14.06.18

Hot or Not

What does a good business look like?

By Tom Matthews

As a successful growth investor, I get presented with many different investment opportunities.  These businesses operate across a wide variety of sectors.  I also see different revenue models, often for similar companies operating in the same industries.  So, what does a good business look like to me?

Growth opportunities within defensive sectors

As a growth investor, I seek investment opportunities in growing businesses, with attractive and sustainable growth dynamics within defensive sectors.  Examples of defensive growth sectors include:

  • “White-collar” business services
  • Technology
  • Training and education
  • Healthcare.

There are many sub-sectors and niches within these four broad sectors.  Some fit the defensive growth characteristics better than others.  However, the sub-sector markets that I search for typically:

  • Provide an essential and non-discretionary service
  • Are established and increasingly outsourced
  • Show strong and sustainable growth drivers
  • Are regulated or driven by legislation.
The growth investing checklist

Once I have identified that a sub-sector market is attractive, I try to find which industry players would make good investment opportunities.  The investment characteristics I look for include:

  1. Strong market position
  2. Potential for growth
  3. Predictable and “sticky” revenues
  4. Profitable, with high and sustainable profit margins
  5. Strong conversion of profits to cash
  6. A deliverable growth plan and clear strategy
  7. A capable business leader and team in place looking for an equity partner to accelerate growth.
Find out more?

If you are a business leader operating in a defensive growth sector and are looking for an investment partner, then please email me at info@pemba.com.au to find out how I might be able to help.

Photo by Artem Beliaikin on Unsplash

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