Lead Left Interview – Doug Cruikshank & Rafael Castro (Part 2)

This week we continue our conversation with Doug Cruikshank, Managing Partner and Rafael Castro, Director, Enhanced Capital. Enhanced Capital is a small business investment firm focused on established lower middle market companies often overlooked by traditional sources of capital due to location or size.

Second of two parts – View part one

The Lead Left: What are sponsors attitudes to this type of lending? My experience is that guaranties are a bright line they rarely allow lenders to cross over.

Rafael Castro: They love it. First, thanks to the credit crisis, hold periods for their investments have gone up, It’s delayed take-outs to over six years. 40% of all companies owned by 2005-2008 vintage funds are still held by the PE firm. That means the fund is outside its reinvestment period.

Doug Cruikshank: But they still need to keep the capital invested, despite the fact that the fund is out of dry powder. These are pivotal companies that may be in disfavored industries. It helps, for example, that we don’t need a quality of earnings report. We frankly don’t care about the portfolio company as much. And we move very quickly. We’ve closed deals in as little as 20 days. That’s because it’s all about the sponsor.

TLL: And how many portfolio companies do you now have?

RC: In the current fund we have ten companies across six different sponsors and one high net worth individual. Plus there are 5-10 other sponsors we’re currently working with on deals.