We’ve all been there, haven’t we? Sat down opposite a significant (or insignificant) other at Alain Ducasse at the Dorchester or similar eatery in your current city. “Can we get a photo with Big Al? I am a huuuuge fan” asks your dinner guest to the immaculately coiffured maitre d’. He shoots your companion the type of withering look that can only be learnt in a well-heeled Paris Arrondissement. “I regret to inform you that M. Ducasse is currently in Tokyo.”
How then is this ‘Alain Ducasse at the Dorchester’ when Alain Ducasse is currently at Beige, in Tokyo? What allows this restaurant to display this name over its door? What guarantees do we have that the food will live up to our expectations?
This, dear fund manager, is a question of attribution, and it is as relevant to fine dining as it is to fine investing – for both first time / spin out managers raising their first fund and established groups with several funds under their belt, but, where M. Ducasse has the independent assessment of the Michelin man to back up his claim, you (almost certainly) do not.
For first time or spin-out managers the issue is the requirement to demonstrate that the track record you are laying claim to is in fact your own. For more established managers, the departure of senior investment professionals to a rival manager, new team members, and expansion into new investment strategies are all scenarios that can give rise to questions of track record attribution. So, how can you hope to prove that you were responsible for the impressive track record you lay before your salivating investor prospects?
This article, supplemented by those that follow, will provide you with a framework for selecting, by means of attribution scoring, which investments to include within a track record. It should help you credibly argue to prospective LPs that the claimed track record can, in fact, be reasonably attributed to you.
1. List out all the deals you have worked on.
Start with a large sheet of paper. Sit down with your colleagues and list every single deal you can recall being involved with. Don’t worry at this stage about degree of involvement. You are simply trying to get a record of your entire investment history down on paper at this stage. It will be helpful to record some qualitative information on each transaction, such as deal type, year of investment (and exit, in the case of realised deals), the location of the portfolio company, and any investment metrics you can recall.
2. Prepare an attribution matrix.
Transcribe all of the deals you have listed in step one into a table with columns for Sourcing; Execution; Monitoring; Value Creation; and Exit. Record the qualitative information you included in step one. A template for such an attribution matrix can be downloaded here.
3. Attribution scoring.
For each deal, score your involvement in each of the categories in the attribution matrix out of five. Honesty is the best policy here! If your mushroom velouté was the brainchild of a precocious sous chef, do not claim it as your own! A score of 1 means very limited involvement (i.e., you were an Analyst on the deal), whereas 5 means full responsibility for that category and/or you led all aspects of it. Zero means no involvement in the category. Sum up the total for each deal (out of 25).
Attribution scoring is of course a qualitative assessment. To assist you in assessing what, for example, constitutes a 4 in sourcing vs. a 5, or what merits a score of 3 in value creation vs. a mere 2, we have prepared attribution scoring guidance notes that can be found here.
4. Select the track record based on total score.
Decide on the threshold score for a deal to be included in the track record. This might be, for example, every deal scoring a total of 15 or more (equating to at least a score of 3 in each category, on average). You might, however, decide on more rigorous criteria for inclusion, for example an overall score of 15 or more but at least a 4 or 5 in one or more criteria. Or simply a higher total score, perhaps of 20. Regardless of the specific criteria and threshold set, the aim is to have selected the track record using objective criteria that are reasonable and defensible. You have not simply chosen the best ten deals you did at your old shop.
The position is more complicated where there are two or more founders coming together from different prior organisations to form a new firm and each is bringing a track record with them. If the separate track records are similar in terms of deal type, location and size (all comprise mid-sized UK buyouts, for example), then it is reasonable to use the same attribution scoring methodology and thresholds and merge the track records together. It will be important to specify which deal belongs to which founder when laying out the track record on a deal-by-deal basis. And it is possible prospective investors will want to understand the individual track records of the founders, so ensure they can be made available.
In the next article we will discuss some important additional considerations when undertaking a track record attribution scoring exercise. Bon appetite!