Private Equity Failure: Where’s the Entrepreneurial Blood?
Private equiteers need at least an ounce of entrepreneurial blood to handle the travails of the private equity industry and to make, manage and exit great investments. This ounce of said blood has its downfalls though; it constantly pulls at the strings of a private equiteer’s ambition. He/she spends so much time looking for great businesses, helping them improve performance and guiding business owners to riches that he/she often dreams of being in the opposite position.
Private Equity Failure
Especially in the formative years of a private equiteer’s career, the returns (in terms of both satisfaction and cash) look much more compelling. The sobering fact is that it often proves true. The fixed management fees of a private equity fund (until raising subsequent funds), don’t allow for too much in the way of salary increases and bonuses (we’re talking mid-market funds here). And carry for fledgling private equiteers can amount to little more than gym membership once present value is calculated (note: we private equiteers calculate the present value of everything).
So, why aren’t we all off to run our own successful businesses? Firstly, the patient private equiteer arguably has a greater chance to build greater wealth if he/she can just keep a lid on that entrepreneurial pull. Secondly, going for broke as an entrepreneur has a binary outcome, either success or failure, and not everyone is willing to gamble with their livelihood. (Note: in my opinion, the opposite of success is failure and the opposite of mediocrity is mediocrity; so, failure is a very likely outcome if you put everything into achieving success.)
Lastly, who says private equiteers aren’t running off to start businesses? It’s a very real career path and can be a very rewarding one. The fact is that we can’t all start our own private equity firms and achieve great success, so the entrepreneurial route isn’t such a bad one. Is this a private equity failure or not?
