Partner and Head of Operations of Valor Equity Partners, Timothy Watkins, spoke to the chapter's CTPs and CTAs on October 10, and gave everyone an inside track of what it takes to be an operationally active investor and to make a real difference in its diverse portfolio companies.

In his recent book on the life and career of Tesla CEO Elon Musk, author Ashlee Vance describes Watkins as an eccentric Brit who helped Elon and the Tesla team to understand the real cost of a Tesla, and how to bring it down to a level the market will accept. True to his eccentric description, Watkins arrived with ponytail, leather jacket and black leather pouch (which never went more than 12 feet from his sight).

Watkins started with an overview of the investments that Valor Equity Partners (“Valor”) targets – typically situations with high growth potential where more than just capital is required to scale the business. For example, an ideal target company may be one with high growth where management wants to keep their focus on their products, while Valor’s project managers and engineers will assist in optimizing the supply chain and sales processes based on critical market needs.

Valor assisted in redesigning the complex Tesla battery pack supply chain which started with low cost labor in Asia, shipping to their European partner, Lotus, who assembled the vehicles in the UK before shipping them to the US. When the cost to capitalize this supply chain at production volume was calculated it was quickly realized that it had to be simplified. While Musk had the courage to commit to a US Tesla factory, some competitors stayed with the complex international supply chain. “It is in my opinion one of the reasons why Fisker failed,” says Watkins, referring to the electrical car manufacturer that continued to operate with an Asian and Finnish supply chain until being forced to close their doors in 2013.

Watkins vividly remembers their first visit to the Tesla facility: “We just had so much fun in the car—we knew right there that we had to make an investment.” As the first institutional investor in Tesla, Valor would play a key role in not only guiding the Tesla team to take the material cost of the Tesla Roadster from $120,000 to $85,000, but also to build what they called a “sales machine.” “It is all about understanding the sales event,” Watkins explained, “and for the Roadster it was the test drive. The more test drives you can perform the more Tesla’s you will sell—it's that simple”.    

When asked what sets Musk apart from other leaders, Watkins replies, “He has a special way to line up all the human vectors in one direction.” He also has tremendous insight into what is really worth fighting for in a product. When faced with a failed two-speed gearbox design in the Roadster and a reduction in performance of the 0 to 60 from sub-4 to 4.3 seconds, Musk refused to accept it and took another year more for a full redesign that would bring the car back to a sub-4 second performance. The challenge of not being allowed to sell directly to owners without dealerships presented another opportunity for Elon’s unique leadership. By initially opting for lower cost service centers which could bring the service center to the car owner in each city, the company was able to overcome obstacles that would stop many other teams in their tracks.

Not all of Valor’s investments are as high profile as the Tesla success story. By applying lean supply chain principles to their investment in Little Caesars’ pizza franchises they were able to perform an equally impressive turnaround. “We just didn’t know how often the product was not ready for customers,” Tim says. Once they based their 15 minute supply chain replenishment triggers on actual point-of-sales data, the market’s positive reaction was all the team needed to know that they were on the right track.

“We have learned not to primarily seek control.” Watkins explained. “Control is many times illusionary—what is more important is to take the time to reach consensus with the company on where you need to go."

It is rare to find an investor so determined to bring more than money to the table—from trying to bring a manufacturing system online at a small French subcontractor during the August holidays (which Tim describes as “more psycho warfare than engineering”), to applying lean techniques to the SolarCity installation process, to understanding data collection in India for their Premise investment. Valor Equity Partners has shown the market that it is possible and profitable for an equity investor to actively work with their investment teams for win-win outcomes.