Obvious value-add for private equiteers

There’s never-ending conjecture around the value that private equiteers really bring to investees. Ask a private equiteer and the list is long; ask certain jaded investees and the list is non-existent. The truth is probably somewhere in the middle.

Unlike venture capital, most private equity firms don’t have domain expertise in all of their investees’ industries. But, what private equiteers undoubtedly bring, is a fresh, external and highly-motivated perspective. And, just as a second set of eyes improves most writing (this post is a good example), a second set of minds improves most investees.

So, if we’re not industry gurus, how do we expect to add value through applying a second set of minds? Well, it’s best to start with what we know best… business. Rather than trying to teach aeronautical engineers how to design planes, we should show them how to make money from planes as a business. We should provide the complementary skills to take an ordinary business with great products & services to a great business with amazing products & services.

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The is all much easier if you start with the most complementary areas first. Back to the aeronautical engineering company, chances are, they aren’t as good at selling planes as they are at making them. And, they probably aren’t as good at negotiating strategic acquisitions as they are at appraising the technologies used in those potential targets. So, know your strengths and start by adding value in the most obvious places first. Consider:

Sales Generation
Financial Management
Business Transactions

Now, I’m not saying these are the only areas in which private equiteers can add value. I’m simply saying that my experience is that private businesses are weakest in these areas.

It’s an interesting exercise to consider your investees right now. Are you doing everything possible for them in the areas in which you have the most complementary skills? Everything possible? Do they have an amazing sales team? Are they aware of the most important financial drivers and do they monitor them very regularly and act on the data? Are they fully aware of acquisitive opportunities and are you doing everything to land them? Conceivably, if you can’t say yes to all of these, then you’d have to ask yourself what you’re really doing.

twitter: @privateequiteer |

Posted in Analysis & DD, Entrepreneur

The Private Equiteer

Thanks for the note Shibumi. I re-read my post and considered your post and made a few edits. Particularly at the moment, it seems like there's a lot of what you call 'fire dousing', even from private equiteers. There's something about the seriousness of debt covenants and dead-pan credit teams that make investees lose sight of the longer term.

My real trigger for the post was discussing PE value-add with a friend from a competing firm. It's easy even for us to get caught up in the short-term, or even in strategy, and forget about entrepreneurial fundamentals, such as selling "stuff" and making a "profit".
Shibumi

My perception is that the most glaring value add opportunity is usually on strategic matters, most CEO's are captureed by the micro detail and everyday "fire dousing" required, especially in small businesses, and as such a larger 5 year view is useful to streamline the operations and focus the executive on the top 3 deliverables - not a laundry list of things. This focus accepts that getting the most important things absolutely right will have a substantially greater impact than getting the full range of things somewhat right.Pe can also provide the discipline (read board directive) to foprce management to not chase everything, but keep to the core opportunity.

CEO's can also get narrowed in their strategic vision, and PE can bring a depth of field that can create quantum leaps in revenue, ratehr than incremtnal organic gains.

Thanks for the post!

Obvious value-add for private equiteers

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