Aggregators and Funds - How to separate the wheat from the chaff?

Aggregators and Funds – How to separate the wheat from the chaff?

As more funds and aggregators are emerging, for investors it’s preeminent to anticipate the performance of the operators. Here’s my 10-point fund operators evaluation cheat sheet:

1) Underlying asset class: How’s the return/risk ratio of the underlying asset class? -> Possible red flags: low margins, high competition, high acquisition multiples, high volatility, no diversification of traffic/revenue sources

2) Team: Experience in acquiring and operating this kind of assets? Holistic team with all relevant positions (CEO, COO, CTO, CIO) covered? -> Possible red flags: No mgmt and/or team in place, dependency on 1-2 key players

3) Historical performance: How long are they operating in this (very!) space with what performance? -> Possible red flags: no dedicated knowledge, only general “online marketing” or “eCom” skills, no track record

4) Dealflow: Proprietary sources beyond on-market. -> Possible red flags: Just on-market deals, missing out on hidden gems

5) Value add: Proven strategies to achieve operational gains -> Possible red flags: No KPI-driven operational strategy, core focus on valuation arbitrage or financial modeling

6) Underlying magic: Any strategic moat that sets the operator apart from competitors, especially mid- to long-term -> Possible red flags: No proprietary SOPs, no proprietary tech stack, no exclusive know-how

7) Synergetic portfolio: Allowing to tap into synergies -> Possible red flags: a random basket of assets or asset classes, generating higher costs with lower synergies, at the exit a buyer’s nightmare

8) Overall Fund volume: Allowing for reasonable diversification and alternative strategic approaches -> Possible red flags: fund’s too small, no diversification

9) Skin in the game: From an investor’s perspective, nothing will protect your money as managers with skin in the game. -> Possible red flags: Mgmt is not or has never invested substantially in their own business

10) Carry and proceeds: Fine line, getting investors to an attractive MoM while keeping operators motivated -> Possible red flags: Any share leading to an unusual MoM, high fixed or setup fees Neither the investor nor the operator can predict the final returns. It’s an investment, not a T-bill. But avoiding these major downfalls will get you in the pole position to capture the returns of any alternative digital asset class