When contemplating private equity investment, investor proposals may often seem all too similar. The right choice in many circumstances optimizes for more than just valuation and structure, but rather a comprehensive package that also aligns partnership expectations and contributions following the transaction. While the right partner may provide strategic guidance, connectivity, operational expertise, capital markets horsepower, and a shared vision for growth, the wrong partner may result in unnecessary friction and heartburn, and retard or even derail a company’s long-term success.
At OGV, we strive to be trusted partners, confidants and friends to our partner-companies and entrepreneurs and believe that life is too short for misaligned partnerships.
An often overlooked but vital factor in dollar-only maximizing auctions is alignment on vision, values and incentives. Entrepreneurs should seek investors who understand their industry, respect their company culture, and share their long-term objectives. A strong alignment in the intangibles and reward-sharing ensures that both parties work toward a common goal rather than negotiate at every successive juncture. A great partnership, like any strong friendship, thrives on trust, mutual respect, and a shared passion for the journey ahead.
A good private equity partnership provides more than just a check book on day zero. The best partners bring substantial energy, time, and expertise to the table. A hands-on partner with the capacity to add value beyond just capital can be a game-changer for a business’ growth and optimization. Conversely, investment portfolios that are too large or private equity teams that are unempowered, unincentivized or overly hierarchical may mean that an entrepreneur and his business may not get the attention or urgency that it deserves. The question all entrepreneurs should ask is how important is the success of their individual business to their private equity partner and is their business one of three, one of ten, one of twenty or one of hundred in the private equity fund? As we learn in ECON101, incentives matter.
Access to a relevant and deep bench of industry leaders, executives, and advisors can substantially help accelerate a company’s growth. Whether it’s hiring top-tier leadership, expanding into new markets, or refining go-to-market strategies, the right private equity partner can open doors for the business that may otherwise remain closed.
Most private equity firms offer finite investment horizons and are incentivized to prioritize timely and predictable returns due to expectations from their limited partners and fixed fund durations. Investors that are able to exercise patience through market cycles and support long-term sustainable growth over short-term financial gains are exceptions to the norm. Business, like life, can be unpredictable — having a partner who is willing to adapt and stay the course can carry substantial value.
Entrepreneurs should engage in candid discussions with potential investors to assess personality fit, communication styles, and decision-making approaches. A positive and collaborative relationship fosters trust, productivity and a passion for growth, while a misaligned partnership can lead to breakdowns in communication, conflicts and stagnation.
Some investors take a hands-off approach, simply providing capital and expecting returns, while others take a hands-on role in influencing strategy, improving operations, and driving growth. Entrepreneurs should assess their needs and determine whether they would benefit from a firm that plays a more active or passive role. The best partners often don’t invest in just companies, but the people and the vision that make the companies.
As private equity firms get larger, they tend to find efficiency in routine processes and operating with a transactional bias of securing deals, extracting value, and exiting as quickly as possible. Entrepreneurs, too, can feel desensitized in the speed-dating world of broad auctions and feel tempted to maximize on only quantitative variables. However, the most successful private equity partnerships, not unlike other relationships in life, are built on trust, collaboration, and shared goals.
At OGV, we believe that life is too short to have partners that don’t inspire, challenge, and support you. We believe our role is to provide business owners with more than just capital. We seek to take a thoughtful, committed and hands-on approach to every partnership that catalyzes and accelerates growth without getting in management’s way. Please read about our Partnership Approach and contact us to discuss how we may help you achieve your goals.
