Middle Market Growth - November/December 2014

Growth MIDDLE MARKET

// NOVEMBER/DECEMBER 2014

TWO VETERANS OF PRIVATE-FUND COMPLIANCE ON WHAT THE SEC WANTS A QUALIFIED OPINION: KAREN MOON, CO-FOUNDER AND CEO, TRENDALYTICS

CURATED

COMMERCE Julep Bets on Curated Commerce as the New Beauty Model

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M&A DEALMAKERS CORPORATE FINANCE The Paslin Company has been sold to Tower Three Partners

Sur-Flo Plastics & Engineering has been sold to Crowne Group

Schluckebier Oil Co. has been sold to Blue Flame Propane

Gentz Industries has been sold to MB Aerospace

Brown Rehab & Review has been sold to WellComp Managed Care Services

Smith Bros. Tool has been sold to Peninsula Capital Partners

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EXECUTIVE SUMMARY DOUG TATUM // Chairman, ACG Global Board and Newport Board Group

It’s Time to Make Your Voice Heard

A

s we prepare to ring in the new year, ACG is ramping up efforts to bring policy issues to the forefront of lawmakers’ agendas with our annual Leadership Week in Washington.

This high-profile event, held Jan. 26-28, will bring together federal

lawmakers, as well as regulatory officials from the SEC and other government agencies. Your attendance ensures that important issues relating to taxation, Dodd-Frank regulations and financing remain top of mind for policymakers.

Our efforts in Washington build upon those of the newly formed Congressional Caucus for Middle Market Growth, the bipartisan group ACG Global helped create to bring the middle market’s contributions to the U.S. economy from behind the curtain to center stage.

We can’t stop there. We must continue to ensure that lawmakers, thought leaders and the public at large are made aware of the new jobs, infrastructure and other positive economic contributions by midsize companies around the country, as well as those of the capital providers that support them.

Consider Julep, a Seattle-based company that has tapped into the hot trend of curated selling by creating highly customized cosmetic offerings for each woman who subscribes to its service. Started by a former Starbucks executive, this company had raised $54 million through early fall and is experiencing fourfold year-on-year revenue growth.

The concept of curated selling is clearly gaining backers; in August, Nordstrom said it would buy Trunk Club, another middle-market company that has leveraged this trend in the apparel space—for $350 million. Trunk Club had boosted its staff to 500 employees at the time of its sale. It was featured as the cover story in the April 2014 issue of Middle Market Growth.

You’ll also hear from Privcap’s David Snow about the SEC’s scrutiny of private equity and how general partners can ensure they remain compliant with the agency’s regulations. There are a lot of other gems in this issue, including a particularly robust roundup of local events hosted by ACG chapters throughout the country.

With this magazine as well as our presence in Washington and ACG networking events, the voice of the middle market is stronger than ever.

We look forward to another successful year and hope to see many of you in April for InterGrowth 2015 at Orlando’s Hilton Bonnet Creek and Waldorf Astoria hotel.

Thank you for your ongoing support of Middle Market Growth magazine. Happy reading! //

MIDPOINTS RANDY SCHWIMMER // Founder and Publisher, The Lead Left

You’ll Want to Read This Column–Trust Us

F

rom prehistoric times until 2003, humans cumulatively created five exabytes of data. That’s five billion gigabytes. We now produce that much information every 48 hours. We send out 100 million

emails every minute. Bombarded by this blizzard of bytes, we can’t possibly manage it coherently. What to do?

Welcome to the era of curation. Like museum curators, custodians of wisdom and taste guide you to smart decisions about what to read, what to wear and what to buy—all saving you time and money. Just trust our

BIO //

Randy Schwimmer shares his perspectives in MidPoints each issue. A former member of senior management and investment committees for two leading middle-market debt platforms, he is also founder and publisher of The Lead Left, a weekly newsletter about deals and trends in the capital markets.

Content sponsored by

judgment, they tell us.

For consumers, curation is the Google antidote. Rather than zillions of results generated from a black box algorithm, personal shoppers mail you boxes of customized goodies via monthly subscription services.

Here are some samples: • Birchbox – This “discovery commerce platform” ships you fragrances, lotions, body sprays and hair products.

• Blissmobox – Offers organic and green products. Like non-toxic office snacks.

• BabbaBox – Children’s activity boxes and “super cute” parenting tips.

• BarkBox – Yup, for your pets.

And those are just the B’s.

• ShoeDazzle – Shoes, bags and accessories just for you. From that doyenne of discrimination, Kim Kardashian.

• T-Pain Fancy Box – $39 per month gets you “cool gadgets and outrageous gifts” selected by the rapper himself. Sign us up!

• Mystery Tackle Box – Our favorite. Reel in lures and bait “trusted by the pros.” Great gift for that special someone who’ll treasure a unique package of worms every month.

Continued on next page

MIDPOINTS RANDY SCHWIMMER // Founder and Publisher, The Lead Left TODAY, THE BOX IS THE NEW BLACK. MAKE ME SMART, SEXY AND RICH, AND I’LL HAND OVER MY BUYING POWER.

In the pre-Web world of brick and mortar, retailers had limited curated lifestyle offerings (think Martha and Ralph). Even progressive mail-order houses, like Fruit of the Month Club, were guessing which of 27 varieties of grapefruits and pears you’d savor mid-winter.

Today, the box is the new black. Make me smart, sexy and rich, and I’ll hand over my buying power. The great promise of the Internet was eliminating the middlemen; curated consumption restores them, adding good judgment.

As Steve Powell, senior adviser with Roark Capital, puts it, “First we wanted ‘Do It Yourself.’ Then we demanded ‘Do It For Me.’ Now curation answers our plea, ‘Do It With Me.’” For middle-market consumer companies, curation highlights trends.

For retailers, it allows a clearer path to consumers. Any community of social media and bloggers who “follow” and “like” a brand enhances its credibility. Manufacturers can then measure brand strength.

And what a community! The average millennial has 250 friends and spends almost 18 hours a day consuming media. They all want to follow the herd, yet be distinctive. Curated consumption not only tells you what to buy, it tells your friends to tell you what to buy.

From cave man to crowdsourcing: the community has become the curator. //

Growth MIDDLE MARKET

// NOVEMBER/DECEMBER 2014

Cover and story photography by Stewart Tilger

FEATURES

Curated Commerce Julep founder Jane Park is blazing her own trail in the beauty market and changing the way women purchase cosmetics. Using the wisdom of the masses, Julep creates unique offerings for individual subscribers who receive its monthly box of products, curated specifically for their personal style.

Read more.

“IT’S HARD FOR MANY PEOPLE TO ARTICULATE A DESIRE, SO WE HELP THEM OUT.” // JANE PARK, FOUNDER AND CEO, JULEP

Compliance: What the SEC Wants Two veterans of private-fund compliance give behindthe-scenes details about the commission’s stepped-up scrutiny of private equity.

Read more.

TABLE OF CONTENTS

PRESIDENT & CEO Gary LaBranche, FASAE, CAE glabranche@acg.org

VICE PRESIDENT, COMMUNICATIONS & MARKETING Kristin Gomez kgomez@acg.org

EDITOR-IN-CHIEF Deborah L. Cohen dcohen@acg.org

IN EVERY ISSUE Executive Summary MidPoints

by Randy Schwimmer Face-to-Face The Ladder It’s the Small Things The Leadership B-Side

DEPARTMENTS THE ROUND • Denver Policy Event Gives Voice to the Middle Market • A Look at ACG’s SEC Task Force Survey Results • Nordstrom Buys Curated Clothier Trunk Club Read more.

A QUALIFIED OPINION Karen Moon, Co-Founder and CEO of Trendalytics, Talks to MMG About the Benefits of Using Data to Track Consumer Trends.

Read more.

ACG@WORK • Mid-South Event Full of Southern Charm • ACG Central Texas Awards Regional Companies at Luncheon

ASSOCIATE EDITOR Kathryn Mulligan kmulligan@acg.org

DIRECTOR, CREATIVE AND BRANDING Brian Lubluban blubluban@acg.org

VICE PRESIDENT, CONFERENCES & PARTNERSHIPS Christine Melendes, CAE cmelendes@acg.org FOR ADVERTISING OPPORTUNITIES

DIRECTOR, STRATEGIC DEVELOPMENT Meredith Rollins mrollins@acg.org Custom media services provided by Network Media Partners, Inc.

• ACG Great Lakes Comes to Columbus • ACG LA Event Earns Marquee Billing 2014 Apex Award, New Magazine, Journal & Tabloid 2013 Folio Eddie Honorable Mention, best digital edition 2013 Association TRENDS All-Media, monthly publication

• Surprise Speaker Delights Attendees in Wisconsin Read more.

THE PORTFOLIO The latest middle-market trends and thought leadership written exclusively by a team of expert ACG Partners.

Read more.

Association for Corporate Growth 125 South Wacker Drive, Suite 3100 Chicago, IL 60606 ACG Membership: membership@acg.org www.acg.org Copyright 2014 Middle Market Growth®, InterGrowth and the Association for Corporate Growth, Inc. All rights reserved.

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

Click here to register for the Middle-Market Public Policy Summit.

ACG’s Middle-Market Policy Summit to Address Leading Issues If you want your voice heard in Washington, sometimes you’ve got to show up.

On Jan. 27, ACG leaders and middle-market dealmakers will come together for ACG’s fourth annual Middle-Market Public Policy Summit during ACG Leadership Week in Washington.

The message is clear: The middle market is an essential driver of growth for the recovering U.S. economy and warrants favorable national policies to support it.

Last year, 40 ACG chapters and more than 100 members attended the event.

Federal legislators, regulators and leadership from ACG Global will kick off half a day of presentations that address leading issues including taxation, access to capital, DoddFrank, the Volcker Rule and other policy concerns affecting the middle market. In the afternoon, ACG volunteers will canvass Capitol Hill to meet at the congressional offices of their states’ delegations.

The event will include a tutorial on congressional office visits led by Amber Landis, ACG’s senior director of public policy.

Make your voice heard and don’t miss this important event. //

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

CHAPTER EVENTS Get involved! This winter, ACG chapters across the globe will host hundreds of local events. Check out what’s happening at your local chapter, register and join in on valuable educational and networking opportunities.

2014 Annual ACG South Florida Awards Dinner in Fort Lauderdale Left: Philip Cassel of Cassel Salpeter & Co. (left), John Majer of McGladrey and president of ACG South Florida, and Stuart Miller of Lennar Corporation, winner of the chapter’s Outstanding Corporate Growth Award. Right: Representatives from ABB Optical Group, winner of the Deal of the Year Award.

ACG Atlanta Chapter View Calendar

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ACG Dallas/Fort Worth Chapter View Calendar

ACG Denver Chapter View Calendar

ACG Indiana Chapter View Calendar

ACG Maryland Chapter View Calendar

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Had a newsworthy chapter event?

Send a 150to 200-word summary and high-resolution photos to Associate Editor Kathryn Mulligan.

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THE ROUND NEWS THAT MATTERS CONGRESSMAN JARED POLIS // Giving the middle market more attention.

Denver Event Gives Voice to the Middle Market The contribution of the middle market to the health of the U.S. economy was lauded by a diverse slate of speakers at the Voice of the Middle Market event held in Denver in September.

ACG Global, ACG Denver and the National Center for the Middle Market brought together academics and business leaders to discuss issues facing the middle market at the University of Colorado Denver Business School’s Jake Jabs Center for Entrepreneurship.

Kicking off the discussion was Denver-area U.S. Representative Jared Polis, D-Colo., co-chair of the new House Congressional Caucus for Middle Market Growth. Polis’ background includes public and private sector experience and the successful launch of several companies, including Blue Mountain Arts and ProFlowers.com.

Other speakers included Gary A. LaBranche, president & CEO of ACG Global, Tom Stewart, executive director of the National Center for the Middle Market, Jim Kaufman, managing member of Mogul Advisors and Ward Cerny, president of ACG Denver and vice president of Bernstein Global Wealth Management.

According to the National Center, Denver’s middle-market sector comprises over 1,400 firms that generate $76 billion in revenue and employ nearly 600,000 workers, including restaurant chain Noodles & Company and footwear manufacturer Crocs.

The Congressional Caucus for Middle Market Growth will serve as a spotlight to highlight the contribution of this sector to the national economy. //

THE ROUND NEWS THAT MATTERS ACG STUDY

Midsize PEGs Wrestle with Regulatory Woes Increased regulatory scrutiny in the wake of Dodd-Frank is creating challenges for financial professionals at midsize private equity firms.

That is among the key findings of a new study by ACG’s SEC Task Force. The group polled compliance, finance and operations officials at private equity firms about regulatory issues ranging from uncertain financial disclosure requirements to SEC examinations and their firms’ use of general solicitation.

Responses from more than 200 financial professionals confirm a strong need for continued dialogue with the Securities and Exchange Commission to ensure that the agency’s compliance requirements are fair, understandable and not overly burdensome for firms.

“No one is feeling the pressure from the current regulatory environment more than CFOs,” said Blinn Cirella, CFO of Saw Mill Capital, who spoke on an ACG-hosted webinar on Oct. 2 to disclose the study’s findings.

“Not only are we worried about meeting a multitude of deadlines, keeping our LPs happy and keeping our auditors happy,” she said, “but we also have to understand increasingly complicated deal structures and keep up with confusing compliance regulations.”

Continued on next page

WHICH REGULATORY ISSUES ARE YOU CONCERNED WITH? SEC Examinations IAA Compliance Valuations General Solicitations Legislation Fees & Expenses Broker-Dealer Registration Cybersecurity 0%

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For more information about the ACG SEC Task Force, contact ACG Public Policy Senior Director Amber Landis.

THE ROUND NEWS THAT MATTERS

See the full results of the survey here.

WHICH BEST DESCRIBES YOUR FIRM’S TOTAL ASSETS UNDER MANAGEMENT? < $250 million $250 million to $500 million $500 million to $1 billion $1 billion to $5 billion > $5 billion Not Applicable 0%

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More than two-thirds of the registered investment advisers among the survey’s respondent group were from PE firms with less than $1 billion under management; ACG believes its survey is the largest to date of middle-market private equity firms and thus representative of that group’s particular concerns.

Among those worries, the topic of SEC examinations garnered the most responses, followed by compliance with the Investment Advisers Act, valuation issues, general solicitation rules, legislative issues such as carried interest and taxes, and allocation of fees and expenses.

In addition, the issue of cybersecurity—underscored by the disclosure in October that JP Morgan Chase suffered a breach affecting 76 million households in its customer network—is emerging as an additional concern, respondents said.

More than 40 percent of respondents said the ACG SEC Task Force should undertake a host of initiatives on their behalf, including best practice sharing, information gathering, webinars, comment letters to the SEC and discussion forums.

The group’s advocacy appears to be paying off already. According to ACG President and CEO Gary LaBranche, “Hundreds of ACG members have actively engaged in policy efforts, and we can point to a number of successes, in particular with the SEC. We’ve found (the SEC) to be very open to input from ACG. The commission has modified some regulatory rulings as a direct result of the feedback and the opportunity to meet with PE professionals, compliance officers and other ACG members.” //

THE ROUND NEWS THAT MATTERS

Photo by Trunk Club

Menswear Concept Trunk Club A Treasure for Nordstrom Want something delivered at no cost? No worries. Unhappy with the way your merchandise has worn? Nordstrom lets you return it for a full refund long after the purchase date.

So it’s no surprise the Seattle-based company would be among the first traditional retailers to recognize the potential of a service-oriented startup such as Trunk Club.

Trunk Club, whose army of stylists hand selects complete outfits for their shoppingaverse male customers, fetched a $350 million valuation when Nordstrom purchased it in an all-stock deal in July.

The primarily online retailer was hatched in Chicago by serial entrepreneur Brian Spaly, founder of custom pants maker Bonobos and a former private equity analyst.

Trunk Club grew quickly, in large part due to outside funding from Greycroft Partners, U.S. Venture Partners, Anthos Capital and Apex Venture Partners.

MMG recognized the promise of this distinct concept as well, featuring Trunk Club as the cover story in its April 2014 issue. At the time, Greycroft partner Dana Settle told the magazine rather presciently that Trunk Club’s model “was the next logical step a retailer would take,” adding: “That’s where the opportunity is.”

Right she was. //

THE ROUND NEWS THAT MATTERS

Download the full report here.

Latest Report from National Center Targets Operations Middle-market executives are good at making operational improvements at their companies.

That’s the finding of a new study from the National Center for the Middle Market entitled “The Operations Playbook” released in late September.

“On the whole, middle-market executives rate themselves highly on operational effectiveness, but they place the bar even higher and see a strong need to improve their performance,” according to the report, which polled 250 C-suite executives from midsize firms and 150 executives from larger companies.

What middle-market executives find difficult, the study reports, is sustaining the improvements they make.

“Our experience shows us, and the data confirm, that companies do a much better job of sustaining gains when they approach their operations as systems, with parts or subsystems that can be fine-tuned both individually and in concert,” the report says.

Key takeaways from the study include the following directives: • Manage your operations as a four-part system that includes problem-solving, daily management, strategic alignment and people development; • Keep top managers close to the work, whether in a plant, distribution center or office; • Find an operations philosophy that works for your company; • Ensure that everyone in operations knows the larger strategy. //

THE ROUND NEWS THAT MATTERS

CohnReznick Study Finds Middle-Market Execs Confident Middle-market executives are positive about their firmsâ&#x20AC;&#x2122; growth prospects and access to capital, despite having little knowledge about new federal legislation designed to benefit small and midsize companies, a new study finds.

The Middle Market Pulse study by the accounting firm CohnReznick surveyed U.S. executives from a wide range of industries. Overall, their outlook was positive on the prospect of future growth; however, few were well-informed about the Jumpstart Our Business Startups Act, a 2012 Obama administration initiative to make public equity more accessible to small and midsize firms.

An overwhelming majority of respondents (89 percent) said their firmsâ&#x20AC;&#x2122; financial situation was the same or better than a year ago, according to the study, which polled 300 C-Suite executives at middle-market firms and was released in September. Similarly, 57 percent expected their profit to improve in the second half of 2014 compared to a year earlier, while 31 percent forecast it would remain the same.

Continued on next page

THE ROUND NEWS THAT MATTERS CohnReznickâ&#x20AC;&#x2122;s National Liquidity and Capital Formation Advisory Group, which produced the survey, asked executives about the challenges their businesses face. The top three issues identified were general economic conditions, maintaining and increasing sales, and attracting and attaining qualified employees. To drive business outcomes, the most common strategy among respondents was to increase products and service offerings (47 percent); expanding geographic locations was a distant second (31 percent).

On the topic of raising capital, the leading motivator for executives to embark on a liquidity event or capital raise was a desire to transform or expand their business (38 percent), while the least common trigger was distressed selling or to protect assets (9 percent). Nearly half of respondents had concerns about employeesâ&#x20AC;&#x2122; acceptance of change while 47 percent had reservations about finding the right investor or strategic partner.

Allowing respondents to select multiple sources of capital, the survey found that over two-thirds of middle-market executives were most likely to look to commercial banks for funding, compared with less than half who would seek private equity financing and only 15 percent who said they would pursue an IPO. Only one-third of those surveyed were familiar with the JOBS Act and less than half were comfortable with the idea of crowdfunding to raise capital.

Regardless of their minimal interest in public markets, the vast majority of respondents felt they could raise capital over the next six months and planned to use the funds in a variety of ways, including to develop new products and services, launch new sales and marketing programs, and update and expand their firmsâ&#x20AC;&#x2122; technology resources. //

THE ROUND NEWS THAT MATTERS

VERTICAL VIEW // CURATED CONSUMPTION TAXI !

“Curated consumption” describes the growing trend of products and services customized for the individual consumer, often through subscriptions or mobile apps.

Uber, the smartphone app connecting riders and drivers, received $1.2 billion of VC funding in 2014, the largest capital infusion in the curated consumption space.

774 MILLION

$

Nordstrom’s recent purchase of men’s curated clothier Trunk Club is among the largest strategic acquisitions in the curated consumption segment, with a $350 million valuation.

In 2013, $774 million was invested in the curated consumption category across 93 deals, a sharp increase from the $407 million invested in 68 deals in 2012.

The 2011 LBO of Eismann, a German frozen food delivery service, was one of the largest curated consumption private equity investments, garnering $380 million from Glide Buy Out Partners and Indigo Capital.

Curated consumption deals were most common in the consumer non-durable sector in 2013, followed by retail and media.

“There is a huge coexistence between these curated concepts and mobile apps—users can sit on their couch and have things delivered to them.”

— Andy White, data analyst, PitchBook

All stats are from PitchBook for the middle market (deal values between $25 million and $1 billion).

CURATED

COMMERCE

Julep Bets on Curated Commerce as the New Beauty Model

BY JUDITH NEMES

Photo Courtesy of Julep

Photos by Stewart Tilger

JULEP // Business: Custom online nail polish and beauty products Headquarters: Seattle, Washington Founder: Former Starbucks Executive Jane Park Outside Capital: $56 million from Andreessen Horowitz, Altimeter Capital, Azure Capital, Madrona Venture Group, Maveron Point of differentiation: To disrupt the traditional beauty counter sales model Website: www.julep.com

Jane Park is on a mission.

The trailblazing CEO and founder of Julep Beauty Inc. is attempting to style her company into the next big beauty brand by ripping up the old playbook of selling cosmetics through glamorous celebrities and glitzy department stores. Instead, she’s creating a unique customer experience for each and every woman who interacts with her brand.

That use of curated commerce, or curated retailing as it’s often called, is among the most important of several strategies Julep is deploying to disrupt the traditional beauty counter model and build a loyal following of women for its proprietary brand of nail polish, makeup, skin care and accessories, Park says. Moving quickly to design and deliver popular products is another essential ingredient for success.

Click here to read more about Julep’s strategy.

ASK THE AUDIENCE // Julep seeks feedback directly from its customers.

The cosmetic market is big: Nearly $500 billion is spent globally on beauty and personal care products. Purchases are expected to surpass that mark by 2016, according to Euromonitor International, a market research firm. Analysts say companies in the beauty sector, along with other types of consumer goods, are especially poised to take advantage of the benefits of curated retailing.

Unlike Birchbox, the popular monthly subscription service that selects only brand-name samples of beauty and lifestyle products, Julep develops some 300 of its own products in-house each year based in part on feedback from a select group of customers. Julep’s team chooses the combination to assemble for monthly delivery by combing through survey data from subscribers about their style and color preferences so packages match their profiles. Members can further customize by swapping out products when they get a sneak peek at their selection online before it’s mailed.

Subscriptions run from $19.99 to $39.99 per month, depending on terms.

“It’s hard for many people to articulate a desire, so we help them out,” explains Park, 43. “We’re trying to be the college boyfriend you never had, the person who anticipates what a woman wants before she knew she wanted it.”

WISDOM OF THE CROWD

“WE’VE LEARNED HOW TO CONNECT WITH PEOPLE AT THE KEY MOMENT WHEN THEY CAN HAVE DECISIONMAKING POWER AND THEY LOVE US BECAUSE THEY CAN SEE THE IMPACT OF THEIR INPUT.” Jane Park Founder and CEO, Julep

The Seattle-based company relies on early input from some customers about products currently in development, inviting about 6,000 women from its database to participate in its Idea Lab. They’re asked to share opinions on products via email, Google video chats and Facebook.

That deft use of crowdsourcing with social media boosts the management team’s confidence about whether a product can be tailored to a subset of subscribers who will feel it’s been made just for them. Once new products are shipped, the company pays close attention to users’ reviews on Twitter, Facebook, Pinterest and the like.

Park has a strong sense for what works in the marketplace. The daughter of Korean immigrants, she graduated from Princeton University and Yale Law School. After working at The Boston Consulting Group, she made a name for herself heading up Starbucks’ new ventures group. Park launched Julep in 2007 with her own funds and backing from angel investors.

“We use our point of view as the starting point of a product,” Park says. “We’ve learned how to connect with people at the key moment when they can have decisionmaking power and they love us because they can see the impact of their input.”

Park formulated Julep by inviting everyday women to gather at proprietary nail salons in Seattle and bond over their love of beauty products. The goal was to glean input about the kinds of beauty items and colors they found appealing. Initial feedback was loud and clear: They wanted constant updates on exciting new nail polish colors and beauty and skin care products made from wholesome, non-toxic ingredients, recalls Park.

By 2011, Julep translated that brick-and-mortar model to an online format for national reach. “We took what we were doing in our parlors and put (those products) in a box and began offering them online as a subscription box with particular types of women in mind for each type of package,” she says.

New subscribers, or Julep Mavens, complete a survey about their color, clothing and lifestyle preferences to determine which of five general categories might be right for them: Classic with a Twist, It Girl, Boho Glam, Modern Beauty or Bombshell.

If the completed survey concludes you’re Boho Glam, you favor a mix of earthy tones and playful, vibrant colors in your nail polish preferences. Members can always change profiles and pick different packages during the online sneak preview. They can also swap out individual items, further customizing what they want to show up at their doorstep.

Julep is among a growing set of companies emerging to offer a customized experience to help customers cull through the dizzying array of products available on the Internet and in stores. Sellers edit down choices to a manageable selection based on data analytics, online surveys and other measures, tactics that give them a greater chance of offering something relevant and desirable to the potential buyer.

Retail analysts expect more startups and small businesses to hit this niche of the e-commerce market, but success is not a foregone conclusion. Investors say they’re placing bets on only the best of these companies— the ones that pick the right product categories, figure out how to appeal to the particular preferences of their customers and build loyalty so they keep coming back for more.

Specialty retail brands and discretionary products sold online—cosmetics, clothing, home accessories— are particularly well-suited to curated retailing because merchants track who’s coming to their site and can tailor an experience that matches customers’ preferences based on a variety of data collection sources, explains Jason Stoffer, a partner at Maveron, a venture capital firm. With offices in Seattle and San Francisco, Maveron specializes in consumer startups and was one of Julep’s first investors.

Its co-founder is Starbucks CEO Howard Schultz.

“WE’RE TRYING TO BE THE COLLEGE BOYFRIEND YOU NEVER HAD, THE PERSON WHO ANTICIPATES WHAT A WOMAN WANTS BEFORE SHE KNEW SHE WANTED IT.” Jane Park Founder and CEO, Julep

SUBSCRIPTION MODEL // Julep’s subscribers receive a monthly box with products designed in-house.

“The next generation of brands is going to curate merchandise in a way that feels relevant to each and every consumer,” Stoffer says. Like Julep, “companies will need to have a two-way dialogue between the brand and consumers...Jane (Park) is creating an emotional connection between the brand and the consumer and building a loyal community that’s buying those products.”

HEAVY HITTERS As of early fall (2014), Julep had raised $56 million in capital, primarily from venture capital firms that include Andreessen Horowitz, Altimeter Capital, Azure Capital, Madrona Venture Group and Maveron. Celebrity backers are getting in on the action too, most notably Will and Jada Pinkett Smith, and Jay-Z. Crowdfunding has also made its way into the company’s financing repertoire. When Julep improved the applicator top of its nail polish bottle with help from the design firm IDEO, the company used crowdfunding from subscribers to pay for the first limited production run of the new Plié wand.

Indications so far point to Julep’s continued growth. The company declined to reveal how many monthly Maven subscribers it has, but says revenue grew 400 percent in 2013 compared to 2012. It expects similar growth in 2014.

“THE NEXT GENERATION OF BRANDS IS GOING TO CURATE MERCHANDISE IN A WAY THAT FEELS RELEVANT TO EACH AND EVERY CONSUMER.” Jason Stoffer Partner, Maveron

“The subscription model can appeal to investors as long as the company can keep the products they offer fresh, build customer growth, scale up when it grows, and do it in a profitable way,” observes Mara Devitt, a partner at McMillan/Doolittle, a Chicago-based consulting firm.

The firm’s research shows consumers are challenged about what to buy when faced with a sea of information.

Items well-suited to ongoing subscription services tend to be lower-priced, non-essential goods, such as beauty products, jewelry and accessories, and products for babies, children and pets, says Devitt.

“Curated retailing is a great service,” she observes. “In essence, it’s like finding a source that you’re trusting to cull through the vast assortment of products and services available today.”

Just ask Kelsey Sander, a nail polish fanatic who signed up for Julep’s subscription boxes more than a year ago. She gets a steady stream of two new nail colors every month without the mind-boggling task of searching through the endless supply of new shades that inundate brick-and-mortar stores and online retailers.

Two new colors (plus an additional beauty product) are selected each month for each of the five categories, but Mavens like Sander can swap polish colors from other profiles if they don’t like what’s offered in theirs.

“I would never go online to shop for beauty products,” says Sander, a 24-year old teacher in New York that Julep deems “Classic with a Twist.” “I wouldn’t know where to start.”

Sander tried Birchbox before switching to Julep, but she canceled after two months, realizing she was accumulating samples she wasn’t going to use.

Ultimately, curated retailing works best with products that delight people—like nail polish—and helps them sort through the madness so they can express themselves in their own unique way, asserts Devitt.

“Otherwise, why would we need it to be curated?” she asks with a laugh. //

NIMBLE STRATEGIES FOR PRODUCT INNOVATION // The traditional beauty brand model of stocking department store shelves with products that took years of development and marketing to women without their direct input is the antithesis of what Jane Park, Julep’s founder and CEO, is all about. A common underpinning of her strategy is to move quickly—and intelligently—during product development and follow-through to get the final package into consumers’ hands.

Julep employs technology development concepts such as randomized testing and iterative processes to keep refining a product before it’s considered ready for prime time. Responding swiftly to suggestions from women participating in its Idea Lab during product formation also helps designers pivot and make necessary changes before it’s too late.

The company gets its goods to market quickly because it manufactures products domestically through agreements with existing factories. An in-house team brings ingredients to the plant and takes over the entire production process, explains Park.

Julep distributes its nail polishes and beauty supplies to national chains, including Nordstrom and Sephora. Domestic production guarantees Julep can get its latest colors to them in a speedy fashion. In addition, much of what it sends retailers for mass-market sale is based on the most popular re-orders from its monthly Maven subscribers, says Park.

“We hope all 300 of our new products each year will be a huge success, but it’s up to our Maven community to repurchase and tell us which products they can’t live without,” she says. She figures others won’t be able to live without those products either. //

Photo Courtesy of Julep

Two veterans of private-fund compliance give behind-the-scenes details about the commissionâ&#x20AC;&#x2122;s stepped-up scrutiny of private equity

COMPLIANCE What the SEC Wants

BY DAVID SNOW

M

ost private equity general partners did not grow up thinking, “Someday, I’d really like to be a Registered Investment Adviser.”

And yet, today that is just what many of them have become, with certificates from the Securities and Exchange Commission

to prove it.

The unwelcome transition from boutique firm to regulated investment adviser continues to be a culture shock for many firms, especially those that are smaller and under-resourced, say two compliance experts.

Scott Gluck, counsel at law firm Venable LLP, and Matt Reynolds, director of financial services at McGladrey—who both have observed firsthand the increasing interactions between SEC staff and private funds—say too many GPs are unaware of the agency’s goals and motivations.

“We spoke to a number of our private equity clients and got an idea of (their) biggest frustrations,” says McGladrey’s Reynolds. “What I kept hearing over and over was, ‘I just want to do it right, but the SEC won’t tell me what’s right.’ Well, that’s not their job. Their job is to look at what you do and make sure that it’s in the best interest of the clients.”

COMPLIANCE // Many GPs are unaware of the SEC’s goals.

“I THINK THE WAY THAT FUNDS CAN REALLY GET IN TROUBLE WITH THE SEC IS IF THEY APPEAR TO HAVE KNOWINGLY AND INTENTIONALLY VIOLATED THE PROVISIONS OF THEIR LP AGREEMENT, OR MISLED INVESTORS.” Scott Gluck Counsel, Venable LLP

Indeed, while GPs shouldn’t expect a how-to guide from the SEC, they should be aware of five main areas in which the commission is looking for all manner of weaknesses and vagaries that risk misalignments with clients.

OPERATING PARTNER ECONOMICS There is no one right way to compensate the operating talent brought in to add value to private equity-backed portfolio companies. But the SEC is interested in ensuring that these economic arrangements are in accordance with fund documents, and also made clear to investors.

“I think the way that funds can really get in trouble with the SEC is if they appear to have knowingly and intentionally violated the provisions of their LP agreement, or misled investors,” says Venable’s Gluck, who adds that too many limited partnership agreements are “silent with respect to operating partners,” leading the SEC to criticize GPs for being “horribly vague” about how they pay for the advice and resources put to work in the portfolio.

An extensive video interview with Gluck and Reynolds can be found on Privcap’s website.

VALUATION POLICIES As with the compensation of operating partners, the SEC is not advocating any one right way to arrive at fair value in investor reports. And GPs who think the commission will recommend any one policy are missing the point that the rule book needs to be written by the GP. “Valuations in general tend to drive management fees,” notes Reynolds.

“The SEC looks very closely at whether you are valuing everything consistently and fairly. Whatever way you’re going to value your assets, do it consistently. Make sure it’s written down. Make sure that you can track back to that. Do it in a way that’s fair to the clients when you’re basing your fees off of the valuations of those assets.”

The backdrop to this need for clarity and consistency is the suspicion that some fund managers strategically mark up or mark down assets based on their fundraising timeline. But even cynics can be disarmed with full and timely disclosure. Adds Gluck: “When we met with the SEC, they told a story that there was a fund that had changed its valuation methodology three times over the span of two or three years, yet each change was disclosed to the investors. They told (investors) what they were doing, explained how this changed the valuation methodology, and, at the end of the day, the SEC didn’t find a deficiency because the change in methodology was disclosed.”

POTENTIAL CONFLICTS OF INTEREST This covers a large area, of course, but Reynolds and Gluck say the SEC is interested in myriad potential conflicts that are specific and endemic to private fund managers. One area of focus has to do with the allocation of deals and expenses among multiple funds. Again, the SEC can’t tell you what a proper policy looks like in this regard, but it does know a “loosey-goosey” approach when it sees one. Says Gluck: “The SEC has expressed great concern that fund managers are passing fees and expenses off to their limited partners or off to portfolio companies. (SEC Director of the Office of Compliance Inspections and Examinations) Andrew Bowden said that 50 percent of the private equity funds that they’ve examined have had material problems with controls or fees and expenses.”

One type of expense that doesn’t necessarily involve the most dollars, but seems to inspire great exasperation, is luxury travel. The SEC will ask, “Did your investors benefit from your Gulfstream G450 trip from Houston to Chicago, or just you?” Reynolds tells a story: “We had a client who was doing work in Alberta and they had to hit six different locations. They loaded up about six guys on a private jet and went to each one of those. The SEC came in and said, ‘That was improper. I can’t believe that you did this.’” The client then showed the SEC that commercial travel to the multiple locations would have been more expensive, and the commission dropped the objection.

COMPLIANCE PROGRAMS Your firm may have crafted a compliance program, but you may be shocked to learn that it isn’t good enough in the eyes of the SEC. Gluck and Reynolds explain that too many GPs fall short for an understandable reason: failure to adequately structure cultures of compliance around functions that are not, in fact, core to the business of private investing.

As Reynolds puts it, much of the rigor required by the Investment Advisers Act “doesn’t feel like it makes sense,” because of rules touching on, for example, personal stock trading records in a market dominated by investments in private companies. But arguing that certain rules are too obscure for private equity won’t get you very far. Gluck argues that a GP group should be “complying with all of the record keeping and reporting requirements, because the SEC is not going to be very sympathetic if you aren’t complying simply because you say, ‘Well, we weren’t aware of that.’

It’s the responsibility of the adviser to be aware of the rules and regulations that the fund is subject to.”

INVESTMENT ADVISERS ACT RIGOR Like it or not, many private equity firms are now Registered Investment Advisers and must behave according to the Investment Advisers Act, brought into law in 1940. An adequate compliance program will incorporate all of the sometimes less-relevant rules of this act.

In fact, says Reynolds, the SEC often uses certain rules within the act as “threshold items” for determining to what extent a firm has an adequate compliance program in place.

One such item is compliance with the custody rule—viewed (unadvisedly) by some GPs as irrelevant to their business.

“Complying with the custody rule is very important for a private equity fund because when (the SEC does) come in for an exam, it’s one of the first areas they’re going to look at,” says Reynolds. “If a fund isn’t complying with the custody rule, even if it is expensive, (the SEC views) that it could be indicative of a greater likelihood that there is other wrongdoing going on, or other failures to comply, as well.”

The SEC’s Office of Compliance Inspections and Examinations has asked for a staff increase of some 75 percent, with the added people primarily focused on the private funds market. This means that all registered GPs should expect inspectors to come calling. When they do, Gluck and Reynolds recommend extreme self-awareness and documentation. This doesn’t always come naturally to private equity professionals.

“The SEC is coming,” says Gluck. “The most important thing a fund manager can do right now is to know their LP agreement, go through their expenses, do an internal review, and see if they have an issue, because if they do have an issue, it’s infinitely better if they figure it out now rather than have the SEC figure it out.” // David Snow is co-founder and CEO of Privcap, a digital media channel for the private equity community.

“COMPLYING WITH THE CUSTODY RULE IS VERY IMPORTANT FOR A PRIVATE EQUITY FUND BECAUSE WHEN (THE SEC DOES) COME IN FOR AN EXAM, IT’S ONE OF THE FIRST AREAS THEY’RE GOING TO LOOK AT.” Matt Reynolds Director of Financial Services, McGladrey

MID D L E-M A R K E T P UB L I C P O LICY S U M M IT P R I V A T E C A P I T A L , P U B L I C G O O D .SM

J A N U A RY 2 7 , 2 0 1 5 7 : 3 0 A . M . â&#x20AC;&#x201C; 1 : 3 0 P. M .

PA R K H YAT T WA S H I N G T O N , D . C .

On Tuesday, January 27, take your seat at the policy table along with members of Congress, regulators from key federal agencies, media and other influential policy leaders at the ACG Middle-Market Public Policy Summit.

J O I N T H E C O N V E R S AT I O N .

REGISTER TODAY * D etails regarding hotel reservations at the Park Hyatt Washington, D.C. will be included in the confirmation email sent immediately after registering for the meeting.

A QUALIFIED OPINION KAREN MOON // Co-founder and CEO of Trendalytics

K

aren Moon runs New York-based Trendalytics, a software platform that measures consumer engagement with merchandise trends for retailers.

Moon has worked in the retail industry, including a stint at Gap Inc., as an investment banker at Goldman Sachs and with retail portfolio companies at the private equity firm Goode Partners.

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WHAT IS TRENDALYTICS AND WHY DO RETAILERS NEED YOUR HELP?

T

rendalytics is a visual data platform that analyzes consumer engagement patterns with product styles such as “boyfriend jeans” or “combat boots” across social chatter, search behavior and shared images.

Why is this relevant to brands and retailers? Fashion companies need to make decisions on which products to focus their investments, where to allocate (those products) and when to time deliveries and markdowns. Currently, most companies rely primarily on prior-year performance to forecast the future, often in isolation because they have limited access to data on how consumers are engaging with products across the industry and how trends are evolving. However, historical performance does not take into account changing consumer preferences or missed opportunities, which many retailers say are the greatest challenges to driving consistent growth in their businesses. Trendalytics empowers its clients to stay ahead of consumers and the competition by providing actionable insights on consumer adoption of product trends, regional demand and online shopping behaviors.

Photo by Brad Trent

A QUALIFIED OPINION KAREN MOON // Co-founder and CEO of Trendalytics

K

aren Moon runs New York-based Trendalytics, a software platform that measures consumer engagement with merchandise trends for retailers.

Moon has worked in the retail industry, including a stint at Gap Inc., as an investment banker at Goldman Sachs and with retail portfolio companies at the private equity firm Goode Partners.

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HOW DOES THE TRENDALYTICS CONCEPT WORK?

L

et’s use one category as an example—denim. If you’re looking at denim bottoms, you have skinny jeans, which have been really popular, and then you have wide-leg jeans, distressed jeans, boyfriend jeans—that’s one that’s really gaining traction. So in the entire denim category, let’s say I have $10 million to spend. I need to make a decision six to 12 months in advance about how much to invest across each style and what to focus on in my creative campaigns for magazines; so how do I start to think about that? Often fashion trends don’t happen overnight, and if you analyze history there are very predictable patterns, so we’re mapping them and putting more of a science to it. Our proprietary algorithms identify leading indicators in the adoption of product trends across the industry for apparel, accessories and beauty.

Photo by Brad Trent

A QUALIFIED OPINION KAREN MOON // Co-founder and CEO of Trendalytics

K

aren Moon runs New York-based Trendalytics, a software platform that measures consumer engagement with merchandise trends for retailers.

Moon has worked in the retail industry, including a stint at Gap Inc., as an investment banker at Goldman Sachs and with retail portfolio companies at the private equity firm Goode Partners.

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HOW DOES SOCIAL MEDIA INFLUENCE FASHION?

S

ocial media is merely a channel that funnels all the conversations happening around us and a conduit to allow ideas to spread more quickly. Fashion choices have always been driven by tastemakers and then fueled by brands and retailers with messages to a broader consumer.

Currently that’s happening faster than ever, which has an impact on the life cycle of many product trends. Trendalytics monitors consumer demand patterns across regions over time and identifies tipping points of when trends percolate from early adopters to a broader consumer set. Analyzing this in a quantitative way was not possible a few years ago, but it is today with the exponential growth in data.

Additionally, there are several secular changes that have been happening in fashion—individuality of style, more nimble production cycles, public sharing of our lives that makes our image more important than ever—that make understanding these patterns important for building a profitable business in fashion.

Photo by Brad Trent

A QUALIFIED OPINION KAREN MOON // Co-founder and CEO of Trendalytics

K

aren Moon runs New York-based Trendalytics, a software platform that measures consumer engagement with merchandise trends for retailers.

Moon has worked in the retail industry, including a stint at Gap Inc., as an investment banker at Goldman Sachs and with retail portfolio companies at the private equity firm Goode Partners.

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DOES TRENDALYTICS’ CONCEPT APPLY TO OTHER INDUSTRIES?

I

t does. Basically our platform is designed for product trends starting first with fashion, but we also track data on beauty and home. We’ve decided to focus on categories where visuals are really important. Trendalytics is patenting how to interpret text data and images in a more comprehensive way because consumers describe things differently. If we go back to the denim example, the same product can be described by people as denim, jeans or chambray, so how do we tile those pieces together? There are all different ways of describing images.

Could we apply this to cars one day, or to toys? Absolutely.

We’re already working with a department store that is interested in improving its process in apparel and accessories first and then applying the method to its other categories, such as toys.

Photo by Brad Trent

A QUALIFIED OPINION KAREN MOON // Co-founder and CEO of Trendalytics

K

aren Moon runs New York-based Trendalytics, a software platform that measures consumer engagement with merchandise trends for retailers.

Moon has worked in the retail industry, including a stint at Gap Inc., as an investment banker at Goldman Sachs and with retail portfolio companies at the private equity firm Goode Partners.

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WOULD YOUR DATA BE USEFUL TO PRIVATE EQUITY INVESTORS?

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s a former private equity investor, I would have used social, search and e-commerce analytics data if I had access to them: first, to monitor portfolio companies and second, to make investment decisions and validate valuation assumptions.

For example, Trendalytics’ first client project was competitive benchmarking for a retail private equity deal.

The firm was interested after I shared a case study we did that linked the stock price and financial performance of two public accessories companies to their website traffic, search patterns and social media engagement. For any consumer-facing company—whether food, handbags, cars or apparel—it’s important to understand how its online activity ranks against competitors. These are important ways of benchmarking brand affinity, awareness and whether a brand is gaining or losing popularity with consumers relative to its competitors. These are all things that should matter to an investor.

Photo by Brad Trent

CAPITAL. CONNECTIONS. DEALS.

APRIL 13 â&#x20AC;&#x201C; 15, 2015 H I LT O N B O N N E T C R E E K A N D W A L D O R F A S T O R I A ORLANDO, FLORIDA

S A V E T H E D AT E . S TAY U P D AT E D .

W W W. I N T E R G R O W T H . O R G

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

WISCONSIN LOS ANGELES

GREAT LAKES

MID-SOUTH CENTRAL TEXAS

TAP CITIES TO NAVIGATE TO ARTICLE

ACG MID-SOUTH

Mid-South Event Full of Southern Charm More than 400 attendees arrived in Music City, USA, this summer to attend the Mid-South ACG Capital Connection®, a conference with Southern flare.

The conference opened with a reception at the Country Music Hall of Fame, featuring Southern cuisine and a performance by country music star Kristian Bush. Local themes continued the next morning with an address from Nashville Mayor Karl Dean and a presentation from Jerry Bostelman, founder of Tennessee-based employee placement firm Vaco.

The conference’s showcase of equity providers featured a Jack Daniel’s-sponsored whiskey tasting, and attendees learned more about the brand from Jack Daniel’s greatgrandniece. At the Music City Center Convention Hall, panel discussions featured industry leaders who shared their perspectives on the health care and beverage sectors, along with their outlook for the future.

Next year’s conference will be held in another iconic Southern city—Louisville—with an afternoon planned at Churchill Downs. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE OUTSTANDING COMPANIES // ACG Central Texas Award finalists and winners.

ACG CENTRAL TEXAS

ACG Central Texas Awards Regional Companies at Luncheon ACG Central Texas held its annual Outstanding Growth & Emerging Company Awards luncheon at the Four Seasons Hotel in Austin. For the first time, the chapter co-hosted the event with the Austin chapter of Entrepreneurs’ Organization, a global network of business owners.

The Texas-based companies were nominated for their sustained growth and financial performance and competed within four categories based on annual revenue and the location of their headquarters.

The four winning firms illustrate the diversity of industries in the region: Forestar Group, a real estate, mineral and fiber resource company; AEPS, a provider of operations services to the U.S. government; The New Office, a workplace technology services firm; and Lake Truck Lines, an oil field transportation and logistics company.

In addition to the awards presentation, the luncheon featured keynote speaker Erik Qualman, author of the book “Socialnomics,” who spoke about the ways social media is transforming how we live.

The event was attended by executives from the Central Texas business community and was such a success that plans are already underway for the 2015 awards event. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE NETWORKING // Attendees mingled on the “Center Ice” of the Nationwide Arena.

ACG GREAT LAKES

ACG Great Lakes Comes to Columbus In September the Great Lakes ACG Capital Connection® welcomed over 900 middle-market dealmakers to the Nationwide Arena in Columbus, posting record-setting attendance for the annual conference.

The two-day event, a collaboration between seven Midwest ACG chapters, featured a well-attended ACG Capital Connection showcase and a packed program offering both business insight and entertainment.

The conference opened with a luncheon address from Congressman Steve Stivers, R-Ohio, who spoke about his involvement with the Congressional Caucus for Middle Market Growth and the immense contribution of midsize businesses to the economy.

The following day, naturalist and television personality Jack Hanna talked about his role with the Columbus Zoo and introduced the audience to exotic animals onstage. During the closing luncheon, economist and former White House Economic Policy Director Todd Buchholz used a media presentation to discuss the present state of the American economy and how we got here.

The event closed with the announcement of results of the conference’s raffle, which raised $5,000 for the Ronald McDonald House. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE EXPERT INSIGHT // Panelists shared their perspectives on a wide range of topics during the conference.

ACG LOS ANGELES

ACG LA Event Earns Marquee Billing Former Fed Chairman Ben Bernanke, NBA Commissioner Emeritus David Stern and retired Gen. David Petraeus were among the headliners helping ACG Los Angeles draw a packed house of 1,200 attendees at its annual two-day Business Conference.

Bernanke was positive about the current state of the U.S. economy, but remained concerned about Europe’s pervasive instability.

“Knock on wood, I’m encouraged where we’re going,” he said at the opening lunch on Sept. 16. But Europe’s economy, he warned, “is very soft, very flat,” with stalwarts such as Germany now showing signs of weakness.

Stern, who spoke on the second day, tracked the National Basketball Association’s evolution over his 36-year career. He helped transform pro basketball from a lackluster sport in the 1970s to its current position as a global enterprise watched in 215 countries and translated into 47 languages.

“Sports allow us to engage the world in important conversations,” Stern added, noting that debates about issues such as racism and domestic violence take center stage when celebrity players are involved.

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

Petraeus, who closed the conference, addressed a range of topics, including the U.S. war with the Islamic State of Iraq and Syria, which he foresees as a protracted conflict requiring improved coordination between the U.S. and its allies.

He ended on an up note, suggesting that coming decades will bring renewed prosperity to the United States, which is set to benefit from an “energy revolution,” as well as a resurgence in manufacturing, information technology and the life sciences.

Interspersed throughout the two days were a series of featured speakers and panels covering topics such as the impact of the Affordable Care Act on private equity firms, current M&A trends in media and telecoms, and the challenges of banking in “frothy” capital markets, among others.

There was no shortage of glitz at the event, which was held at the historic Beverly Hilton, known for hosting the Golden Globes and its roster of legendary star-studded guests whose portraits line the hotel walls.

Amid record hot temperatures in Southern California, attendees cooled down at a rooftop ACG Capital Connection®, a poolside cocktail hour and a series of private events hosted by banking, legal services, accounting and consulting sponsors. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE ACG WISCONSIN

Surprise Speaker Delights Attendees in Wisconsin Attendees at ACG Wisonsin’s annual Growth, Leadership and Human Capital conference in September benefited from networking opportunities and thought-provoking presentations, including one from an unannounced guest.

Prompted by the cancellation of a previously scheduled speaker, the chapter quickly secured political commentator, former member of the United States House of Representatives and retired U.S. Army Lt. Col.

Lt. Col. Allen West

Allen West as a worthy replacement.

ACG Wisconsin President Tom Walton, managing director of Hanley, Hammill, Thomas, announced the change during the event’s opening remarks.

“Col. West was in Milwaukee for a speaking engagement at Marquette University,” said Walton. “Members of the ACG Wisconsin leadership team met him serendipitously the night before and invited him to attend.

Little did we know that he would later graciously accept an invitation for an unexpected speaking opportunity. His delivery was flawless and the message on the importance of leadership within the U.S. business community was powerful.”

Joining West for the conference’s signature TED Talk-style encore was Montage Talent CEO and interviewing technology expert Kurt Heikkinen, and author, speaker and human resources executive Susan Schmitt from Rockwell Automation. Together the three speakers offered innovative ideas on strategic business leadership and addressed top-of-mind talent development concerns.

Other program highlights included a presentation from Rita McGrath, author of “The End of Competitive Advantage” and an expert on strategy in uncertain and volatile environments. Doug Tatum, chairman of the Newport Board Group and ACG Global board chairman, followed, detailing his latest research on the middle market.

ACG Wisconsin member Richard Danning, CFO, MetalTek International, credited McGrath and Tatum with “challenging (his) thinking,” observing, “They were provocative without having to go over the top...I found them incredibly interesting.” //

Rita McGrath, author

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THE PORTFOLIO INSIGHT FROM THE EXPERTS

SOUND DECISIONS

MID-MARKET TRENDS

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IN THIS ISSUE SOUND DECISIONS

MID-MARKET TRENDS

The America Invents Act makes patent marking easier, helping firms protect their intellectual property.

The National Center for the Middle Market unveils new research on achieving operational effectiveness.

COMING SOON Check out the Portfolio section of the January/February issue for more on the latest middle-market trends, written exclusively by our team of expert ACG Partners. To learn more about contributing to this section, please contact Meredith Rollins, (312) 957-4260.

These articles are brought to you by ACGâ&#x20AC;&#x2122;s Global Partners.

THE PORTFOLIO SOUND DECISIONS // Frank M. Gasparo, Chairman of Intellectual Property Litigation and Jillian A. Centanni, Patent Attorney, Venable LLP

SOUND DECISIONS

MID-MARKET TRENDS

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IP Strategy—‘America Invents’ Act Allows for Virtual Marking

C

onsumer products are everywhere, and while a consumer may not care that a consumer product is patented, your company most definitely should. How can a corporation ensure that the public and its competitors are properly notified that a product is patented?

The America Invents Act has created a more flexible standard for effective patent protection.

Through the use of patent marking, pat-

ments through virtual marking. The AIA

ent owners notify the public that a product

has created a flexible standard where a

is protected by a patent. A patent owner

patent owner can “virtually” mark a prod-

must also take “reasonable steps” to ensure

uct with a patent number via the Internet.

that all of its patent licensees are marking

Patent owners and their licensees may 1)

their covered products. It is best to mark

mark their products with “Pat.” and the

the product itself—e.g., “Pat. 1,234,578” or

patent number; 2) mark their products

“Pat. Pending.” Failure to mark a product

with “Pat.” and an Internet address that

properly can have costly ramifications,

associates the product with the patent

as a company may not be able to recover

number; or 3) use a label on the product

all potential damages from the sales of an

or packaging for the product that includes

infringing product, as outlined by Title 35,

“Pat.” and the patent number or Internet

Section 287 of the U.S. patent code. Tradi-

address when it is impossible to mark the

tionally, under Section 287 a patent owner

product. This process now makes it easier

may collect damages only if adequate no-

for patent owners and licensees to avoid

tice—actual or constructive—was given of

the expense and effort required to update

the patents at issue. Thus, implementing

and maintain patent information on their

an effective patent marking strategy for a

products by simply updating and main-

product that draws on a large patent port-

taining patent information about their

folio could be costly and burdensome to the

products on the virtual marking website.

patent owner.

Although the traditional method for pat-

Although the AIA provides an easier pathway for marking products, patent

ent marking is still available, the America

owners and their licensees still need to

Invents Act makes it easier for patent own-

exercise care and diligence. Listing patents

ers to comply with patent marking require-

and products on a website without provid-

THE PORTFOLIO SOUND DECISIONS // Frank M. Gasparo, Chairman of Intellectual Property Litigation and Jillian A. Centanni, Patent Attorney, Venable LLP

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS ing the appropriate associations between

and the importance of updating and main-

them will not be sufficient to comply with

taining information about their products

the patent marking guidelines. Addition-

on the virtual marking website. //

ally, marking or associating products with

â&#x20AC;&#x201D;Frank M. Gasparo & Jillian A. Centanni

a patent that does not cover those products Frank M. Gasparo

may place the patent owner and its licens-

Venable LLP is a global law firm practicing in

ees at risk for false marking liability. In or-

all areas of corporate and business law with

der to mitigate this risk, it is important for

more than 600 attorneys in nine offices across

companies to consult frequently with their

the country.

patent counsel to discuss patent coverage

Jillian A. Centanni

THE PORTFOLIO MID-MARKET TRENDS // Peter T. Ward, Professor of Management Sciences, The Ohio State University Fisher College of Business

SOUND DECISIONS

MID-MARKET TRENDS

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An Excerpt From “The Operations Playbook”

W

hen middle-market executives put their minds to it, they can make big improvements in operational effectiveness. Whether they use a methodology like Six Sigma or take a more idiosyncratic approach to improving a process or task, their success rate tends to be high.

Openness and flexibility make middle-market companies more effective problem solvers.

As a whole, middle-market executives

When they see such problems, most man-

rate themselves high on operational

agement teams get their people to work

effectiveness; but they place the bar even

together and fix them.

higher and see a strong need to improve

But if problems with operations can’t

their performance. Our experience shows,

be ignored, they can certainly be handled

and the data confirm, that operational im-

sub-optimally. For instance, companies

provements tend to last longer—they are

don’t always have open discussions

“stickier”—when they are comprehensive

about operations problems; sometimes

and systematic.

they cover them up or simply fail to

According to new research conducted by

report them. Nor do companies always

the National Center for the Middle Market

look for the root causes of problems—

in collaboration with Dr. Peter Ward of the

they sometimes opt for quick solutions,

Center for Operational Excellence at The

potentially allowing a problem to re-

Ohio State University Fisher College of

emerge later. And companies often lack a

Business, we have concluded that opera-

well-defined approach to problem-solving,

tions should be managed as a system com-

opting instead for a more ad hoc response

prised of four interlocking subsystems,

that can waste time and fail to take

including the Problem-Solving Subsystem.

advantage of previous learning.

In the area of problem-solving, midsize

Problem-Solving Subsystem No operations group, whether part of a

companies tend to be better than larger companies, perhaps because their top

midsize company or a large one, ignores

executives are often closer to operations

problem-solving. A product company

and because the feedback loops are shorter.

wouldn’t be able to survive if some part of

For example, middle-market organizations

its assembly line kept breaking down. A

are more apt than large companies—70

service company would lose business if its

percent and 60 percent, respectively—to

customers were inconvenienced by delays.

say they report or discuss problems

THE PORTFOLIO MID-MARKET TRENDS // Peter T. Ward, Professor of Management Sciences, The Ohio State University Fisher College of Business

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

when problems occur, middle-market

Take the Problem-Solving Subsystem Questionnaire

companies are more likely to look for root

Please indicate how much you agree

causes as opposed to making quick fixes

or disagree with each of the following

(66 percent compared with 55 percent for

statements. Select one answer for each

large companies). Bureaucratic reflexes,

statement:

rather than trying to cover them up. And

Peter T. Ward

such as delays and attempts to obfuscate, aren’t as common in organizations with less bureaucracy. This may make it easier for middle-market companies to improve their processes incrementally, and without the expensive major change programs that larger companies often rely on.

On the other hand, only about one in five midsize companies strongly agrees that they have well-established methods

5 = STRONGLY AGREE 4 = SOMEWHAT AGREE 3 = NEITHER AGREE NOR DISAGREE 2 = SOMEWHAT DISAGREE 1 = STRONGLY DISAGREE ____ There is an agreed-upon routine method for addressing problems when they are uncovered. ____ Reporting or discussing problems

for addressing problems once they surface.

rather than covering them up is

The percentage of strong agreement on

common in this organization.

this topic is even lower at large companies,

____ People in this organization often

suggesting this is a problem area for

seem to be solving the same

companies of all sizes and types.

problem over and over. ____ When problems occur, we usually

To-Dos to Achieve and Sustain Operations Excellence: • Institute an open reporting system to raise problems.

To learn about the other subsystems and to compare your results on problem-solving to the broader middle market, read the full report.

focus on finding the root cause rather than quick fixes. ____ People work together to solve problems.

• Train supervisors and employees to use problem-solving tools that focus on

____ Your company’s score //

identifying root causes.

• Use cross-functional, team-based approaches to solve problems.

• Share lessons learned to minimize recurrence of problems.

The National Center for the Middle Market is a collaboration between GE Capital and The Ohio State University Fisher College of Business. To learn more visit www.middlemarketcenter.org.

Want to tap into the middle market?

LEARN ABOUT ADVERTISING OPPORTUNITIES IN MIDDLE MARKET GROWTH AND REACH 30,000+ MIDDLE-MARKET PROFESSIONALS. CONTACT US OR DOWNLOAD THE MEDIA KIT TO GET STARTED TODAY.

DOWNLOAD MEDIA KIT Contact Meredith Rollins at mrollins@acg.org // 312-957-4260

The official publication of

THE LADDER ACG MEMBERS ON THE MOVE MB Financial Inc. in August

Riverside Partners, a

acquired Taylor Capital Group

Boston-based private equity

Inc. in the largest merger of two

firm, sold Innovative Product

Chicago-based banks. Cole

Achievements LLC, a Georgia-

Taylor Business Capital is now

based manufacturer of surgical

MB Business Capital, an asset-

scrub and linen dispensing

based lender providing financing

equipment, to publicly traded

solutions to middle-market firms.

Roper Industries Inc., a diversified technology company.

Jason Hubbard of ACG Tampa

Jason Hubbard

Bay was promoted to associate

Kashif Hussain, a member

at KLH Capital, a Tampa-based

of ACG Los Angeles, was

private equity group, where

appointed audit leader for

he is responsible for business

the private equity practice of

development, due diligence and

BDO USA in the firm’s L.A.

financial analysis.

Kashif Hussain

office. Hussain will help BDO, a professional services firm,

James Kuncl of ACG Chicago

execute its private equity growth

was promoted to senior vice

strategy in the western region.

president at TCF Capital

James Kuncl

Funding, the cash flow and

NXT Capital, a commercial

asset-based lending division of

finance company headquartered

Minnesota’s TCF National Bank.

in Chicago, acted as lead agent and provided a senior

ICV Partners, a New York-

secured facility to finance private

based private equity firm,

equity firm Graham Partners’

announced the acquisition of

acquisition of HemaSource

OneTouchPoint, a commercial

Holdings LLC, a supplier of

printer and document services

disposable medical products.

company previously owned by Huron Capital Partners.

To submit your promotions, job changes and other accomplishments, please send information and a color photo (hi-res 300 dpi or above) to Associate Editor Kathryn Mulligan.

B-SIDE HEATHER BRIDGERS // Founder and CEO, Just for KiiX

INVENTING KIIX...

“I looked for something that would protect my heels without changing the look, and I couldn’t find anything.

So I decided that I would work toward finding a solution. There’s nothing more maddening than wearing a pair of heels you love and getting caught in a grate or crack.”

HEATHER BRIDGERS // A Raleigh-based inventor, entrepreneur, attorney and mother, Bridgers is the founder and CEO of Just for KiiX, a maker of virtually invisible protectors for women’s high heels sold at numerous retailers, including Nordstrom.

“THE MOST IMPORTANT THING IS TO ASSEMBLE A GOOD TEAM AND TO REALLY WORK ON BUILDING RELATIONSHIPS WITH THEM.”

WORKING WITH MEN... “(When developing the KiiX adhesive) I would come visit the professor and he would close his door and pull out a box of high heels he had hidden under his desk.”

BEST AIRPORT...

INSPIRATIONAL FIGURE...

“Sara Blakely, the Spanx founder. The brand has been so successful and she has done a lot of things for the community. She’s really given back and has a great program to support women entrepreneurs who are just getting started.”

“I PLAN OUT MY DAYS THE NIGHT BEFORE, ALMOST TO THE MINUTE.”

FAVORITE SHOE...

“I love a pointy-toed pump, even though they’re probably some of the most uncomfortable.”

“I love the Charlotte airport—it’s so open. Plus I love the rocking chairs, there are plenty of outlets and people are friendly.”

APP I CAN’T GIVE UP...

“I like an app called Waze because it helps you navigate directions, but also gives you traffic updates. If you’re stuck in traffic it’ll ask you what’s going on, so it’s interactive and people can type in accident information and locations.”

IT’S THE SMALL THINGS CURATED CONSUMPTION TRENDS // I Did It Myyyyy Way

1

DRESSED FOR SUCCESS //

2

HEEDING THE CALL OF NATUREBOX //

Nordstrom recently paid $350 million in stock for Chicago-based Trunk Club, a 5-year-old online menswear service that provides style advice and trunks of handpicked premium clothes for clients.

7

PRETTY IS AS PRETTY DOES //

In just 3.5 years, Birchbox, a N.Y.-based startup selling curated boxes of beauty samples, has grown to $96 million in annual sales—all with $12 million in venture capital and a recent $60 million in Series B funding.

6

NatureBox, founded in 2011, recently raised $18 million in Series B funding for its customized snack delivery business.

BRINGING UP BABY //

Three-year-old Citrus Lane, the e-commerce startup that sells monthly subscription boxes of products for infants and children, was recently acquired

by Care.com for $48.6 million.

5

BOUGHT FOR A SONG //

Google Inc. in July 2014 acquired 4-year-old Songza, which creates “expertcurated” music playlists intended to match users’ activities and tastes.

3

POINT, CLICK, CONSUME //

So-called discovery commerce startups, which fine-tune merchandise selections based on consumer preferences, are taking advantage of e-commerce. U.S. e-commerce sales hit $263.3 billion in 2013, an increase of 16.9% over 2012, accounting for 5.8% of total retail sales in the U.S.

4

FLIPPING OUT OVER ONLINE CONTENT // Flipboard, the app that lets you make a personal magazine by aggregating your favorite online publications, blogs and social feeds, is aiming to pass 150 million users in 2014.

—Larry Guthrie, manager, communications and marketing, ACG Global

THE LEADERSHIP ACG DIRECTORS ACG BOARD OF DIRECTORS //

CHAPTER REPRESENTATIVE DIRECTORS //

DIRECTORS AT LARGE //

Chairman Doug Tatum* Newport Board Group ACG Atlanta Term expires 8/31/2015

Brent Baxter Clayton Capital Partners ACG St. Louis Term expires 8/31/2017

Jason Brown Victory Park Capital ACG Los Angeles Term expires 8/31/2016

Bradford Adams TM Capital ACG Boston Term expires 8/31/2015

Jason Byrd The Charter Group ACG Western Michigan Term expires 8/31/2017

Robert Brighton Shutts & Bowen, LLP ACG South Florida Term expires 8/31/2017

Greg Cinnamon Kilpatrick Townsend & Stockton LLP ACG Atlanta Term expires 8/31/2015

Roy Graham Corporate Finance Associates ACG Central Texas Term expires 8/31/2015

Mike Ehlert Capital One Leverage Finance Corp.

ACG Dallas/Fort Worth Term expires 8/31/2015

Karen Grexa KeyBank Business Capital ACG New Jersey Term expires 8/31/2017

Brian Gilbreath Merrill Corporation ACG Nebraska Term expires 8/31/2015

Jay Hansen O2 Investment Partners ACG Detroit Term expires 8/31/2017

Ramsey Goodrich Carter Morse & Mathias ACG Connecticut Term expires 8/31/2016

Patricia King Bank of America Merrill Lynch ACG Tennessee Term expires 8/31/2015

Don Lipari McGladrey ACG New York Term expires 8/31/2017

Robert Napoli First West Capital ACG British Columbia Term expires 8/31/2015

Angie MacPhee RGL Forensics ACG Denver Term expires 8/31/2016

Walter Oâ&#x20AC;&#x2122;Haire Valuation Research Corp.

ACG San Francisco Term expires 8/31/2017

Gretchen Perkins Huron Capital Partners ACG Detroit Term expires 8/31/2016

Steve Peterson Brass Ring Capital, Inc. ACG Wisconsin Term expires 8/31/2015

Karen Tuleta Morgenthaler ACG Cleveland Term expires 8/31/2017

Hans-Josef Vogel Beiten Burkhardt ACG Germany Term expires 8/31/2015

Tom Washbush Bricker & Eckler LLP ACG Columbus Term expires 8/31/2015

Vice Chairman Richard Jaffe* Duane Morris LLP ACG Philadelphia Term expires 8/31/2015 Chairman of Finance Stephen Prostor* Citi Private Bank ACG New York Term expires 8/31/2015 Secretary J.B. Dollison* Crutchfield Capital Corporation ACG Houston Term expires 8/31/2015 Immediate Past Chairman Pamela Hendrickson* The Riverside Company ACG New York Term expires 8/31/2015 President & Chief Executive Officer Gary A. LaBranche, FASAE, CAE* ACG Global

ACG HONORARY DIRECTORS // Robert G. Coffey Alan B. Gelband *denotes member of Executive Committee

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