When it comes to identifying established businesses to invest in, the Ouroboros Group has two aces up its sleeve— artificial intelligence and a focus on family founder firms.
Combined, they have the potential to generate a strong industry advantage.
The team at Ouroboros, a healthcare & consumer focused private equity firm, unlocks the power of machine learning with an AI tool Samantha Ory, the firm’s founder, developed called Carmen.
Ouroboros Co-Founder and Managing Partner Richard Tannenbaum believes innovation will dominate the day when it comes to finding investment opportunities.
“Collectively, we’ve seen advanced tech and AI transform Silicon Valley while Wall Street lags behind,” Mr. Tannenbaum said. “We’ve seen that Carmen can revolutionize private-equity and find better companies faster.”
So Carmen was tasked with finding companies whose CEOs are looking to sell; are approaching retirement; or lack a successor to operate the business.
“This allows us to tailor our investments to a business owner and solve generational transition issues that arise in many small family owned businesses” said Mr. Tannenbaum, “while maximizing our returns for our investors and family founders. We focus on the right types of investment.”
We see the small to lower middle-market as an attractive asset class that has been largely ignored by large private equity firms and strategic acquirers. According to studies done by Schroders and Cambridge Associates, small buyout firms have generally demonstrated outsized IRR returns on average compared to larger PE funds.Within this segment of the market, there is often less competition from prospective buyers and fewer auctions resulting in favorable supply/demand dynamics, which results in attractive valuations because of the sitting operating partner network and growth prospects Ouroboros can create. Ouroboros’ investment strategy leads to greater opportunities to build value and is another key driver of outsized returns within the ‘small business’ asset class.
Mr. Tannenbaum believes the traditional approach to finding investment opportunities hinders growth by reducing the personalization of the investment and reduces the flexibility to structure an investment that will ultimately benefit the existing owners of the company. “Investing in family businesses requires a bespoke approach that fits an owner individually, it’s the difference between off-the-rack and tailored, CEOs know and appreciate the difference.” Mr. Tannenbaum wants to build businesses that respect the values of the founders and owners, which goes down to people. Technology has allowed a greater personalization of the approach, Carmen enables disintermediation that allows Ouroboros to get to know a business owner and what makes their organization special. That’s much more difficult to do in a bank process.
But AI can:
- Analyze the performance data of companies to make predictions on a company’s future.
- Scan news articles, social media and other information sources to gauge a company’s reputation.
- Help Ouroboros screen possible opportunities based on criteria such as stage of development, size, industry and location.
Specifically, Carmen can:
- Provide recommendations based on publicly or commercially available financial, non-financial, conventional, and unconventional data.
- Identify and approach new investment targets on a large scale and in a systematic manner before they are approached by investment banks or intermediaries.
- Predict trends in valuations within different sectors.
The second ace is that the Ouroboros Group focuses on family founded companies. In fact, Ouroboros likes to say their investment firm is, “for family founders, by family founders, with family founders”
Most successful family founded companies are the result of decades of commitment from existing family members and close associates. Often the products/services delivered are meaningful to existing management; and potential buyout firms need to establish a strong sense of trust and understanding to forge a lasting partnership. Ouroboros does this early and is an important part of the vetting process.
Both Mr. Tannenbaum and Co-Founder Samantha Ory, Chief Investment Officer and creator of Carmen, have worked closely with their own family businesses. This operational experience has allowed the partners to seamlessly work with CEOs and develop non-predatory growth plans that optimize all outcomes for the entire capital stack. Ouroboros always prefers to work with existing management post-close, drawing upon their expertise, early in determining the needs of the business. Ms. Ory, “we always ask, what does your baby, the company, need to go to college, that means if you wave a magic wand, what would you do to bring in the next phase of growth.” This approach has created opportunities for best in class returns.
This approach, combined with futuristic AI, is bringing the Ouroboros Group towards a successful fund close—quickly.
“We’ve seen phenomenal traction as we’ve begun our raise, with a robust pipeline that we’re excited to deploy capital towards,” said Ms. Ory. “We also have an incredible opportunity to drive ESG initiatives into the fabric of our investment thesis. In our portfolio companies, we’re committed to transforming board governance for racial/gender diversity; and working towards sustainability by reducing supply chain waste and implementing ESG compliant reporting systems.”
Ouroboros is disrupting the private equity industry by crossing the finish line first
“We are re-developing the private equity process to create a paradigm shift in middle-market investing, focusing on healthcare and consumer sectors,” Mr. Tannenbaum said. “The most important decision an investor can make is which company to invest in. We believe that through technology, we can improve the investment decision process with better information.”
Visit obgfund.com to learn more.
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