Capital is a Commodity, but Trust is Not

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Peter Drucker famously said, “The most important thing in communication is to hear what isn’t being said.” That line is as true today as it was when he was first quoted. We have all dealt with people who are deliberately not fully forthcoming, and it can be challenging to assess a person’s trustworthiness if you are doing business with them for the first time. Unfortunately for many business owners, the process of bringing on a partner to invest in your company is rife with first-time introductions to interested parties. As a business owner, how then are you to determine who you can trust to shepherd the growth of your life’s work and most valuable financial asset?

One option is to trust your gut. Sometimes this works, sometimes it fails miserably. The other is to look to simple indicators that a person is going to follow through on what they say they are going to do. Here are a few tactics that might help you know if you’re being courted by someone that you can trust.

  • Ask yes or no questions. This is particularly important for the most critical questions you want answered. There’s immense power in both a succinct yes or no question and a corresponding, full-throated “yes” or “no”. Heavily caveated responses to basic questions signal the need to probe deeper into any areas where topics are not dealt with head on.
  • Be wary of overly rosy track records. Long-tenured investment professionals should be more than willing to humbly share the good, the bad, and the ugly from their careers. In this business, anyone who says that every deal has gone well for them is bending the truth at best and telling an outright lie at worst. Make sure you hear a balanced perspective on where they’ve been successful and what they’ve learned from their mistakes along the way.
  • Request references outside of the list that is provided. Have you ever performed a reference check on someone that didn’t go well when you were provided with a carefully curated list of contacts by the person in question? Do some digging on LinkedIn, and if you identify relevant contacts from a person’s or firm’s history of interest, don’t be shy about asking for introductions to them as well.

These are just some ideas for when you are in the early stages of your discussions with a potential suitor. However, there’s no substitute for developing a long-term relationship with a potential investor well in advance of your need / desire to transact such that you can both demonstrate consistency and integrity in your interactions to build mutual trust.

About ClearLight Partners

ClearLight is a private equity firm headquartered in Southern California that invests in established, profitable middle-market companies in a range of industry sectors. Investment candidates are typically generating between $4-15 million of EBITDA and are operating in industries with strong growth prospects. Since inception, ClearLight has raised $900 million in capital across three funds from a single limited partner. The ClearLight team has extensive operating and financial experience and a history of successfully partnering with owners and management teams to drive growth and create value. For more information, visit www.clearlightpartners.com.

Disclaimer: The views and opinions expressed in this blog are solely my own and do not necessarily reflect any ClearLight opinion, position, or policy.