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of the Private
Company Owner
February 26, 2010 - A new study by Pepperdine University shows that private company owners can generally be described as gut-feel, risk taking operators with short term payback expectations. Knowing these tendencies may come in handy at your next sit down with the owners and management team of a potential acquisition. A link to a free copy of the study is available at the end of this article.
A large number of private business owners would take a business risk (91%) vs. maintaining the status quo (9%) and, at the same time, half (49%) said they rely on “gut feel” to make investment decisions according to the study. The study also shows that most private business owners expect at least a 20% return for investments within 1.5 to 3 years. Private business owners said if they were to invest in a company identical to their own, they expect a 20% return for a 10-year investment.
“Shrewdness, confidence and risk-taking are qualities that define a private business owner,” said the study’s author, Dr. John Paglia, an associate professor of finance at Pepperdine University’s Graziadio School of Business and Management. “However, private business owners may be unrealistic in gauging investments and risks as well as sources of funding or return on investment. Generally, there may be an unhealthy expectation that the next big break is right around the corner and should take big risks to capitalize.”
These findings were part of the Pepperdine Private Capital Markets Study, an investigation of the major private capital markets that examines the current state and outlook for the private capital industry. The private business owner data is based on interviews with 304 business owners and is part of a larger study based on interviews with more than 700 professionals in the private capital industry. The Pepperdine Private Capital Markets Study provides insights into four other private market segments in addition to venture capital: bank, asset-backed, mezzanine and private equity lenders.
For a free copy of the study click here.
