Working with Private Equity and Venture Capital Portfolio Companies
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Career Opportunities with Private Equity and Venture Capital Portfolio Companies ...

Career Opportunities with Private Equity and Venture Capital Portfolio Companies

Serving as an Expert Network Consultant, Interim Executive, Senior Advisor, Executive in Residence, Entrepreneur in Residence, and/or Deal Executive

Speaker: David Teten
www.Teten.com / www.ffvc.com

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Working with Private Equity and Venture Capital Portfolio Companies Working with Private Equity and Venture Capital Portfolio Companies Presentation Transcript

  • How Entrepreneurs and Senior Executives Can Work with Private Equity and Venture Capital Portfolio Companies Serving as an Expert Network Consultant, Interim Executive, Senior Advisor, Board Member, Deal Executive, and/or Executive/Entrepreneur in Residence David Teten Partner, ff Venture Capital Chairman, Harvard Business School Angels of New York ffvc.com teten.com @dteten teten.com/contact© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/izzard/183927/
  • Selected past audiences for this presentation •  Selected private equity and venture capital funds •  CEO Trust •  Executive Forum •  Harvard Business School Alumni Career Management Webinar Series •  Harvard Business School Club of Connecticut •  International Executives Resource Group •  Institute for International Research PE Operations conference© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Agenda •  Introduction •  Expert Networks and Interim Executives •  Senior Advisor Networks •  Board of Directors •  Deal Executives/EIRs •  Next Steps© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Don’t Take Notes! Download these slides from: http://www.teten.com/operating-executives/© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Background David Teten is currently leading the first-ever research study on “Best Practices of Venture Capitalists in Increasing Portfolio Company Value through Operational Improvement”, with coauthors Koen Bremer, Gyorgy Buslig, and Adham Hussein. In 2010, he published the first-ever research project on “Best Practices in Private Equity and Venture Capital Deal Origination”, with Chris Farmer, Venture Partner, General Catalyst. These slides provide some of the learnings from these published research studies.© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps ff Venture Capital (ffvc.com) •  Early-stage technology venture capital fund •  Founded 1999, with over 150 investments in over 55 companies •  Focus on early stage web-based services companies with disruptive models, including SaaS, video gaming, digital media, social, mobile and VoIP •  First investments typically $50-$250K at valuations of <$5m pre-money •  50% of fund reserved for follow-on investments •  Prominent investments include: Cornerstone OnDemand (IPO); Quigo Technologies (sold to AOL for reported $340m); Klout; 500px; Voxy; BetterWorks© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps David Teten (teten.com) •  Partner, ff Venture Capital, early-stage technology venture capital fund. Over 150 investments in over 55 companies since 1999. •  Founder and Chairman, Harvard Business School Angels of New York •  Founder and Chairman, Navon Partners, startup focused on sourcing deals for private equity funds •  Managing Director, Evalueserve, through September 2008. 2,500-person finance-focused research and analytics firm. •  Founder and CEO, Circle of Experts (investment research firm), sold to Evalueserve •  Founder and CEO, Teten Executive Recruiting, sold to Accolo (#42 on 2007 Inc. 500) •  Founder and CEO, GoldNames, domain name investment bank, based in Israel •  Technology/Defense Investment Banking, Bear Stearns (#1 group at Bear investment banking by revenues) •  Lead author, The Virtual Handshake: Opening Doors and Closing Deals Online (TheVirtualHandshake.com) •  Harvard MBA 1998, Yale BA, both with honors. •  Contact: teten.com/contact© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Private equity funds have a wide range of options in working with executives and entrepreneurs. PE Fund Structural Options in Working with Operating Executives Operating Partner / Venture Partner salary+carry (sometimes) Portfolio Company / NewCo Management salary+upside Fund Commitment Executive/Entrepreneur in Residence modest retainer+upside Board of Directors salary + upside Senior Advisor / Deal Executive expenses+whatever you negotiate Free Agent expenses+whatever you negotiate Expert Network / Interim Executive $300/hour - $1,000/day Rejected Executives© David Teten 2012. More at ffvc.com and teten.com Executive’s Income
  • Intro Expert Advisor Board Deal Exec Next Steps You can identify institutional investors through one of multiple online databases. Selected Searchable Databases of PE/VC Funds All Investors Private Equity Venture Capital •  Capital IQ •  Centre for Asia •  AngelList (free) •  Galantes Private Equity Research •  CrunchBase (free) •  Grey House •  Eurekahedge •  Dow Jones Venturesource •  PEDatabase.com (free •  Pitchbook (free trial) •  Findthebest.com (free) trial) •  PrivateEquityFirms.com •  PWC MoneyTree •  Pratt’s Guide (free trial) •  TheFunded (free) •  Preqin •  VentureDeal (free trial) •  ThomsonOne •  Asian Venture Capital© David Teten 2012. More at ffvc.com and teten.com Journal
  • Intro Expert Advisor Board Deal Exec Next Steps Operational improvement drives 71% of value creation in PE-backed companies. Source of Gains in Private Equity-Backed Companies© David Teten 2012. More at ffvc.com and teten.com Ernst & Young 2006 study of 100 exits
  • Intro Expert Advisor Board Deal Exec Next Steps Operational improvement is particularly important now because of the economic landscape and the maturation of the PE industry. Global economic crisis •  Most portfolio companies require operating changes to survive Investors seek differentiation •  Bain: “as much as 80% of PE returns will come from real performance improvement, rather than … financial structuring.”* Maturing Private Equity Industry •  Larger size and greater complexity leads to greater role specialization Risk Mitigation •  Operational perspective add counter-balance to deal team Strategy Driven •  Deep value investing, turnarounds, mid-market focus, and industry-specialized funds require hands-on approach. based on Jon Weber, Anchorage Advisors LLC© David Teten 2012. More at ffvc.com and teten.com * http://www.bain.com/bainweb/publications/publications_detail.asp?id=10735&menu_url=publications_results.asp
  • Intro Expert Advisor Board Deal Exec Next Steps PE funds almost always require an upgrade in management, and change management teams if necessary. Management Environment Before and After PE Investment Before Investment After Investment Reporting Independent Have a “boss” Style Loose, entrepreneurial Financial discipline Decision making Just do it Board approval Determining success Divide up the cash at the Monthly financials, annual end of the year bonuses Spending Invest as needed Must be justified Matthew Kissner, Kissner Group© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps PE funds require a company to lay capacity for organic and, often, acquisition-led growth. Growth Capacity Before and After PE Investment Success Factors when Small Success Factors for Growth Lean senior executive team Complete senior and mid-management team Informal small group dynamics Formal roles, responsibilities, and systems Ad hoc IT projects – reactive Flexible and scalable IT Cash basis financial systems Strong monthly financial and operational reporting All business is good business Customer segmentation Limited prioritization Strategic plan drives priorities Matthew Kissner, Kissner Group© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Agenda •  Introduction •  Expert Networks and Interim Executives •  Senior Advisor Networks •  Board of Directors •  Deal Executives/EIRs •  Next Steps© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Overview: Expert / Interim Executive Position •  Provide advice to investors, primarily in 30-60 minute phone calls •  Act as executive for short time period, typically 7-30 days Pay •  $100-$1,000 / hour Path Forward •  Register at expert network and interim executive web sites •  Maintain a very detailed and current bio, and update your availability •  Keep current on your industry •  Proactively seek new assignments •  Consider becoming a public expert, e.g., with PRNewsWire ProfNet, HelpaReporter.com© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Expert networks are highly attractive to participants, whether working full-time, consultants, or in transition. Benefits To Executive of Participating in Expert Network •  Interact with professional investors and corporations •  Strategic, thought-provoking projects •  Competitive compensation •  Receive fees to introduce colleagues and the big NO’s: •  No membership cost •  No marketing cost •  No time spent on negotiating or chasing payment© David Teten 2012. More at ffvc.com and teten.com http://flickr.com/photos/foundphotoslj/1134148114/
  • Intro Expert Advisor Board Deal Exec Next Steps Expert networks provide investors access to experts from all of the forces that impact a company. Expert Network Access Model Corporate Competitor Alumni Supplier New Entrants Management Investor Buyers Government Academics© David Teten 2012. More at ffvc.com and teten.com based on Competitive Strategy: Techniques for Analyzing Industries and Competitors, Michael Porter.
  • Intro Expert Advisor Board Deal Exec Next Steps The expert network industry is the fastest-growing sector of the investment research sector, with aggregate revenues over $300m. Selected Leading Expert Networks Generalists Specialty/Other Players •  Advantus Global (acquired •  Kingfish Group Evalueserve Circle of Experts) •  Maven Research •  CognoLink •  Primary Insight •  GLG Research (market leader) Medical •  Coleman Research Group •  MEDACorp (Leerink •  DeMatteo Monness LLC Swaan) •  Guidepoint Global •  Sermo© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Networks of independent consultants have emerged as a new niche, typically engaging in projects of 2-6 months duration. Selected Consultant Networks USA-focused Europe-focused •  Business Talent Group •  a-connect •  Highpoint Associates •  Eden McCallum •  Point B •  10EQS© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/opendemocracy/1441901063/
  • Intro Expert Advisor Board Deal Exec Next Steps The interim executive industry is much better developed in Europe than in the US. Selected Interim Executive Providers USA Europe •  Business Talent Group •  Alium Partners •  Epoch •  BIE •  Executive Smarts •  Brooklands Executives •  ForteCEO •  EIM (Executive Interim Management) •  Heidrick & Struggles •  Impact Executives •  Interim America •  Marble Hill Partners •  OnDemand Resources •  OneAccord •  Tatum Executive Services •  Willmark Associates© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/opendemocracy/1441901063/
  • Intro Expert Advisor Board Deal Exec Next Steps Expert networks engage with experts in a range of ways, but telephone calls are the primary method. Other forms of engagement: •  Presentations •  Surveys •  White papers •  Longer consulting projects© David Teten 2012. More at ffvc.com and teten.com http://farm2.static.flickr.com/1318/1134149284_85feb293d3.jpg?v=0
  • Intro Expert Advisor Board Deal Exec Next Steps Expert networks are designed to require an extremely low level of commitment from experts. •  Accept/Reject request within 48 hours •  Consultation strictly between expert and client •  No fixed obligation© David Teten 2012. More at ffvc.com and teten.com http://farm4.static.flickr.com/3274/2866399803_8c9493b42f_o.jpg
  • Intro Expert Advisor Board Deal Exec Next Steps Expert networks assess experts based on their knowledge and ability to share it. Expert Network Selection Criteria Experience •  Industry Recognition •  Academic credentials Access to unique knowledge •  Affiliations Communication skills Irrelevant: social skills, management skills© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/kanzeon_zen_center/183801709/
  • Intro Expert Advisor Board Deal Exec Next Steps The #1 driver of your participation in expert networks is the quality of data in your online profile. •  Update your availability and bio -  Quantify achievements -  Explain how you acquired your expertise •  Insert specific keywords -  Identify firms you touched -  Focus on industry-specific knowledge •  Update your bio and profile questions again based on consults you get •  More ideas: teten.com/resume© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/edenpictures/3460562429/sizes/z/in/photostream/
  • Intro Expert Advisor Board Deal Exec Next Steps Successful consultations lead to more consultations. Also, experts can increase consulting volume through 5 methods: •  Apply for open projects •  Mail your liaison when you have insight into a hot topic -  breaking news -  a conference you just attended •  Go on-call •  Contribute to expert network discussion boards (e.g., Quora.com, HighTable.com) •  Ask© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/sarahquinn/124454341/
  • Intro Expert Advisor Board Deal Exec Next Steps Thorough preparation for a consultation enhances your client ratings. •  Observe compliance restrictions •  Review current news •  Ask client’s level of background— do they want an introduction or to jump into very specific topics? •  Ask questions to understand the client’s hot buttons •  Make sure to answer client’s key questions •  Acknowledge your limits •  Prepare to debate •  Offer referrals© David Teten 2012. More at ffvc.com and teten.com http://upload.wikimedia.org/wikipedia/commons/3/3b/Old_key_on_table.jpg
  • Intro Expert Advisor Board Deal Exec Next Steps Next steps to becoming an active expert network member… •  Register at expert network and interim executive web sites (and LinkedIn, job boards, etc.) -  Biography -  Hourly billing rate -  Resume •  Consider becoming a public expert: PRNewsWire ProfNet, HelpaReporter.com© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/twodolla/1764565402/
  • Intro Expert Advisor Board Deal Exec Next Steps Agenda •  Introduction •  Expert Networks and Interim Executives •  Senior Advisor Networks •  Board of Directors •  Deal Executives / EIRs •  Next Steps© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Overview: Senior Advisor Position •  Work closely with fund to source deals •  Work closely with portfolio companies to mentor & provide advice •  Modest time commitment, typically 2-10 hours/month Pay •  Variable pay; retainer or service fee Path Forward •  Work for 10+ years as successful entrepreneur/executive •  Research funds with established advisor networks / EIR programs and contact them via referral© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Definition “Senior advisor network” or “Executive network” = investor-sponsored group of executives with ability and willingness to add value to portfolio companies Board Member Portfolio Company “A” Interim CFO Investor Portfolio Industry Company “B” Expert Portfolio Company “C” Deal Source© David Teten 2012. More at ffvc.com and teten.com based on Jon Weber, Anchorage Advisors LLC
  • Intro Expert Advisor Board Deal Exec Next Steps Senior Advisor networks offer a low-fixed-cost, high-return talent pool option. Senior Advisor Network vs. Traditional Talent Sources Experts and Consultants Senior Advisor Network Executive Recruitment Relationship Expert network / consultancy Fund Recruiting firm, then Owner handed over to fund Duration 1–2 hours to 3 months 6 months–2 years+ Permanent job and board positions Sample Service Gerson Lehrman, McKinsey Harvey & Co., Notch Accolo, Heidrick & Providers Partners Struggles, Ignition Search Partners, Russell Reynolds Illustrative Cost $1,000/hr for expert networks Sometimes retainer, 1/3 compensation $300–700/hr for consultants sometimes paid like investment banker Driver of Exec Length of consultation Value creation and Winning full-time Compensation continued involvement employment with client companies Confidentiality NDA possibly. Consultant may Signed, enforceable NDA NDA unusual “shop” ideas.© David Teten 2012. More at ffvc.com and teten.com based on table from Jon Weber, Anchorage Advisors LLC
  • Intro Expert Advisor Board Deal Exec Next Steps Many leading PE and VC funds have built Senior Advisor Networks. Selected Funds with Senior Advisor Networks Private Equity Venture Capital •  3i •  ff Venture Capital •  Castle Harlan •  500 Startups •  Cerberus •  Great Oaks Venture Capital •  Irving Place Capital •  Lions Capital •  General Atlantic •  Goldman Sachs Special Situations Group •  Sun Capital •  Welsh, Carson, Anderson & Stowe© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Partnering with operating executives is a successful strategy which is a focus for only a small number of funds. U.S. Funds That Typically Partner with Executives to Execute a Transaction and Bring in New Management Upon Investing AUM Cum. # # Deals/ Year Private Equity Fund Founded ($m) Investments (est.) GTCR 1980 $8,000 100 7 Wind Point Partners 1984 $2,000 80 5 Frontenac Company 1971 $875 200 5 Housatonic Partners 1997 $1,000 50 4 Prospect Partners 1998 $270 35 3 Red Diamond Capital 2002 $150 8 1 Post Capital Partners 2004 $100 7 1 Data based on firm websites. Frontenac AUM based on last two funds. # Investments/Year based on mean activity level over firm’s existence, with some adjustment for growth of fund over time.© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Some PE funds offer favorable economic terms for executives who are “friends of the firm”. Selected PE Funds with Executive Funds •  Abernathy Group “Collaborative Investing” •  Castle Harlan •  Frontenac •  Institutional Venture Partners Founders Fund •  Irving Place Capital (formerly BSMB)© David Teten 2012. More at ffvc.com and teten.com http://farm1.static.flickr.com/7/8228640_921246eaa3.jpg?v=0
  • Intro Expert Advisor Board Deal Exec Next Steps Agenda •  Introduction •  Expert Networks and Interim Executives •  Senior Advisor Networks •  Board of Directors •  Deal Executives / EIRs •  Next Steps© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Overview: Board of Directors Position •  Broad oversight of management and company Pay •  Startups: options •  Established companies: $100-200K on up plus equity Path Forward •  Have history of leadership / management experience, at the C-level •  Contact recruiters in this sector via referral •  Many boards aggressively seeking women and minority representation© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps What are Boards responsible for? •  Broad oversight of management •  Manage CEO succession •  Guidance and strategic sounding board •  “Mentors and Monitors”© David Teten 2012. More at ffvc.com and teten.com “Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
  • Intro Expert Advisor Board Deal Exec Next Steps What do Boards look for in their directors? •  Proven leadership •  Specific skills or experience, e.g.: –  Financial background –  International experience –  Position as active or retired CEO –  Experience in dealing with challenges faced by company / CEO •  Network –  E.g. for startups: connection to VCs 38© David Teten 2012. More at ffvc.com and teten.com “Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
  • Intro Expert Advisor Board Deal Exec Next Steps Director compensation •  Board & Committee meeting fees vs. retainers •  Mix of cash + equity –  Shifting to more equity, less cash –  Equity grants •  Shares vs. options •  Fixed value vs. fixed shares –  Equity ownership requirements© David Teten 2012. More at ffvc.com and teten.com “Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
  • Intro Expert Advisor Board Deal Exec Next Steps Change in Total Director Pay by Company Size Micro Small Medium Large Top 200 % % % $500M< % inc $1B< % inc $2.5B< inc Valuation $50-$500M inc inc >$10B YOY $1B YOY $2.5B YOY $10B YOY YO Y Total Director $91K 20% $119K 10% $148K 13% $176K 7% $228K 5% Comp© David Teten 2012. More at ffvc.com and teten.com % inc YOY = % increase over 2009-2010 data. Source: 2010 –2011 NACD Director Compensation Report
  • Intro Expert Advisor Board Deal Exec Next Steps Four Strategies to Join a Board •  Communicate your value •  Use your network –  Identify/contact search firms –  Tap your own network (LinkedIn, Coworkers, Alumni Associations) –  Networking Organizations (YPO, Industry Organizations) •  Increase your visibility –  Speak at conferences –  Publish whitepapers –  Join expert networks •  Be imaginative, inventive, opportunistic –  Invest in the company –  Join a non-profit board© David Teten 2012. More at ffvc.com and teten.com “Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
  • Intro Expert Advisor Board Deal Exec Next Steps Additional Resources •  “How to get on a board:” http://www.businessweek.com/careers/content/sep2007/ ca20070913_129202.htm . •  Resources: –  Your own company’s board –  NASDAQ’s registry of prospective directors: http://www.nasdaqomx.com/whatwedo/corporatesolutions/ –  Catalyst for potential female directors: http://www.catalyst.org/ –  ELC for African-American directors: http://www.elcinfo.com/ –  Hispanic Association on Corporate Responsibility: http://www.hacr.org/ •  http://www.advisoryboardarchitects.com/blog/how-get-board-directors-or-high- level-advisory-board •  http://newdirections.com/© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Examples of Recruiting Firms with Boardmember Services •  Korn Ferry: http://www.kornferryinstitute.com/leadership/board_of_directors.php •  Stybel, Peabody: http://www.stybelpeabody.com/newsite/index.php •  Allen + Associates: http://www.allensearch.com/ •  Spencer Stuart: http://www.spencerstuart.com/services/boards/recruitment/© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Agenda •  Introduction •  Expert Networks and Interim Executives •  Senior Advisor Networks •  Board of Directors •  Deal Executives / EIRs •  Next Steps© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Overview: Deal Executive / EIR Position •  Full-time role looking for a company to invest in, and typically serve in as CEO Pay •  Usually modest retainer with carrot of finder’s fee + CEO role in new company Path forward •  Demonstrate history of successfully leading company at C-level, or direct report to C-level •  Offer a deal thesis or letter of intent to PE firm© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps PE funds are primarily looking for deals, not executives. How Private Equity Views Executives Deal Exec with Letter of Intent Thesis-Driven Deal Exec Target-Driven Deal Exec Deal Resource Job Seeker© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/chailey/138654755/ . Inspired by Notch Partners.
  • Intro Expert Advisor Board Deal Exec Next Steps Certain VC funds proactively seek out qualified Entrepreneurs in Residence Selected Venture Capital Funds with Formal EIR Programs •  Austin Ventures •  Dell (the computer company) •  Foundation Capital •  ff Venture Capital •  General Catalyst •  Redpoint Ventures •  VTT Technical Research Centre of Finland© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Elements of a Deal Thesis •  Clear definition of industry – niche, size, geography, etc. •  Transaction rationale consistent with company’s growth prospects •  Basic financial markets analysis: trading range, feasibility •  Outline of value-creation opportunities •  Plan for pursuing those sources of value •  Explanation of why you/ your team are ideally suited to lead effort •  Roster of 5-20 target companies •  Status of discussions with targets (if any) •  Thoughts on likely exit (IPO, strategic buyer)© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/bfurlong/2351689062/ . Based on Notch Partners and many other sources.
  • Intro Expert Advisor Board Deal Exec Next Steps Elements of a Deal Memo •  Teaser •  Business plan •  Executive profile •  Forecasts -  Strategic -  Operational -  Financial© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/11846056@N06/3110329005/
  • Intro Expert Advisor Board Deal Exec Next Steps Deal Executive Preferred Profile: Credibility •  CEO-level leader or direct report to C-level -  10+ years in industry/related market. 10+ years leading P&L and preferably also balance sheet experience. -  Clear value creation plan. Understanding of private equity. •  Personal capital to invest •  Ideally: ready management team; corporate governance skills (board experience), investor relations experience© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/ilker/2494740320/
  • Intro Expert Advisor Board Deal Exec Next Steps Deal Executive Preferred Profile: Compatibility •  Compatible goals •  Aligned incentives •  Personal chemistry© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/superrabbit/319538167/
  • Intro Expert Advisor Board Deal Exec Next Steps Deal Executive Preferred Profile: Deal-Catcher •  Proactively seeking to identify deals. -  Preferably, has proprietary deal(s) •  Financially stable to go without salary during search •  Spousal support •  100% committed to a risky process not fully in your control •  Entrepreneurial and sales oriented •  Can relocate •  Prefer: acquisition experience.© David Teten 2012. More at ffvc.com and teten.com http://flickr.com/photos/krikit/2745563123/sizes/o/
  • Intro Expert Advisor Board Deal Exec Next Steps PE/executive intermediaries are investment bank+recruiter hybrids which work with executives throughout the process to help execute a transaction. Leading Investment Banks/Recruiters Specializing in Matching PEGs with Executives •  Akoya Capital •  Notch Partners •  Blackmore Partners •  R.B. Price & Company •  Cook Associates •  Silverfern Group •  Harvey & Company •  Skill Capital •  Ignition Search Partners •  Tri-Artisan Partners LLC (VC-focused)© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps PE fund/executive intermediaries have a standard process to execute a transaction. •  Review industry for feasibility: -  Market trends (opportunistic research analysis) -  Valuation analysis -  Capital-intensity requirements -  Fragmentation analysis •  Profile executive to assess candidacy •  Source companies •  Source sponsors© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/pfala/3036252334/
  • Intro Expert Advisor Board Deal Exec Next Steps An executive has two main paths to choose from in pursuing a transaction: •  Find the company and get close to signing a Letter of Intent, then pursue sponsor •  Find sponsor and then search for company. -  Executive screens for funds with track record of pursuing executive-led transactions and interest in industry -  More important to use this strategy with larger deals© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/thalamus/3560789785/
  • Intro Expert Advisor Board Deal Exec Next Steps Many companies prefer to sell to management, even at risk of a lower price than they might get from an auction. Primary Reasons Some Companies Prefer Selling to Management •  Secrecy •  Continuity •  Speed •  Lower investment banking fees •  “Dummy insurance”: easier to keep a stake in the spunoff company •  Trust/proven competency •  Relationship with the Board of Directors Rick Rickertson, Buyout: The Insider’s Guide to Buying Your Own Company, 49-50.© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Step 1 of 5: Launch Relationship with Fund •  Introduction •  Initial meetings •  Assessment of investment thesis Duration: 2-4 weeks© David Teten 2012. More at ffvc.com and teten.com Based on Post Capital, http://www.defenselink.mil/dodcmsshare/newsphoto/2008-03/hires_080301-F-2319R-006.jpg
  • Intro Expert Advisor Board Deal Exec Next Steps Step 2 of 5: Finalize partnership between executive and fund •  Refine thesis •  Agree on compensation/economics and exclusivity •  Background check •  Formulate deal origination plan Duration: 1-4 weeks© David Teten 2012. More at ffvc.com and teten.com Based on Post Capital, picasaweb.google.com/lh/photo/FOHUbVdTEYKdftpmi6TkXQ
  • Intro Expert Advisor Board Deal Exec Next Steps Step 3 of 5: Identify/Contact Opportunities Concept-Driven Approach (e.g., with investment banker) •  Inefficiencies within a market segment or industry •  Ineffective processes •  Outdated business models •  Competition from low cost countries •  Novel product, process or idea •  Rollup of fragmented industry •  Industry changes (read the trade rags) Duration: 1-12 months© David Teten 2012. More at ffvc.com and teten.com Based on Mario Kyd, Unlimited Horizons; http://www.flickr.com/photos/carve/2856365431/
  • Intro Expert Advisor Board Deal Exec Next Steps Step 3 of 5: Identify/Contact Opportunities (cont’d) Opportunistic Approach (Network), led by Executive •  Former employers, suppliers, customers, competitors •  Investment bankers, brokers, accountants, lawyers •  Attend conferences •  Look for reasons why people sell Duration: 1-12 months© David Teten 2012. More at ffvc.com and teten.com Based on Mario Kyd, Unlimited Horizons; http://www.flickr.com/photos/jurvetson/3346659199/
  • Intro Expert Advisor Board Deal Exec Next Steps Step 4 of 5: Evaluate Targets •  Company meetings •  Negotiate •  Due Diligence •  Can a deal be made? •  Can we interest investors? •  Can you “drive” the deal? Duration: up to 3 months© David Teten 2012. More at ffvc.com and teten.com based on Post Capital; Lapis Group; numerous other sources. http://www.flickr.com/photos/matt_gibson/954340171/
  • Intro Expert Advisor Board Deal Exec Next Steps Step 5 of 5: Closing •  Finalize documentation •  Finalize financing Duration: up to 3 months© David Teten 2012. More at ffvc.com and teten.com Based on Post Capital upload.wikimedia.org/wikipedia/commons/4/47/Tower_Bridge_closing.jpg
  • Intro Expert Advisor Board Deal Exec Next Steps Typical Economics for Mid-Market Private Equity Acquisition, for PEG, Deal Finders, Investment Bankers, and other Executives Fee Type Payer Amount Recipient of Payment Transaction Capital 0.5-3.4% PEG pays finder’s fee of 1-3% of enterprise value, plus sometimes Fees providers deal size* carry, to deal finder + buy-side investment bank (if any). (Company (specifically selling shareholders) pay investment banker seller’s fee.) Monitoring Company 0.2%-4.4% Company pays outside board members for ongoing services (~$5K Fees EBITDA (median +/meeting + equity incentives) 1.2%)*,** Expenses Company Post-deal Company pays PEG for post-deal expenses. Important for buy-side expenses, operating exec/investment banker to get PEG to commit to pay not pre-deal broken deal costs. Carry Limited ~1% assets + LPs pay PEG this carry. Partners ~20% carry Investment - - Usually unlimited co-invest rights for executives involved, with no rights PEG management fee. Executives will, however, pay pro rata monitoring/other fees. This does not reflect compensation for an executive’s role as a company employee post-deal. Note that transaction fee and carry are inversely related. * Robert Seber, Dechert LLP, “Transaction and Monitoring Fees: Does Anything Go?”, 2003. ** The PEG’s fund documents will generally discuss whether a portion of that fee (often half) is set off against management fees that the LP’s would otherwise owe. Other data based on Akoya Capital, Oberon Securities, and other interviewees.© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Agenda •  Introduction •  Expert Networks and Interim Executives •  Senior Advisor Networks •  Board of Directors •  Deal Executives / EIRs •  Next Steps© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Suggested Reading •  The Virtual Handshake: Opening Doors and Closing Deals Online, David Teten and Scott Allen •  Buyout: The Insider’s Guide to Buying Your Own Company, Rick Rickertson •  goodreads.com/teten •  ffvc.com/careers •  teten.com/blog© David Teten 2012. More at ffvc.com and teten.com
  • Intro Expert Advisor Board Deal Exec Next Steps Any questions ? Slides at teten.com/operating-executives ffvc.com teten.com @dteten teten.com/contact© David Teten 2012. More at ffvc.com and teten.com