Working with Private Equity and Venture Capital Portfolio Companies

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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

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Working with Private Equity and Venture Capital Portfolio Companies

  1. 1. © David Teten 2016. More at teten.com© David Teten 2016. More at teten.com Serving as an Expert Network Consultant, Interim Executive, Senior Advisor, Board Member, Deal Executive, and/or Executive/Entrepreneur in Residence How Entrepreneurs and Senior Executives Can Work with Private Equity and Venture Capital Funds http://www.flickr.com/photos/izzard/183927/ David Teten teten.com @dteten
  2. 2. © David Teten 2016. More at teten.com© David Teten 2016. More at teten.com • 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 Selected past audiences for this presentation
  3. 3. Intro Advisor Board Next StepsExpert Deal Exec © David Teten 2016. More at teten.com • Introduction • Expert Networks and Interim Executives • Senior Advisor Networks • Board of Directors • Deal Executives/EIRs • Next Steps Agenda
  4. 4. Intro Advisor Board Next StepsExpert Deal Exec © David Teten 2016. More at teten.com Don’t Take Notes! Download these slides at teten.com/oe
  5. 5. Intro Advisor Board Next StepsExpert Deal Exec © David Teten 2016. More at teten.com David Teten • Partner, ff Venture Capital, early-stage technology venture capital fund, one of the best performing seed- and early-stage venture capital firms in the U.S. • Previously serial entrepreneur and technology investment banker • Advised clients such as Goldman Sachs Special Situations Group, Icahn Enterprises, LLR Partners ($1.4b fund), Birch Hill Equity Partners (C$2B fund), and other institutional investors • Harvard MBA 1998, Yale BA, both with honors. • Teten.com / @dteten
  6. 6. Intro Advisor Board Next StepsExpert Deal Exec © David Teten 2016. More at teten.com FundCommitment Free Agent expenses+whatever you negotiate Rejected Executives Senior Advisor / Deal Executive expenses+whatever you negotiate Executive/Entrepreneur in Residence modest retainer+upside Portfolio Company / NewCo Management salary+upside Executive’s Income Expert Network / Interim Executive $300/hour - $1,000/day Operating Partner / Venture Partner salary+carry (sometimes) PE Fund Structural Options in Working with Operating Executives Private equity funds have a wide range of options in working with executives and entrepreneurs. Board of Directors salary + upside
  7. 7. Intro Advisor Board Next StepsExpert Deal Exec © David Teten 2016. More at teten.com Selected Searchable Databases of PE/VC Funds You can identify institutional investors through one of multiple online databases. All Investors Private Equity Venture Capital • Capital IQ • Galantes • Grey House • PEDatabase.com (free trial) • Pratt’s Guide • Preqin • ThomsonOne • Eurekahedge • Pitchbook (free trial) • PrivateEquityFirms.com (free trial) • AngelList (free) • CrunchBase (free) • Dow Jones Venturesource • Findthebest.com (free) • PWC MoneyTree • TheFunded (free) • VentureDeal (free trial) • Asian Venture Capital Journal
  8. 8. Intro Advisor Board Next StepsExpert Deal Exec © David Teten 2016. More at teten.com Source of Gains in Private Equity-Backed Companies Ernst & Young 2006 study of 100 exits Operational improvement drives 71% of value creation in PE-backed companies.
  9. 9. Intro Advisor Board Next StepsExpert Deal Exec © David Teten 2016. More at teten.com 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 * http://www.bain.com/bainweb/publications/publications_detail.asp?id=10735&menu_url=publications_results.asp Operational improvement is particularly important now because of the economic landscape and the maturation of the PE industry.
  10. 10. Intro Advisor Board Next StepsExpert Deal Exec © David Teten 2016. More at teten.com Matthew Kissner, Kissner Group Management Environment Before and After PE Investment PE funds almost always require an upgrade in management, and change management teams if necessary. 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 end of the year Monthly financials, annual bonuses Spending Invest as needed Must be justified
  11. 11. Intro Advisor Board Next StepsExpert Deal Exec © David Teten 2016. More at teten.com Matthew Kissner, Kissner Group Growth Capacity Before and After PE Investment PE funds require a company to lay capacity for organic and, often, acquisition-led growth. 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
  12. 12. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec • Introduction • Expert Networks and Interim Executives • Senior Advisor Networks • Board of Directors • Deal Executives/EIRs • Next Steps Agenda
  13. 13. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec 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
  14. 14. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec • 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 Benefits To Executive of Participating in Expert Network http://flickr.com/photos/foundphotoslj/1134148114/ Expert networks are highly attractive to participants, whether working full-time, consultants, or in transition.
  15. 15. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec Expert Network Access Model Investor Buyers Academics Supplier Government New Entrants CompetitorCorporate Alumni based on Competitive Strategy: Techniques for Analyzing Industries and Competitors, Michael Porter. Management Expert networks provide investors access to experts from all of the forces that impact a company.
  16. 16. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec Selected Leading Expert Networks The expert network industry is the fastest-growing sector of the investment research sector, with aggregate revenues over $300m. Generalists • Gerson Lehrman Group • Coleman Research Group • Guidepoint Specialty/Other Players • Advantus Global (Circle of Experts) • Intota • Kingfish Group • Primary Global Research • Primary Insight • Round Table Group Medical • MEDACorp (Leerink Swaan) • Sermo
  17. 17. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec USA-focused • Business Talent Group • Highpoint Associates • Point B • 10EQS Europe-focused • a-connect • Eden McCallum http://www.flickr.com/photos/opendemocracy/1441901063/ Selected Consultant Networks Networks of independent consultants have emerged as a new niche, typically engaging in projects of 2-6 months duration.
  18. 18. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec Selected Interim Executive Providers USA • Business Talent Group • Epoch • Executive Smarts • ForteCEO • Heidrick & Struggles • Interim America • OnDemand Resources • OneAccord • Tatum Executive Services • Willmark Associates Europe • Alium Partners • BIE • Brooklands Executives • EIM (Executive Interim Management) • Impact Executives • Marble Hill Partners http://www.flickr.com/photos/opendemocracy/1441901063/ The interim executive industry is much better developed in Europe than in the US.
  19. 19. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec Other forms of engagement: • Presentations • Surveys • White papers • Longer consulting projects http://farm2.static.flickr.com/1318/1134149284_85feb293d3.jpg?v=0 Expert networks engage with experts in a range of ways, but telephone calls are the primary method.
  20. 20. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec • Accept/Reject request within 48 hours • Consultation strictly between expert and client • No fixed obligation http://farm4.static.flickr.com/3274/2866399803_8c9493b42f_o.jpg Expert networks are designed to require an extremely low level of commitment from experts.
  21. 21. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec Experience • Industry Recognition • Academic credentials Access to unique knowledge • Affiliations Communication skills Irrelevant: social skills, management skills http://www.flickr.com/photos/kanzeon_zen_center/183801709/ Expert Network Selection Criteria Expert networks assess experts based on their knowledge and ability to share it.
  22. 22. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec • 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 The #1 driver of your participation in expert networks is the quality of data in your online profile. http://www.flickr.com/photos/edenpictures/3460562429/sizes/z/in/photostream/
  23. 23. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec • 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 http://www.flickr.com/photos/sarahquinn/124454341/ Successful consultations lead to more consultations. Also, experts can increase consulting volume through 5 methods:
  24. 24. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec • 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 http://upload.wikimedia.org/wikipedia/commons/3/3b/Old_key_on_table.jpg Thorough preparation for a consultation enhances your client ratings.
  25. 25. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec • 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 http://www.flickr.com/photos/twodolla/1764565402/ Next steps to becoming an active expert network member…
  26. 26. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec Agenda • Introduction • Expert Networks and Interim Executives • Senior Advisor Networks • Board of Directors • Deal Executives / EIRs • Next Steps
  27. 27. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec 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
  28. 28. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec “Senior advisor network” or “Executive network” = investor-sponsored group of executives with ability and willingness to add value to portfolio companies Industry Expert Deal Source Interim CFO Investor Portfolio Company “C” Portfolio Company “B” Portfolio Company “A” Board Member based on Jon Weber, Anchorage Advisors LLC Definition
  29. 29. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec based on table from Jon Weber, Anchorage Advisors LLC Senior Advisor Network vs. Traditional Talent Sources Senior Advisor networks offer a low-fixed-cost, high-return talent pool option. Experts and Consultants Senior Advisor Network Executive Recruitment Relationship Owner Expert network / consultancy Fund Recruiting firm, then handed over to fund Duration 1–2 hours to 3 months 6 months–2 years+ Permanent job and board positions Sample Service Providers Gerson Lehrman, McKinsey Harvey & Co., Notch Partners Accolo, Heidrick & Struggles, Ignition Search Partners, Russell Reynolds Illustrative Cost $1,000/hr for expert networks $300–700/hr for consultants Sometimes retainer, sometimes paid like investment banker 1/3 compensation Driver of Exec Compensation Length of consultation Value creation and continued involvement with client companies Winning full-time employment Confidentiality NDA possibly. Consultant may “shop” ideas. Signed, enforceable NDA NDA unusual
  30. 30. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec Selected Funds with Senior Advisor Networks Many leading PE and VC funds have built Senior Advisor Networks. Private Equity Venture Capital • 3i • Castle Harlan • Cerberus • Irving Place Capital • General Atlantic • Goldman Sachs Special Situations Group • Sun Capital • Welsh, Carson, Anderson & Stowe • ff Venture Capital • 500 Startups • Great Oaks Venture Capital • Lions Capital
  31. 31. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec U.S. Funds That Typically Partner with Executives to Execute a Transaction and Bring in New Management Upon Investing Data based on firm websites. Frontenac AUM based on last two funds. # Investments/Year based on mean activity level over firm’s existence, with some adjustment for growth of fund over time. Partnering with operating executives is a successful strategy which is a focus for only a small number of funds. Private Equity Fund Founded AUM ($m) Cum. # Investments # Deals/ Year (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
  32. 32. Intro Advisor Next StepsExpert © David Teten 2016. More at teten.com Board Deal Exec http://farm1.static.flickr.com/7/8228640_921246eaa3.jpg?v=0 • Abernathy Group “Collaborative Investing” • Castle Harlan • Frontenac • Institutional Venture Partners Founders Fund • Irving Place Capital (formerly BSMB) Selected PE Funds with Executive Funds Some PE funds offer favorable economic terms for executives who are “friends of the firm”.
  33. 33. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com Agenda • Introduction • Expert Networks and Interim Executives • Senior Advisor Networks • Board of Directors • Deal Executives / EIRs • Next Steps
  34. 34. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com 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
  35. 35. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com What are Boards responsible for? • Broad oversight of management • Manage CEO succession • Guidance and strategic sounding board • “Mentors and Monitors” “Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
  36. 36. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com 36 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 “Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
  37. 37. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com • 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 Director compensation “Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
  38. 38. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com Micro Small Medium Large Top 200 Valuation $50-$500M % inc YOY $500M<$1 B % inc YOY $1B< $2.5B % inc YOY $2.5B<$1 0B % inc YOY >$10B % inc YO Y Total Director Comp $91K 20% $119K 10% $148K 13% $176K 7% $228K 5% Change in Total Director Pay by Company Size % inc YOY = % increase over 2009-2010 data. Source: 2010 –2011 NACD Director Compensation Report
  39. 39. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com 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 “Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
  40. 40. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com 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/
  41. 41. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com 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/
  42. 42. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com Agenda • Introduction • Expert Networks and Interim Executives • Senior Advisor Networks • Board of Directors • Deal Executives / EIRs • Next Steps
  43. 43. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com 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
  44. 44. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com How Private Equity Views Executives Job SeekerDeal Resource Thesis-Driven Deal Exec Deal Exec with Letter of Intent Target-Driven Deal Exec http://www.flickr.com/photos/chailey/138654755/ . Inspired by Notch Partners. PE funds are primarily looking for deals, not executives.
  45. 45. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com Selected Venture Capital Funds with Formal EIR Programs Certain VC funds proactively seek out qualified Entrepreneurs in Residence • Austin Ventures • Dell (the computer company) • Foundation Capital • ff Venture Capital • General Catalyst • Redpoint Ventures • VTT Technical Research Centre of Finland
  46. 46. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com http://www.flickr.com/photos/bfurlong/2351689062/ . Based on Notch Partners and many other sources. • 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) Elements of a Deal Thesis
  47. 47. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com • Teaser • Business plan • Executive profile • Forecasts - Strategic - Operational - Financial http://www.flickr.com/photos/11846056@N06/3110329005/ Elements of a Deal Memo
  48. 48. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com • 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 http://www.flickr.com/photos/ilker/2494740320/ Deal Executive Preferred Profile: Credibility
  49. 49. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com • Compatible goals • Aligned incentives • Personal chemistry http://www.flickr.com/photos/superrabbit/319538167/ Deal Executive Preferred Profile: Compatibility
  50. 50. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com • 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. http://flickr.com/photos/krikit/2745563123/sizes/o/ Deal Executive Preferred Profile: Deal-Catcher
  51. 51. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com • Akoya Capital • Blackmore Partners • Cook Associates • Harvey & Company • Ignition Search Partners (VC-focused) 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 • Notch Partners • R.B. Price & Company • Silverfern Group • Skill Capital • Tri-Artisan Partners LLC
  52. 52. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com • 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 http://www.flickr.com/photos/pfala/3036252334/ PE fund/executive intermediaries have a standard process to execute a transaction.
  53. 53. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com • 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 http://www.flickr.com/photos/thalamus/3560789785/ An executive has two main paths to choose from in pursuing a transaction:
  54. 54. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com • 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. Primary Reasons Some Companies Prefer Selling to Management Many companies prefer to sell to management, even at risk of a lower price than they might get from an auction.
  55. 55. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com Based on Post Capital, http://www.defenselink.mil/dodcmsshare/newsphoto/2008-03/hires_080301-F-2319R-006.jpg • Introduction • Initial meetings • Assessment of investment thesis Duration: 2-4 weeks Step 1 of 5: Launch Relationship with Fund
  56. 56. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com Based on Post Capital, picasaweb.google.com/lh/photo/FOHUbVdTEYKdftpmi6TkXQ • Refine thesis • Agree on compensation/economics and exclusivity • Background check • Formulate deal origination plan Step 2 of 5: Finalize partnership between executive and fund Duration: 1-4 weeks
  57. 57. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com Based on Mario Kyd, Unlimited Horizons; http://www.flickr.com/photos/carve/2856365431/ • 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) Concept-Driven Approach (e.g., with investment banker) Step 3 of 5: Identify/Contact Opportunities Duration: 1-12 months
  58. 58. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com Based on Mario Kyd, Unlimited Horizons; http://www.flickr.com/photos/jurvetson/3346659199/ • Former employers, suppliers, customers, competitors • Investment bankers, brokers, accountants, lawyers • Attend conferences • Look for reasons why people sell Opportunistic Approach (Network), led by Executive Step 3 of 5: Identify/Contact Opportunities (cont’d) Duration: 1-12 months
  59. 59. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com based on Post Capital; Lapis Group; numerous other sources. http://www.flickr.com/photos/matt_gibson/954340171/ • Company meetings • Negotiate • Due Diligence • Can a deal be made? • Can we interest investors? • Can you “drive” the deal? Step 4 of 5: Evaluate Targets Duration: up to 3 months
  60. 60. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com Based on Post Capital upload.wikimedia.org/wikipedia/commons/4/47/Tower_Bridge_closing.jpg • Finalize documentation • Finalize financing Step 5 of 5: Closing Duration: up to 3 months
  61. 61. Intro Advisor Deal Exec Next StepsExpert Board © David Teten 2016. More at teten.com 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. 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 Fees Capital providers 0.5-3.4% deal size* PEG pays finder’s fee of 1-3% of enterprise value, plus sometimes carry, to deal finder + buy-side investment bank (if any). (Company (specifically selling shareholders) pay investment banker seller’s fee.) Monitoring Fees Company 0.2%-4.4% EBITDA (median 1.2%)*,** Company pays outside board members for ongoing services (~$5K+/meeting + equity incentives) Expenses Company Post-deal expenses, not pre-deal Company pays PEG for post-deal expenses. Important for buy-side operating exec/investment banker to get PEG to commit to pay broken deal costs. Carry Limited Partners ~1% assets + ~20% carry LPs pay PEG this carry. Investment rights - - Usually unlimited co-invest rights for executives involved, with no PEG management fee. Executives will, however, pay pro rata monitoring/other fees.
  62. 62. Next StepsIntro AdvisorExpert Board Deal Exec © David Teten 2016. More at teten.com Agenda • Introduction • Expert Networks and Interim Executives • Senior Advisor Networks • Board of Directors • Deal Executives / EIRs • Next Steps
  63. 63. Next StepsIntro AdvisorExpert Board Deal Exec © David Teten 2016. More at teten.com • 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 • teten.com Suggested Reading
  64. 64. Next StepsIntro AdvisorExpert Board Deal Exec © David Teten 2016. More at teten.com Any questions ? slides at teten.com/oe Sign up for the mailing list at teten.com @dteten
  65. 65. Next StepsIntro AdvisorExpert Board Deal Exec © David Teten 2016. More at teten.com A representative of ff Asset Management, LLC d/b/a ff Venture Capital (“ffVC”) is providing this presentation for informational purposes to the intended audience. Nothing in this presentation shall constitute an offer or solicitation with respect to the purchase or sale of any security in any jurisdiction nor should anything in this presentation form the basis of, or be relied upon for, making any investment decision. Nothing in this presentation constitutes professional and/or financial advice of any kind (including business, employment, investment advisory, accounting, tax, and/or legal advice), nor does any information in this presentation constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. This presentation and the information contained herein are provided “AS IS”. ffVC makes no representation or warranty (express or implied) with respect to the information contained herein (including, without limitation, information obtained from third parties) and expressly disclaims any liability based on or relating to the information contained in, or errors or omissions from, these materials; or based on or relating to the recipient’s use (or the use by any of its affiliates or representatives or any other person) of these materials; or based on any other written or oral communications transmitted to the recipient or any of its affiliates or representatives. ffVC undertakes no duty or obligation to update or revise the information contained in this presentation.

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