To start up or buy out?

Alumni debate the merits of divergent investment strategies

Jeffrey FineKarin Dommermuth O’Connor

Entrepreneurship has become the mantra of recent times, yielding myriad startups built from scratch. Yet leveraged buyouts offer ready-made companies with proven track records. Though these investment models may seem diametrically opposed, both present opportunities. So which one yields the best growth?

Jeffrey Fine ’93 has more than 15 years of experience handling leveraged buyouts. In 2003, he acquired CIBT, a global expediter of visas and passports, leading the company through 40 acquisitions before its sale to ABRY Partners eight years later. At Hyde Park Angels, Karin Dommermuth O’Connor ’89 serves on the front lines of innovation, investing in and advising entrepreneurs and startups across a broad swath of industries.

What makes the most sense for investors today: trailblazing startups or traditional buyout deals?

Fine: Buying a company based on past performance reduces risks and provides some comfort to the investor trying to predict future growth. By definition, startups offer neither historic insight nor leverageable cash flow. In an environment of slow growth, acquiring competitors rather than individual customers may be the fastest way to grow revenue, especially now, when acquisition financing is so inexpensive.

O’Connor: There has never been a better time than now to start a company. Technological advances have lowered the costs of launching a business, from marketing to running the back office. Using technology in innovative ways, startups have the power to knock existing business models on their backs.

What key factor is critical to your investment strategy?
F: A highly competent and intellectually honest management team that will give you a realistic assessment of the upsides and downsides of their business. Chemistry is also important. You’ll be working closely together, so you’d better like each other. The world is littered with investors conned by management teams. Asking frank questions helps to sort out leadership you can trust.

O: Finding game changers who have the ability to execute their vision. We spend a lot of time with entrepreneurs before we write a check to understand their business strategies and see what makes them tick. Can they shift gears if needed? Many times, the model we start with in the beginning is not the one we have at the end.

What does the future hold for investors?
F: The outlook for creating great companies through industry consolidation is exceedingly positive. Investors have access to record amounts of debt and equity capital for leveraged deals today. On the flip side, the availability of low-interest capital has inflated valuations. You will no doubt get burned if your underwriting relies solely on cheap financing.

O: Opportunities abound for startups. There’s a lot of interest in funding very early ideas. The challenge continues to be raising money for the next round: There isn’t enough to go around. The bar has been raised for performance, and startups can’t just do OK and expect to succeed. With our companies, we make sure they are well-positioned and well-capitalized to get to the next level.

Interviews condensed and edited for clarity.


Before buying CIBT, Fine formed Everest Financial Corp. to pursue acquisitions of middle-market firms.

"Management is the single most important driver of value, far above all factors in determining the success of an investment. You just can’t do a good deal with bad people."

Before joining Hyde Park Angels, O’Connor founded Perimeter Advisors, which developed value-enhancement strategies for mid-market companies.

"If you have big markets, big pain points, a disruptive model and a team that can pull it all together, then you’ll have a good chance at making a return on your investment."