The Forgotten Middle

At Catalus our focus is investing in middle market companies.  These are loosely defined as businesses with revenue between $10 million and $1 billion.  I'm not an economist so I won't recite the statistics, but, according to an opinion piece in the WSJ, the middle market produces 40% of our nation’s GDP and employs 32 million people. At Catalus we believe this market is full of potential.  It is the glue that keeps the US economy together and spurs innovation.  It is where tomorrow's leaders are born and how America stays competitive globally.  The general public, the government, and most investors, however, do not share this same outlook.  Most favor larger and public companies.  This makes running a middle market business, raising money for one, or investing in one a challenge to say the least.

So why are things so difficult in the middle market?  First of all, because of the generally luke-warm attitude, it just doesn't have the access to capital it deserves.  This, combined with less sophisticated financial and operational reporting, substantially constrains growth.  I find it odd that venture capitalists have money to burn when it comes to start-ups with huge losses, but when approached by a profitable, consistent, and stable company, there is limited equity capital available.  

Further complicating the situation are the dynamics inherent in the middle market investment community.  The arena is fragmented, highly inefficient, and deal flow is based on networking, word of mouth, and personal contacts.  The result?  Deals delayed or not funded at all because they never crossed the right person's desk.  In recent years, numerous websites have launched attempting to correct this problem by connecting investors and businesses in an open forum.  Catalus supports these sites, but unfortunately most are focused on M&A, not the minority capital raises and lending situations that need it most.

Finally, the WSJ article above discusses the middle market regulatory landscape problem.  In short, it is fickle, contradictory, and constantly changing, making it near impossible for companies and investors to feel confident about the future. 

Despite its difficulties, Catalus remains excited about the middle market and will continue to invest growth capital.  While we are well aware of the challenges, we see even more opportunity and talent.