to meet my family? Ultimately, if you’re going to be partners for five years, you’d better actually like and trust them.
And then what has defined my career a little differently in this regard is this question: Do I see a role for us to play in accelerating the path to profitable growth? My value proposition has always been that we’re not career investment people. We’re operators. We’ve sat in your seat. We’ve had to make trade-off decisions. We’ve had to make payroll. We’ve had to hire and fire, train and groom. That value-add means that we don’t just show up four times a year at a board meeting and ask why the numbers aren’t dancing faster.
We can play a role as a sounding board, as a mentor and, in a lot of cases, we’ll take a hands-on approach.
It could be a short-term project to take the load off on a finite, non day-to-day activity, something that’s only going to happen once. In some cases, we’ll take on an interim management role. That approach has really proven to be a difference maker.
So you stay away from opportunities in which you can’t make a measurable difference?
You never say never. In fact, right now, I’m invested in one of the bigger personal allocations I’ve ever made. It’s something where it was very clear I wasn’t going to be directly involved in it. But it met the other criteria and the market opportunity and the problem it was solving was big enough and had enough traction that I decided I was going to make that investment anyway.
I did it despite the fact that I have absolutely nothing to do with the outcome. Life is full of nuance, right? Nothing’s black and white.
What’s one of your most memorable deals?
It started out with a bang and proved to be a failure, sort of snatching defeat from the jaws of victory. We got involved in a technology business in California in 2006. It was literally two guys in a garage when we funded them. And things were going swimmingly in terms of commercialization and creating a meaningful pipeline of bookings leading right up to the 2008 crash. And then as the economy crashed, so did our backlog. I was literally unwrapping my Inc. 500 plaque while I was on the phone with the people at the bank convincing them not to take the keys, but to give us a little more time.
The good news is they did give us that time. We were able to get the bank all of their money back and get our last round of investors a reasonable return on their capital. Most telling was that, despite the fact that we had lost tens of millions of dollars of other people’s money, all but a couple of the major investors in that deal supported us again in future deals.
So while that stung, it also stood out, because to me, it was demonstrative evidence that even when you fail, as long as you fail with some grace and demonstrate character, people will continue to trust you and value what you're bringing to the table.
What did you take away from that experience?
I sat down with a guy who was our liaison at the company, and I said, ‘So I don’t want to talk you out of it. But why are you coming back?’ And he said, ‘You were one of 15 businesses that we invested in that cratered during that timeframe. But you are the only one that communicated with us, that told us what was going on and also demonstrated that you were working hard on our behalf to try to get us to an outcome as optimally as possible. You had the character and the will and the ethics to stand up and call it as you saw it and be transparent.’
It made me double down on my belief that integrity and character matter more than just about anything else, no matter what you’re talking about. People will trust you and good things can come if you do the right thing, even when it hurts. During that period of time, we stopped taking management fees. Our personal equity got flushed before everybody else. We did all the things to put ourselves in harm’s way in front of everybody else. So people saw that we were taking the bullets first. That helped.