Carve-Outs as Startups

Carve-outs share many of the same issues as startups and similar tasks which can distract the management team from growing a successful and profitable standalone business. Here are 5 similar issues and related tasks-

  1. New legal and tax entity requiring licensing, new tax accounts and financial reporting
  2. Investor capital and the associated governance of the business (board of directors, reporting to new stakeholders etc)
  3. First 90 days from launch are critical and effective project management must be in place to stand up the business functions.
  4. Liquidity management and cash flow forecasting require forecasting sources and uses of funds.
  5. Establish vendor accounts as well as relationships with banks and creditors.

TSG carved out Winetasting.com, an e-commerce business, from 800-flowers.com starting with one employee. We laughed about the company being a 25 year-old start-up because the company’s origins went back to 1991 and was featured as a Harvard Business School case study called Vintage Directions https://store.hbr.org/product/vintage-directions-inc/393043?sku=393043-PDF-ENG. So, while the business had established brands and a customer base, the brands needed to be re-positioned and customer base reinvigorated. This created somewhat of an “innovators dilemma” as changes needed to be made to attract new customers, yet we did not want to alienate the existing customer base. This is what the management team should be focused on as they operate and grow the business rather than being distracted by the issues and tasks related to setting up the business identified above. As these issues and related tasks are essentially one-time events this is ideal to outsource.

TSG works with start-ups, carve-out businesses and their financial sponsors by standing up a new business which can take 3-6 months or even longer to gain licensing and other regulatory approval. This may lead us to transition services agreements with the seller. Additionally, establishing a new entity with governance and financial controls requires setting up the structure that will be maintained by the management team on a monthly, quarterly and annual basis. Knowing how to optimize new vendor and banking relationships may not be a core competence of the management team. These are but a few examples as to how we can assist carve-out and startup ventures.

If you would like to learn more about how we can assist with these issues please email steveschepman@TSG_LLC.com