Last week, I met with a friend who left a very high-profile role in-house (head of risk, compliance, sustainability at an S&P 500) to start a company that helps other in-house folks get the right tech providers. I had no idea that was a thing. As he explained it, it became clear that’s something some of us tacitly do. Then, this week, I spoke to a development finance institution who were taking on an ex-risk consultant as a contractor. This person’s role is to vet the existing external due diligence providers (screening tools to full-blown background checks), and propose a rightsized approach; what should be internal, and which elements are best outsourced, to whom, how, and with what requirements?
Over the years, I’ve done this. Albeit not as a service. Goodwill, really. For example, when we started to see the power of behavioural analysis on shaping risk, I introduced some interested parties to a firm that specialises in psychological safety assessments. More recently, I met the founder of a speak-up, whistleblowing, and grievance mechanism platform. They’re making the platform available to organisations with <500 employees at a very reasonable (low) cost. That’s really useful in the work with SMEs (often as they seek, or get, funding, with associated requirements they implement such a framework). Traditional options can be very expensive, clunky, or just overkill.
Last week, it was back to due diligence - introducing a genuine disrupter to a few clients. The premise is fairly simple - ~5% of the internet is indexed by search engines. They have built tools to mine the other 95%, resulting in truly impressive results. For example, identifying one of the biggest frauds in the past decade months before it was publicly known. Or evidencing (using private jet geolocation) that parties to a M&A deal were meeting covertly, and in contravention of legal agreements.
This week, it’s the other end of due diligence - asset tracing and litigation support. Here, the question was around how to dovetail the above-mentioned tech solutions with high-end old-fashioned sleuthing. The problem, for many, is that the larger risk advisory firms promise this and bate you with wisened partners, only to swap them out for a junior researcher who lacks the connections, guile, and know-how to access that hard-to-get intel.
As an ex-colleague and friend, now at a multilateral, picked my brains on all these topics earlier today, he said, “Why don’t you just teach people to do what you do?” I could (frequently) use a break from my own head, so it baffled me slightly that the contents might have utility in packageable form. As serendipity would have it, the next call was about development finance (debt financing major infrastructure projects in places where you can’t drink the tap water). As we reviewed the workflow the penny dropped. This organisation would (likely) spend hundreds of thousands of dollars on E&S, compliance, legal, financial, feasibility, technical, and other studies and diligences BEFORE even arriving at a decision to lend, or not. That’s a staggering waste.
To explain why, let’s briefly head to Vietnam. Each year, the ruling Communist Party, get together and create a “masterplan.” The plan covers everything (infrastructure projects, economic development goals, etc.). A few years back, a client was considering if to enter the burgeoning renewables space. The normal model would involve screening each opportunity using the thousands of dollars wastage above. Instead, we looked at all the energy projects on the masterplan. If they all went through, Vietnam would have about 5-7 times more energy that it needed. A problem in a country with little storage capacity (as one data-point, there are two refineries, but only one isn’t about to collapse). We could, therefore, assume most of those projects are vanity sops and attempted extortion by corrupt Politburo cronies. Perhaps then, it’s better to view the market like a private equity firm might: how do we achieve product-market fit, and a balanced portfolio. In plain English, which projects have genuine support (legs), and which of those could the renewables firm potential help with (e.g., if it’s already a geopolitical done-deal; Chinese project financing).
As this example came into my head, I got it. I understand why my friend doing risk+provider match-making is busier than he’s ever been. It can be hard to know (from inside) what projects, approach, tech, and advisors to (not) use. Find people, like my friend, who have this knowledge in their heads, it could save you thousands!
High-risk, high-reward side hustles
One article suggests that, as of February 2024, baby boomers owned about 51% of the privately held businesses in the United States, which is about 3 million businesses valued at $10 trillion.
So what?
Last week, I met a guy in Manchester with a background in software who now flips boomer businesses. He (with debt financing) will buy a founder-led business with no heirs, and “stick in some software, so we move away from pens, paper, and what’s in the owner’s head.” This act, coupled with some other cosmetic changes (rebrands, etc.) make the business more palatable to private equity. Like house-flipping, only with less builders 😉.
As we spoke, I wondered what other enhancements might add value. For instance, improved financial and risk management. The discussion continues.
So, my question is: would you consider doing a fractional risk, legal, or compliance role if you had skin in that game (i.e., benefitting from the proceeds of the private equity sale)? Just an idea. But maybe a welcome one, when the news is all doom and gloom around rollbacks on the areas we work in (enforcement mothballed, acronym annihilation, etc.).